Nigerian-made innovationNovember 9, 2022
Eke U. Eke, CEO of SpringRock Group, talks to The Energy Year about the improving market conditions for Nigerian oil and gas production, the group’s production optimisation approach and how it is working to cement its being a one-stop shop for the upstream sector. SpringRock is a Nigerian energy group with activities in E&P, oilfield management services, renewable energy and ICT in markets across Africa.
How would you evaluate the current market conditions for Nigerian oil and gas production?
Oil prices have grown significantly and by all estimates, they will float between USD 80 and USD 100 for the foreseeable future unless the world slumps into recession. Usually, prices as high as these are automatically associated with a rush of new activities in the sector to take advantage of the situation. This has not happened now because the world is still in denial about the fact that fossil fuels are still needed and will continue to play a key role in our society for decades to come.
A complete energy transition will require decades, especially because the majority think that oil and gas is exclusively gasoline, and are pushing for EVs [electric vehicles] as a replacement, as being the main solution. However, gasoline represents about 20%-plus of oil and gas consumption, while approximately 80% is in the form of petrochemicals, medical materials and hundreds of other products. These misconceptions are deterring investors from participating in oil and gas activities, which are extremely capital-intensive.
Nevertheless, the recent developments in Ukraine have made the world understand that fossil fuels still play a pivotal role in our daily lives. Europe is looking for alternative gas sources and this will foster developments in the sector. There is also the possibility of renewed crude oil and shale activities in Europe. Meanwhile, Africa should reduce its energy deficiency first by delivering industrialisation while ensuring that its carbon footprint is reduced. We forecast a rise in oil and gas activities throughout 2023.
How is SpringRock Group positioned in the Nigerian upstream sector?
We provide solutions to upstream operators aimed at improving the overall productivity of their assets. For instance, we have an innovative in-house production optimisation tool called MaxP. We are deploying it with a marginal field operator where we are currently diagnosing the problem in the field and expect to move next to a solution soon. We will then take the field on the new path with the new wells they are going to drill, ensuring that the level of data gathering and analysis to be done is adequate for long-term exploitation.
Our production optimisation tool requires that field optimisation strategies are initiated from the beginning of an asset’s lifecycle by gathering data from the onset and not waiting till when some data can no longer be obtained.
Once the field analysis is done, we determine what the system is supposed to deliver and what it is actually delivering, and then take steps to close the gap. This marginal field is a good pilot for us and we are looking for other interested parties who are struggling to produce optimally from their fields. Being a Nigerian-made technology, it represents the first step towards shifting Africa from a net consumer of innovation to a net provider.
What steps is the company taking to address the benefits of business diversification?
We are cementing the building blocks of being a one-stop shop for the upstream. The current field testing of MaxP with the marginal field operator is key because it will enable us to scale its utilisation to other players. Nonetheless, our main strategy is to get involved in an OML and transform it into our laboratory to test and demonstrate our technological strengths. It would also give us the opportunity to build an asset with a lower carbon footprint.
We are putting together a partnership with two other partners and we will hopefully be successful in getting into an acreage, enabling us to optimise the field. We also want to focus again on having our training and human talent development programme. We are efficient in what we do because our staff has technical and managerial expertise; they are well-rounded professionals. By putting all these pieces together, we will be capable of dealing with the entire workflow of the oil and gas industry.
How is the company planning to tap into the Nigerian power sector?
We are analysing the prospect of involvement in the renewables domain. We want to bring an innovative approach by sourcing most of the materials needed for equipment in Nigeria without relying on the export market. We’ve already started identifying a team, and we hope to have this new group operational in late 2023. A possible approach could be to provide renewable energy solutions for FPSOs.
What is SpringRock Group’s value proposition?
We are the best drilling company in Nigeria in terms of well construction and productivity. All of the wells we’ve drilled have produced better than any well drilled previously in that field. Since inception, our mantra has been excellence, and we kept working hard throughout the years because you need to earn an excellent reputation. We managed to achieve milestones that were never achieved before.
