Peter Uzoho
Many marginal fields in Nigeria have remained dormant years after award to companies due to the headwinds arising from high cost of development, THISDAY has learnt.
It was gathered that each field now takes as much as $100 million and above to develop it up to production stage.
The high cost, which comes in different layers, include outrageous signature bonuses, which were about N1billion per field as in the 2020 marginal field bid round, the cost of logistics and payment for asset re-evaluation studies.
However, the elephant in the cost component is the drilling which hovers between $30 million to $50 million per well, as rigs expectedly cost fortunes to acquire, according to multiple industry sources.
The heavy headwinds explain why many of the marginal fields have continued to lie fallow even after they were auctioned during bid rounds.
It was learnt that a typical example was the last 2020 marginal field bid exercise where about 57 fields were sold without many of them making much progress towards developing them and bringing them to production.
But industry players have blamed the government and its agencies as part of major reasons for the soaring cost of field development, citing the outrageous signature bonuses and other legal and illegal fees levied the awardees.
Also, they blame the government’s wrong notion of marginal field bid round as a money-making venture as well as the award of fields to inexperienced persons with no technical and funding capacity to develop the assets, as part of the reasons why the fields have remained undeveloped.
“So, the average that any serious marginal field asset would require to develop it to production will be anything between 50 to $100 million”, Founder/Group Chief Executive Officer of Levene Energy Holdings Limited, Mr. Nzan Ogbe, told THISDAY.
The Subsurface Manager, Energy and Mineral Resources Limited, Mr. Collins Ibekwe, told THISDAY that the total cost of developing a marginal field to production has ballooned to close to or above $100 million, with only drilling cost estimated to be between $20 million to $30 million.
“It’s a function of many factors. It entails a few development programmes, which run into a few hundred million dollars. The cheapest wells could cost as much as $20 million to $30 million to drill. Even with one well, the other element of the development could easily take total cost close to or above $100 million”, Ibekwe said.
According to one of the marginal field awardees, who pleaded anonymity, developing their own asset has not been easy due to the heavy financial implications and the lack of support from the government.
He said so far, they have spent almost N6 billion apart from the N1 billion paid as signature bonus, adding that they were still preparing to make fresh expenditure valued at about $20 million.
