Essential technologiesAugust 21, 2020
Dapo Adeniyi, general manager of Welltec Nigeria, talks to The Energy Year about the best approach to achieving cost reductions in upstream operations and the promise seen in the continued activity of Nigeria’s marginal field operators. Welltec is a developer and manufacturer of well technologies for the oil and gas industry.
How has your business changed over the past few months?
None of us saw Covid-19 coming and it has definitely had an impact on our business. The rig count has dropped dramatically as many operators have abandoned rigs and cut down on their work programmes. As a direct intervention, the government asked them to cut back 40% on their activities, and then we started to receive requests for discounts of up to 40%. All of this has taken its toll on our business. We have had to review our resources and reduce our costs as much as possible.
Unfortunately, we had to let go of people to adjust our costs to match the revenue we have. The low oil prices and Covid-19 were like a double whammy for the industry. The greatest impact we have seen is the result of Covid-19, not the oil prices. Even if the oil price is in a depression, producers still want to produce. But that has been hampered by Covid-19, as it is not possible now to get expats into the country, for example in situations where you have expatriate personnel playing critical roles on a rig crew.
Then you have the offshore rigs, where people are in confined spaces so the risk of the spread of Covid-19 is a real threat for them. You have to adjust your operations so that safety comes first, and you can imagine the impact of that. But as we manage through the Covid-19 era, we’re looking ahead to an upswing in activities. This is one positive thing we’re anticipating.
Is there room for more rate reductions on the services side?
They ask us to reduce prices by 40%, but at the end of the day you can manage 5-10%. We went through a cycle from 2015 to 2018 when the oil price recovered but pricing did not recover. And now we are asked to give discounts on this already terrible pricing. We ask operators where they want to reduce costs. Reducing the cost per barrel of production can be done not by squeezing us but through the use of technology that will save them time, saving rig days.
We provide such technology. As an example, in [Republic of] Congo we offered an operator a technology to decrease the number of rig days to drill a well. We ran our Welltec Annular Barrier technology with a modification called Welltec Annular Isolation. For the first time, we completely removed cement in the reservoir section of that well. The benefit for the client was that as we took out the cement, they didn’t have to drill into the water leg of that well. In the past, you needed to do that in order to place cement. Because they didn’t have to, they eliminated the complexities associated with drilling into the water leg.
Beyond that benefit, this approach saves time as there was no need to do a wellbore cleanout as we didn’t introduce any impurities into the formation. In addition, they didn’t have to flow back all the impurities, so that is time saving again. On average, we saved the operator four days of rig time with the potential of up to 10 days.
What opportunities do you see in the Nigerian market going forward?
We work with IOCs, NOCs and marginal operators across the entire sector. With these low oil prices now, IOCs are more cautious in terms of activities. But marginal operators seem to be more aggressive – not cutting back, still going ahead with activities. So my sense of optimism is more based on the marginal operators. Once we can handle Covid-19, we will see them go ahead with a lot of the campaigns and work programmes. However, we still have some IOCs going ahead with their plans, even if they have been hampered by the effects of Covid-19 on their facilities.
I think we will have more participation from the marginal operators than from IOCs, just the opposite of what has been the case in the past.
To what extent are these marginal operators using the latest technologies?
It is a challenge, first of all as they don’t have the deep pockets that IOCs have. Regarding willingness, some of them are quick to adopt new technologies; you cannot put all of them in one box, and it depends on management. You also have to consider that most of the marginal fields are operated by ex-IOC people, and some have seen new technologies in their previous jobs. The first Welltec Annular Barrier ran in Nigeria was not for an IOC but for a marginal operator, and this speaks to their willingness to adopt new technology.
To what extent will dynamics between competitors in the service sector be shaken up as a result of this crisis?
When there is crisis in the industry, there is consolidation, and not just in the service sector but from the operators too. In Nigeria, I expect to see some mergers among marginal operators. I hope to see more of that because with that comes more capacity. Those that have the cash will buy other companies and I expect that to happen now. I don’t think it will be business as usual; things are going to change and life will be different.
Does this crisis provide an additional stimulus to embrace more technologies and digitalisation?
Most of our technologies are essential for times like this because we are focused on doing things more efficiently and effectively. The average cost of production in Nigeria is between USD 20 and USD 40 per barrel, depending on where you play. With our technology, if you originally produce your oil at USD 20 per barrel, we can bring that down to USD 6 per barrel by recovering production in an already existing well. We help operators to restore and increase their production.
What are the lessons learned from this period? Can Nigeria emerge stronger from this crisis?
Oil has a bad image, gas is cleaner and we are moving towards alternative energies. Right now, Nigeria is more in the position of a rent seeker, but that has to change. We have to drive the full value chain of the oil and gas business in Nigeria. Once we see the Dangote Refinery running, or modular refineries where we consume what we produce, that is the way to keep going. With the effects of Covid-19, I hope we will start looking inwards and do this on our own and not just produce to sell.
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