We worked in a field that an IOC had previously used special rigs and vessels to operate. We devised an innovative means to work in that terrain with regular rigs, and we saved the asset owner a significant amount of cost. The IOC that operated previously in that field approached us to learn our methodology of operation. We are the only company in Nigeria that has managed to retrieve a surface conductor. While this has been done in the North Sea and Australia previously, we did it for the first time in Nigeria and believe it has not been repeated yet. Our drive to undertake activities that have not been done before and to continuously look at how to improve our operations are the key reasons why SpringRock Group equals excellence.
What is your strategy for welcoming technical and financial partnerships?
By nature, we are extremely open to partnerships. The true value of partnerships is the exchange of information and technology to build together a unique solution for the industry. We want to be part of the solution directly and understand its value, so intimate engagement is key. Naturally, our interests should be aligned with those of a potential partner.
How is SpringRock Group playing in the wider African continent?
We are currently involved in a deepwater project in Ghana with Amni International. The contract involves the construction of two exploration wells. It will follow a one-plus-one scheme where if the first one is promising, we will have the green light to drill a second one. This project is extremely symbolic as it will make us the first African company to drill deepwater exploration wells. Unfortunately, the project has been stalled due to some challenges but we are sure that within 2023 it will kick off once again.
We have registered SpringRock Energy in Uganda, and we are currently gaining an understanding of the environment in order to fully benefit from that market. We are at the last stages of entering into a major collaboration with a training institute in Kenya, which will boost our activities there by 2023. We will develop and deliver human talent, targeting oil and gas and other industries. Lastly, we are in the very early stages of possible involvement in South Sudan. We want to become the pan-African company of choice that brings excellence throughout its operations.
Nigeria’s new administration has a rare opportunity to expand the country’s oil and gas production to fill the vacuum left by Russia. What is your vision for the future of the Nigerian oil and gas sector and how the recent elections could affect it?
The need to expand and grow Nigeria’s oil and gas production goes far beyond any vacuum created by Russia. The country is currently producing significantly below its peak production levels of the past. Nigeria should have been talking about production at the levels of 3 million-4 million bopd at this present stage in 2023. Then, when one factors in the removal of certain volumes from the market due to the absence of Russia, at that point we start to look at numbers beyond 4 million bopd.
The fall in overall production began with the petroleum industry bill, which was dragged out for over a decade in the parliament. The good news is that the outgoing administration passed that into law and we now have the Petroleum Industry Act (PIA), which has eliminated the major uncertainty that loomed over the Nigerian petroleum industry over the past decade. Hence it is expected that some of the investments that were held up by the uncertainty will move ahead. It is also anticipated that new players will be more encouraged to participate.
Moreover, the need to advance more environmentally friendly energy sources, of which gas is one, is a key driver for enabling new investment into the gas plays in Nigeria.
We then anticipate that the new government in Nigeria will focus on eliminating some of the ancillary factors that hold down oil production, such as security and community restiveness. Secondly, other reforms need to be pursued, particularly in speeding up approvals and the reduction of regulatory bottlenecks. These would further enable and encourage increased oil production. And in addition, I implore the new government to engage the European Union and negotiate a win-win deal that would result in the EU investing in the infrastructure required for gas and to an extent the gas development activities itself in return for securing gas supply. These and other initiatives which the new government can undertake would encourage and drive a strong push towards moving Nigerian daily production above 3 million bopd and also raise our standing as a gas producer measurably.
According to the Nigerian Content Development and Monitoring Board, the government increased local content investment activities in the oil and gas sector by 54% in 2022. What are the remaining challenges to stimulate investment and foster growth within the local oil and gas value chain?
Presently there are challenges for oil and gas investment across the world, and Nigeria is not immune to or isolated from these. The growing consciousness of climate change has triggered both the concern and the desire to slow down the effects of carbon emissions and has also triggered wrong narratives around energy transition.
