Promoting Local Content with Zabazaba Deepwater Project

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ENERGY ANALYSIS

Nigeria’s oil and gas industry is set to witness a beehive of activities as the local content plan in the Zabazaba deepwater field being developed by Nigerian Agip Exploration Limited and Shell targets to exceed the accomplishments achieved by Samsung Heavy Industries for Total’s Egina project. Ejiofor Alike reports

With the federal government’s increasing lack of capacity to fund the joint venture cash calls for the development of JV projects with the international oil companies (IOCs), a production sharing contract (PSC) model was developed to rescue the country from the funding challenges.
It is estimated that crude oil production by the NNPC JVs with Shell, Chevron, Total and ExxonMobil dropped by over 50 per cent in the last 10 years as a result of the inadequate funding of the JVs by the NNPC.

Statistics also revealed that the country should have been producing between 500,000 barrels per day and 1 million bpd more than it is producing currently if the government had been providing adequate funding for the JV cash calls.
This also largely accounted for the country’s inability to meet 4 million barrels per day production capacity and 40 billion barrels reserves target set out by the former President Olusegun Obasanjo for 2010.
But while poor funding slashed production in the JV assets, output from projects under the PSC arrangement, which are solely funded by the IOCs, has risen by about 700 per cent over the same period, according to estimates.

Under the PSC, an alternative fiscal regime, modelled after Indonesia’s Production Sharing Agreement, NNPC does not contribute any fund as the PSC contractor (IOC) provides 100 per cent of the risk capital, as well as technical and manpower requirements, and only recoups the investment outlay when it starts the export of crude oil.
Apart from the Total’s Egina deepwater field, which will come on stream in 2018, the IOCs have developed deep offshore fields such as Shell’s Bonga, ExxonMobil’s Erha, Total’s Akpo and Usan; and Chevron’s Agbami, under PSCs.
The five prolific offshore fields were developed by the IOCs without financial pressure on the Federation Account, thus making funds available for the country’s other competing needs.
These producing assets have also added over 1 million barrels of crude oil to the country’s daily production.

Local content contribution
However, most of these producing offshore assets made very little or no contribution to Nigerian content as the local content aspiration of the federal government was a mere policy when these projects were developed.
With no legislative backing to drive the implementation of the policy, the IOCs did not key into the policy during the development stage of the assets.
So, most of the jobs were done outside Nigeria, thus impacting negatively on job creation, development of local skills and the Nigerian economy.
But with the Nigerian Oil and Gas Industry Content Development Act (NOGICD) of 2010, newer projects, particularly the ongoing Egina project has larger Nigerian content scope as the legislation stipulates that more oil and gas industry jobs should be executed locally to build local capacity and ensure that a large chunk of the industry’s yearly spend is domiciled in the country.
The Egina deepwater field is currently being developed at the cost of $18 billion by Total Upstream Nigeria Limited (TUPNI) and a large chunk of this fund is being retained in the Nigerian economy.

In Egina for instance, Samsung Heavy Industries (SHI) has fabricated six out of the 18 modules in the Floating Production Storage Offloading (FPSO) vessel in Nigeria, representing over 30 per cent of the main packages of the $3.3 billion Egina FPSO.
In the previous deepwater projects, the fabrication of all the modules of the FPSOs was done in foreign yards, thus encouraging capital flight.
But for the first time in history, six FPSO topside modules for Egina FPSO were fabricated in-country across fabrication yards.
These modules will be integrated into the main FPSO when the FPSO arrives at the Samsung Yard (SHI-MCI yard) in Lagos later this year, before the vessel sails to the 200,000 barrels per day Egina field located in Oil Mining Lease (OML) 130.

The planned integration of the Egina FPSO will be the first of its kind in Africa.
In order to carry out the local fabrication and integration of the Egina FPSO as required by Total, and the NCDMB, Samsung Heavy industries has built a new fabrication and integration yard with $300 million of investment.
The investment led to the creation of an independent entity, Samsung Yard (SHI-MCI FZE) located within Takwa bay, LADOL free zone, a portion of approximately 121,000m² which was a virgin land mass.
This investment will grow the country’s GDP, create job opportunities, enhance local capacity development and contribute significantly to the federal government’s efforts to boost local participation in the oil and gas business through Nigerian content.

