New frameworks within Nigeria’s oil and gas sector

Nigeria

Osayande Igiehon, managing director and CEO of Heirs Oil & Gas, talks to The Energy Year about OML 17, the importance of the company’s ESG plan and the impact of the Petroleum Industries Act on the Nigerian energy sector. A joint venture of Heirs Holdings and Transcorp, Heirs Oil & Gas is a Nigerian-owned integrated energy company.

What plans and production targets do you have for OML 17?
We completed the acquisition of our asset in January 2021 and took operational control by July of the same year. At the end of June 2021, at the point of handover, the asset produced about 27,000 bopd and approximately 50 mcf [424,800 cubic metres] of gas per day. In 100 days, we grew our oil production to over 50,000 bopd and currently, our oil production capacity stands at about 60,000 bopd.
Regarding gas, we took over and rapidly finalised the construction of the first train of the Agbada non-associated gas plant that was being built for over eight years under the SPDC [The Shell Petroleum Development Company of Nigeria], enabling us to raise our gas production capacity to 120 mcf [3.4 mcm] per day.
By the end of 2022, we will bring in a second train for another 40 mcf [396,480 cubic metres], which will grow our gas production capacity to over 150 mcf [4.25 mcm].
Our ambition is to grow our gas production capacity to 300 mcf [8.5 mcm] in the next five years, whilst increasing oil production to 100,000 bopd.

How has Heirs Oil & Gas managed to deliver these exponential production rates?
Our approach is anchored in the belief that the success of Nigeria’s onshore industry over the next 10 years will be, to a large extent, defined by excellence in brownfield engineering. There is already a significant number of facilities and infrastructure in place that need to be revamped and fully utilised. In our case, we delivered our growth without drilling any new wells. Instead, we focused on restoring closed-in existing wells. The same philosophy has been adopted regarding our restoration of the existing gas plant.
We believe that sustained success will be achieved by players that can operate in a way that continuously unlocks value, especially from brownfield infrastructure.

What are the main challenges you face in terms of production?
Over the course of the last year, even though our oil production was increasing, we faced one of the biggest challenges in the Nigerian onshore industry: an increasing trend of crude losses. All producers got to the point where it did not make sense to keep producing. We had to significantly cut back our oil production, which in turn had adverse effects on our gas production.
As with the oil shut-in, the associated gas is also shut-in. This naturally impeded our delivery to the oil and gas markets. To overcome this challenge, we are counting on the government’s ongoing intervention program to better secure the pipelines. We are also working on a short-term alternative evacuation scheme to augment the government’s efforts.

How would you describe Heirs Oil & Gas’ value proposition?
We have set out to operate according to international standards since our inception. We operate according to national regulations, are ISO certified, and respect World Bank Performance Standards. From day one, we established a specialised HSE and ESG team to ensure that we are positioned to consistently meet international standards. We have direct relationships with major OEMs, and they cherish our collaboration.
We have an ongoing transition in Nigeria where IOCs are divesting, and local players are filling the gap. Heirs Oil & Gas is uniquely positioned in this regard. We achieved an extraordinary outcome in only one year, and we are open to discussing business opportunities across the value chain. Therefore, investors should first look at us when considering Nigeria’s onshore oil and gas plays.

How important is the ESG agenda for your company?
ESG plays a pivotal role in the way we operate. Our commitment is clear: we want to stop all routine gas flaring in our operations by 2025, while the Nigerian goal is 2030. All our facilities except one have associated gas-gathering solutions, and we are aiming to have a solution in place for the one field that needs it before 2025.
For the remaining low-level operational flare of very low-pressure gas that is quite challenging to gather, we are assessing several solutions that will enable us to eliminate this last aspect of the challenge.
We operate with the Africapitalism mindset: to deliver commercial success, as well as to have a marked social impact. All our gas goes into the eastern domestic gas network, enabling gas-fired electricity generation and gas-based industries, thereby supporting job creation and sustenance as well as meaningful livelihoods for our people.

What is Heirs Oil & Gas’ growth strategy?
Our mission is to build a multi-generational, integrated energy business. We want to address Africa’s unique energy needs and contribute reasonably to the global energy supply. Sub-Saharan Africa has about 10% of available energy per capita compared to the Western world, impeding our economic growth. So, addressing energy needs will automatically address poverty challenges on the continent.
Today, most of the energy is being consumed in the form of petroleum products, where HHOG [HeirsHoldings Oil & Gas] is an indigenous player of growing repute.
Also,  the Nigerian electricity generation business of Heirs Holdings, our parent group, positions us as an enabler for industrialisation, as well as gives us a good foothold in the unfolding dynamics of the energy transition. Further, we are looking at alternative energy sources such as renewables to support a clean energy transition in our country.
Nonetheless, we know that in the medium term, hydrocarbons will still play a key role in our energy mix, and, most importantly, they will serve as feedstock for electricity generation and gas-based industries. To become a full-stream player, we are assessing the possibility of entering the midstream space sometime soon, specifically in terms of liquified petroleum gas (LPG). Lastly, we will look closely at ways to increase our asset portfolio.

How would you evaluate the 2020 marginal field bidding round?
It has been a necessary step because we have a substantial volume of untapped resources and IOCs that are increasingly divesting. The 2020 marginal field bidding round has improved significantly from its predecessor in 2003, and it is expected to be successful thanks to the relatively high oil prices. As a country, we need to accelerate the production of our resources to ensure we will still be able to monetise them. Local players stepping up by successfully taking advantage of the 2020 marginal field bidding round is a strategic imperative for our country.

What is the importance of the Petroleum Industry Act (PIA) for the Nigerian energy industry?
Our industry has been run for several decades with the same paradigm. The PIA is a key shift in that it restructures and consolidates our legislation. Overall, it adds more value to the country, its people and the industry. It presents a fair and equitable distribution of the growth that will come with it and creates the impetus and the opportunity for investors to enter the industry. Most importantly, it establishes the clarity which has been missing over the past 20 years.
As a result, we expect that investments will increase and be safeguarded. Despite this, we appreciate that the implementation of such a ground-breaking and widely impacting legislation will not happen overnight. However, there is good progress. Relevant institutions have already been formed and are operative. Moreover, private companies are taking action and ensuring readiness to fully adapt to the new frameworks. As a result, I believe that the implementation will gain momentum and deliver the intended results, and possibly, it may even exceed expectations.

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