There is a thinking that mankind can suddenly move away from petroleum, which is incorrect as petroleum is not equal to gasoline. Gasoline is only a small subset of the petroleum value chain. This thinking has depressed the appetite for investment in the petroleum industry. The Russia-Ukraine war has moderated that thinking to an extent; however, the investment appetite is not returning fast enough. Hence foreign investors and lenders remain wary.
Secondly, the Nigerian banks have largely walked away from the petroleum industry due to a huge portfolio of non-performing loans driven largely by financing facilities advanced to companies without the right level of technical and managerial competence and capacity resulting in projects that were ordinarily viable actually underperforming. These twin effects are the two biggest factors that have depressed investment in the industry. Of course, other factors such as the deteriorated security situation have not helped in improving investor interest, but have also driven the cost of operations higher.
What steps should be taken to advance the country’s quest for cost reduction from barrel to pump?
Nigerian oil and gas players need to rapidly aim to be more cost efficient in their operations. This can be achieved via a shift from the present focus on apparent cheaper choices that ultimately result in overall higher cost to focusing on reducing their “total cost of ownership,” which will be a step change in cost efficiency. Deployment of appropriate technology smartly coupled with proper project integration and holistic planning of asset monetisation which may on the surface appear more costly has proven to produce overall lower cost, and SpringRock has demonstrated this in a number of projects. We also aim to develop and deploy more innovations aimed at reducing cost.
So, we will continue to align with players in the industry to drive lower total cost of ownership. And as a growing number of Nigerian companies improve their operational capacity and pursue cost effectiveness, the desire for reduced cost per barrel will be achieved.
How prepared are Nigerian upstream and services companies to add value to frontier exploration undertakings in East African markets such as Uganda and Kenya?
Nigerian oil and gas players in the upstream sector have decades of experience under their belt. They have seen successes and also failures. These experiences, both positive and negative, can be harnessed and deployed in the new frontiers within Africa. That way they leverage the success stories and do not have to relearn the lessons already learned.
A number of Nigerian organisations, SpringRock being one of them, can bring to bear proven capabilities and expertise in the new African frontier with the right alignment and partnership designed for a win-win. Such partnerships should also aim to develop the skills of the nationals in those countries along with aiming to achieve a more rapid asset development in terms of time required to bring an asset to production. SpringRock recently incorporated in Uganda and we are in the process of getting all the relevant licences and permits and would be positioning ourselves within that market shortly.
We have been in Kenya for a number of years now. We have positioned our Kenyan business to be a part of the Tullow development, which saw repeated delays. And we are now working on deploying a partnership with a training institute in Kenya to push for human talent development for the petroleum industry in Kenya.
We also aim to provide trainings that transcend the industry, for example our “Integrated Project Risk Management” training, which can be applied to construction and other industries. Lastly, we had commenced exploratory talks with parties in South Sudan in 2022; however, with some of the recent events, we would postpone venturing into that area to a future time.
Which of SpringRock’s recent projects do you consider to be the best showcase of the company’s experience and technological capability?
We are kicking off by mid-year the Phase 1 development of the oil and gas resources at an onshore field on an integrated asset and project management basis. This would be our
second onshore play, as we have been largely an offshore player. And this is inclusive of all the works and calls for the capabilities required to develop an asset. This includes but is not limited to well-re-entry, drilling and completions of new wells, extended well testing, installation of production and permanent facilities, operation management and evacuation of crude from the field. This would also include work related to civil works, access road to jetty, jetty site and jetty design/construction.
The crude evacuation would involve a mixture of trucking of crude from the production site to the jetty, followed by transfer to barges and then transportation via water to the crude sale point. Hence work would include design and construction of truck loading bay and truck offloading bay, the development of a crude oil export model, and the development of policies, processes and procedures. The project is designed to get to first oil at the earliest possible time and the initial crude evacuation model will be transitioned into a more permanent system using the cashflow generated from the field.
The work is planned to transition to phase two, where multiple wells will be constructed and placed on construction. Lastly, but more importantly, we plan to deploy our proprietary production management tool the maxP and other SpringRock technologies like the Topt.