Zabazaba deepwater project
As the oil and gas industry celebrates the new records set on Nigerian content by Samsung Heavy Industries in the Egina project, a new deepwater project, Zabazaba project is set to exceed the targets achieved in the Egina project, according to the Nigerian content plan unveiled by the NCDMB.
On August 30, 2017, the federal government, Nigerian Agip Exploration Limited (NAE) and Shell Petroleum Exploration and Production Company (SNEPCo) completed the technical and commercial evaluation of bids for the main packages in the development of the $13.5 billion Zabazaba deepwater oil field in Oil Prospecting Lease (OPL) 245 within 14 months.
Shell and Agip acquired OPL 245, which contains the Zabazaba field, from Malabu Oil and Gas in 2012 for $1.3 billion.

THISDAY had reported that the acquisition has been the subject of a corruption probe and prosecutions in Italy and Nigeria but has not deterred Shell and Agip, which have both maintained their innocence, from going ahead with the field’s development.
Agip is developing the Zabazaba field with proven reserves of 560 million barrels of oil as a standalone development in the eastern portion of the Niger Delta in water depths ranging from 1,200 to 2,400 metres.
The Agip-operated Zabazaba project will set a new record in local content development as the major contractors bidding for the project were said to have submitted competitive costs and concrete plans to fabricate and integrate over 50 per cent of the topsides of the FPSO in the country.
While SHI fabricated six out of the 18 modules of the Egina FPSO in Nigeria, the Nigerian Content Development and Monitoring Board (NCDMB) has stipulated that the contractors must fabricate and integrate over 50 per cent of the topsides of the Zabazaba FPSO in Nigeria.

Agip plans to achieve first oil in 2020 and is determined to start execution of the project in the fourth quarter of this year.
Already, the main contractors that submitted technical and commercial bids for the main packages for the Zabazaba project have in their submissions, offered to meet the NCDMB’s Nigerian content target, thus meeting the country’s aspiration of maximising local capacity in the oil and gas sector at the most competitive cost.
The main packages in the Zabazaba project include the construction of the FPSO units, subsea installations and drilling rigs.
The Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Mr. Simbi Wabote, who confirmed the development at the weekend, said the execution of Zabazaba would grow local capacity.
Apart from Total’s Egina field that will begin production next year, Nigeria currently has five other giant deep offshore oil fields that are producing – Shell’s Bonga, ExxonMobil’s Erha, Chevron’s Agbami and Total’s Akpo and Usan fields.
But Wabote stated that the Zabazaba field would impact the Nigerian economy much more than previous deepwater projects.

Wabote, who confirmed that the technical and commercial evaluations of bids for the Zabazaba main packages had been finalised, added that the NCDMB carried out detailed scoping of the project to ensure that the targets exceed the accomplishments achieved for Total’s Egina.
He stated that the entire approvals and evaluations for Zabazaba were completed in 14 months, setting a record in the industry as against the 24-36 months project cycle time that bedevilled the Nigeria’s oil and gas sector for many years and contributed to the high cost of projects.
“It has taken just 14 months since Agip approached the board with their Nigerian content plan. Agip and NCDMB worked closely and went through the standard contracting process, including the invitation to tender, clarifications, technical and commercial bid evaluations and facility audits.
“We completed the process and issued our final report on August 30. This is in confirmation that NCDMB does not delay projects and we can achieve the six months contract cycle target if operators comply with set directives,” Wabote explained.

Wabote had earlier stated that more FPSO modules would be fabricated locally for future deepwater projects.
According to him, NCDMB would not rest on its oars with regard to the implementation of the Nigerian Content Act and “new projects must look at doing local FPSO integration and more.”
Increased domiciliation of deepwater projects and future FPSO projects is expected to create jobs in the economy.
This will help build local capacity and lead to increased industry activities that will keep the Nigerian manpower and facilities busy as they execute more challenging jobs in the oil and gas industry.
The projects will also boost the country’s crude oil production, grow the GDP and impact the economy positively as the industry’s yearly spend is domiciled in the country.