Challenges of Developing Oil Blocks


George Osahon, director, department of petroleum resources, has identified some of the major challenges oil block awardees face in developing them

By Anayo Ezugwu  |  Sep. 16, 2013 @ 01:00 GMT

CRUDE oil production in Nigeria is on the decline. The Department of Petroleum Resources, DPR, disclosed this in a report it presented in Lagos on August 30. According to the DPR, the situation has called for an urgent intervention of the federal government in the more than 77 oil blocks awarded between 2005 and 2007.

George Osahon, director, DPR, declared that the rest of the non-producing oil blocks are presently at less than 30 percent development. “Only one block is currently producing, while less than 30 per cent of blocks are actively worked; several production sharing contracts, PSC, are yet to be signed; bank guarantees are yet to be put in place; work obligations are not respected and downstream obligations not performed,” he said. He lamented that majority of the operators are using the delay in the passage of the Petroleum Industry Bill, PIB, as an excuse not to develop their fields, stating that this is improper and a ploy to blame the government for their lack of seriousness.

According to him, in the last three to four years, nothing has happened in Nigeria’s upstream sector, while in the marginal fields sector; only eight oil blocks are currently producing out of the 24 awarded to 31 successful companies. Giving a breakdown of the oil blocks awarded since 2005, Osahon revealed that in 2005, the federal government awarded 44 oil blocks across the country; 16 were awarded in 2006, and 17 in 2007.

Osahon identified partnership and lack of access to financing as the major challenges affecting the development of the oil blocks in Nigeria. Other challenges, according to him, are technical challenges and unavailability of data, insecurity, limited capacity and issues of packaging.

He said that the federal government was concerned over the inability of operators to meet industry targets for reserves and production capacity, limited activities in the oil industry and the implications for the industry, vitality and social challenges. He outlined the issues as “Inability to establish national competitive advantage in the global energy scene; wrong impression about investment climate with PIB being touted as the reason for limited industry activities and limited attraction for investors. According to him, awardees and operators should take advantage of forums presented by the DPR to build relationship with prospective investors and financial institutions; awardees are encouraged to build synergies where possible, as in contiguous blocks for data acquisition or conjugate development. “The DPR will commence entertaining the concern of awardees on Tuesday to Thursday each week for the next three weeks, where specific challenges such as evacuation and downstream project obligation and other issues or obstacles to operations will be addressed,” he said.

Osahon advised companies to henceforth undertake in-depth studies on prospective blocks before bidding and acquiring such blocks, warning that the oil and gas business is expensive and highly risky.

Pade Durotoye, managing director, Oando exploration and production limited, said that insecurity has been one of the biggest challenges confronting oil blocks development. He said the challenge has made it impossible to get seismic crew to work on the acreage; which is compounded by the demand for performance bond and 100 per cent cash collateral required for the performance bonds among others.

He called for the removal of the performance bond so that such funds can be used for blocks development, while an effective platform should be provided to negotiate minimum work commitment in line with current realities around the asset.

It is widely believed that block owners merely acquire such assets for status ship, as most simply go block hawking when they acquire the licences. While it may have been easy to fling such blocks away to the first bidder, stringent measures introduced have made it impossible for Nigerian oil blocks to be sold so easily in the open market.

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