Optimism as Nigeria Inches Towards Meeting Daily Oil Output Benchmark

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The Bonga FPSO Field

Nigeria’s total daily production is currently at 2 million barrels per day, having risen from 1.2 mpd level it stood some months ago. But shortly before this current position, the output dropped slightly on account of a scheduled maintenance on the 225,000 barrels per day capacity Bonga Floating Production Storage and Offloading (FPSO) field. This could, however, be restored on account of a recent announcement by the Shell Nigeria Exploration and Production Company Limited (SNEPCo) that it had completed the repair works. Chineme Okafor reports

Shell Nigeria Exploration and Production Company Limited (SNEPCo) recently announced a shutdown of its Bonga deep-water oilfield and commenced turnaround maintenance.

The oil major explained that the shutdown would enable it undertake mandatory upkeep activities to ensure continuous optimum operations at the field, noting that it was a routine practice.

It stated then that the turnaround maintenance would involve inspections, recertification, testing and repair of equipment, as well as engineering upgrades with Nigerian companies and subsea professional playing key roles.

As expected, the routine maintenance took off a significant volume from Nigeria’s crude oil production and exports as SNEPCo under a Production Sharing Contract (PSC) with the Nigerian National Petroleum Corporation (NNPC) produces about 200,000 barrels of oil per day (bd) from the 225,000bd capacity Bonga field.

Notwithstanding, the firm said the major focus of the maintenance would be the Bonga Floating, Production, Storage and Offloading (FPSO) vessel, which is at the heart of operations at the Bonga field. The FPSO has a production capacity of 225,000 barrels of oil and 150 million standard cubic feet of gas per day. It also has a life-span of 20 years, and was previously shutdown for six weeks in February 2011 for routine maintenance.

 

Why Maintenance Work?

Speaking in a statement on the rationale for the shutdown, the Managing Director of SNEPCO, Mr. Bayo Ojulari, said then that the maintenance of the field was the fourth since the Bonga field began production in November 2005, and that it offered the field a new opportunity to recover its efficiency.

 “The exercise will help ensure sustained production and reduce unscheduled production deferments,” he explained.

Ojulari noted that, “for the Bonga team, this is another opportunity to excel, having won the ‘Asset of the Year’ Award 2016 in the Shell Group, followed by runners-up in Norway and Malaysia. We are pleased that the award recognised the continuing collaboration towards optimum production with a focus on safety, cost and Nigerian content development, which will be invaluable in the maintenance work.”

Similarly, Shell Nigeria spokesman, Mr. Bamidele Odugbesan, said production from the field was shut down on March 4, 2017, and would be expected back at the conclusion of the exercise next month. 

 

Potential Implications

Without doubts, the development meant Nigeria had to defer producing up to 200,000 barrels of oil per day for the period the field remained closed for the repair.

This, also implied that the country’s production level which the NNPC at that time said was about 2 million barrels  per day following reduced militancy and disruption of oil operations in the Niger Delta, had to drop by the shut-in volume. The development also delayed, albeit momentarily, Nigeria’s desire to quickly get back to a healthy oil production level in line with the expectations of member countries of the Organisation of Petroleum Exporting Countries (OPEC), who granted her a freeze waiver along with two other countries during their December 2016 meeting to shore up oil prices through agreed production cuts.

On the revenue side, operators of the field had to for the period of the repairs defer income that could have come from its production, while gas produced from the field for both domestic and international consumptions was also not available for either electricity generation or any other use for it.

 

Bonga Field Profile

Located in Oil Prospecting Licence (OPL) 212, the oil field, which is reportedly situated 60 square kilometres in water depths of over 1,000 metres is Nigeria’s first deep-water development project.

It is also located 120 kilometres offshore Nigeria and has a development cost to first oil of about $3.6 billion.

Using cutting edge technology, SNEPCo made a world-class oil and gas find at its offshore Bonga in 1995, and the Bonga FPSO was built by Samsung Heavy Industries of Korea for SNEPCo.

The production facilities of Bonga consist of one of the world’s largest FPSO vessels and deep-water subsea infrastructure. Its initial 16 subsea oil producing and water injection wells were connected to the two-million barrel storage capacity FPSO by production flowlines, risers and control umbilicals.

Also, the use of Inconel clad Steel Catenary Risers in Bonga was the first time such facility was used on any FPSO anywhere in the world.

Subsequently, SNEPCo expanded the project with further drilling of wells in Bonga Phases 2 and 3 and through a subsea tie-back that unlocked the nearby Bonga North-west field in August 2014. Bonga Phase 3 achieved first oil in October 2015.

At the moment, SNEPCo operates Bonga in partnership with Esso Exploration and Production Nigeria (Deep Water) Limited, Total E&P Nigeria Limited, and Nigerian Agip Exploration Limited under a PSC with the NNPC.

 

Back with Expectations

After the more than a month period of repairs, SNEPCo last week announced that it has reopened the 225,000bd capacity Bonga deep-water oilfield and the repairs were largely successful.

However, reports from Reuters explained that, while the oil field had resumed production, traders would still wait until June to resume loading from it.

This thus suggests that, expectations from the field in terms of addition to Nigeria’s oil and gas production volumes as well as revenue from therein may have to wait until then. There are also expectations that by June, the daily output, which is now put at 2 million barrels per day, and is likely to increase, especially with no vandalism of oil pipelines, would gross at least the OPEC export quota and budget benchmark of 2.2 million barrels per day.   

However, when THISDAY sought official request for information on this from Shell in Nigeria, it was not successful.

But even at that, industry experts, who analysed the development, stated that it was a good one for the country. 

They added that, such voluntary shutdowns were not disruptive to the industry’s activities because they are usually programmed unlike shutdowns from vandalism.

Nigeria on its part would simply hope to earn more oil revenues and have more gas for domestic consumption from the field’s resumption of operation.

Though, OPEC Secretary General, Dr. Mohammed Barkindo, has repeatedly stated that improvements in Nigeria’s production volumes would least affect attempts by OPEC to clear existing oil glut and stabilise prices. It is however unclear what Bonga’s return would mean for the industry, especially as prices slightly fell within the week on reported accounts of the restart of two key Libyan oilfields and concerns about lackluster gasoline demand in the United States.

Reuters reported that Libya’s Sharara and El Feel oilfields, which can produce nearly 400,000bd, returned to production after protests blocking pipelines ended, while U.S. gasoline futures also resulted in an irregular trading.

It said Brent crude traded at $51.68 per barrel while U.S. light crude traded at $49.25 per barrel.

Reuters also quoted James Williams, who is president of energy consultant WTRG Economics, to have said that gasoline was keeping crude from going up very much.

It equally maintained that global crude oil inventories had remained high, in part because of increased production from the United States, adding that at 9.27mbpd, it was at its highest since August 2015.

Based on this development, Reuters also reported that OPEC and Russia were in talks to extend the existing production freeze deal into the second half of the year. It also quoted Barkindo to have stated that although the oil oversupply was declining, stocks still needed to fall further.

It said Barkindo did not comment directly on whether the cut would be extended, but said efforts by Saudi Energy Minister, Khalid al-Falih, who is OPEC president in 2017, were underway to get a consensus on this before ministers meet in Vienna on May 25.