Kachikwu Explains Delays in FID for $13.5bn Zabazaba Oilfield Development

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 By Ejiofor Alike
 
The Minister of State for Petroleum, Dr. Ibe Kachikwu, has explained the delays in the signing of the Final Investment Decision (FID) for the Zabazaba Deepwater Oilfield in Oil Prospecting Lease (OPL) 245, citing the need for the Nigerian Agip Exploration Limited (NAE) and Shell Petroleum Exploration and Production Company (SNEPCo) to be sure of the renewal of their oil licences, among other challenges.
The oilfield is being developed jointly by the Nigerian Agip Exploration Limited and Shell Petroleum Exploration and Production Company at a cost of $13.5 billion.
Exactly six months after the federal government, NAE and SNEPCo completed the technical and commercial evaluation of bids for the main packages in the development of the Zabazaba field after a 14-month evaluation process that produced the preferred bidders, Agip and Shell are yet to officially announce the winners of the contract and proceed with the FID.
For instance, Italian engineering, construction and drilling contractor, Saipem, had emerged the lowest bidder with $5.42 billion for the contract for chartering, operations and maintenance for an FPSO tanker facility for the Zabazaba and Etan development project also in OPL 245.
The bid documents obtained exclusively by THISDAY had revealed that Saipem/Bluewater submitted the lowest bid of $5,426,500,714.00; followed by Malaysia-based international offshore energy facilities and services provider, Bumi Armada, which submitted a bid of $7,622,412,019, while the third lowest bidder was Norway-listed BW Offshore, which submitted a bid of $7,630,575,309.
However, six months after the Nigerian Content Development and Monitoring Board (NCDMB) on August 30, 2017, achieved a historic feat of concluding the evaluation process within 14 months, Agip and SNEPCo have not officially announced the winner.
Speaking to journalists after an inspection tour of the fabrication and integration yard built by Samsung Heavy Industries (SHI) in LADOL free zone in Lagos, Kachikwu stated that the delays by NAE and shell to sign the FID was a major concern to the federal government.
“But look seriously, you don’t make a $10 billion investment by just walking through it like a tiny door. You have to understand your policy; you have to get your investors lined up; you have to be sure of your renewals. Renewals are going on now. We have called for the early renewal of some of these licences. Some of them are going on now,” Kachikwu explained.
According to the minister, international oil companies (IOCs) cannot embark on a $16 billion investment on an asset that is due for renewal in two years.
“And the terms have to be right – Nigerians have always come around to complain about the terms as if they were not consulted. It is important that those terms are looked at to ensure that the federation is getting what it is supposed to get. So, a lot of that is going on. It takes an average of two to three years really to run through these things before you now come to the crucibles of FID. Some of these projects are very close to FIDs,” Kachikwu added.
Agip and Shell signed the production sharing agreement in the ratio of 50:50, with the former as the operator.
Agip plans to achieve first oil in 2020 and was determined to start execution of the project in the fourth quarter of 2017.
The two oil giants acquired OPL 245, which was christened the Zabazaba field, from Malabu Oil and Gas in 2012 for $1.3 billion.
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 Etan field, which is also in OPL 245, will be developed as a tie-back to Zabazaba.