Reshaping Nigeria’s oil and gas industry

Nigeria

Engr. Sarki Auwalu, director and CEO of the Department of Petroleum Resources (DPR), talks to The Energy Year about how DPR is ensuring Nigeria’s marginal fields are developed successfully and spurring advances in the country’s energy industry via flare gas monetisation, IOR/EOR and refining initiatives, amongst others. DPR is the regulatory agency of Nigeria’s oil and gas industry.

This interview is featured in The Energy Nigeria 2021.

How exhaustive has the marginal fields bid process been?
Marginal fields are those fields that have been discovered but abandoned for upwards of 10 years. By virtue of the Petroleum Act, the president and minister of petroleum resources can decide to make a field marginal based on its production or other geological features, giving it applicable fiscal terms.
The marginal field initiative started in 1999/2000, when two fields were awarded to an indigenous company. About three years later, 24 different marginal fields were identified and awarded to 31 companies via the country’s first marginal fields bid round. Today, while 13 of the fields attained first oil within the passage of time, 11 could not perform to expectations, 17 years post-award.
Since then, we have identified tens of other marginal fields and we assessed those that have a good chance of being prolific and economically developable. Out of this, we selected 57 on which we harnessed required geological, geophysical and engineering data to enable potential to evaluate the assets and prepare credible proposals for the assets. Data is essential and we ensured the availability of a robust dataset for investors.
In June 2020, we launched the bid round process following a clear set of guidelines. We established an electronic portal system to make information available on all fields, available to all interested persons upon registration. Although we started the process during the height of the pandemic, we had 632 applicants who expressed interest for the 57 fields, which was a clear indicator of the strong appetite in the market.
An application fee helped us narrow the companies down to those who know the business and were truly interested. After this came the prequalification phase, where we considered the history and activities of every company. This stage streamlined the number down to 512, which then were given access to classified data on the fields – a sort of teaser.
Out of these, 483 bids were received from companies, which were evaluated by three different DPR teams of evaluators. The Nigerian Financial Intelligence Unit (NFIU) and other relevant agencies carried out necessary due diligence on the companies’ financial records and transactions to make sure we are getting clean capital. Thus, we ensured that we are dealing with serious companies that have capital, technology and capabilities.
For each field, we established criteria so that, depending on the capabilities and capacity of each company, we could select those most suitable to develop the asset and bring it to production. Following a rigorous process, 161 firms emerged as potential awardees and were notified to pay the applicable signature bonus within 45 days. As of April 1, 2021, around 50% of our potential awardees had paid. The process has been thorough and exhaustive, which will guarantee a successful development of marginal fields in years to come.

What is the rationale behind the recently established National Oil and Gas Excellence Centre (NOGEC)?
NOGEC was inaugurated by His Excellency President Muhammadu Buhari in January 2021 as an integrated resource complex established to tackle some of the major challenges faced by the oil and gas industry. NOGEC’s three-pronged objective is to entrench safety, value and cost efficiency in Nigeria’s industry through the creation of five flagship sub-centres.
The Search, Rescue and Surveillance (SeRAS) Command and Control Centre is created to partner with Aviation Services providers with the goal of improving safety and operational efficiency across the industry. This programme aims to refine bed space management for offshore workers in the industry. For example, you can serve four proximal locations via a single helicopter flight operation, creating a network of locations via a co-share and collaboration mechanism. By doing this, you reduce logistics costs, which constitute a significant percentage of operational expenses and total cost of production.
Another inherent element that is impacting cost is litigation. There are many cases that could be resolved via alternative means, as against long court processes that result in value erosion to disputing parties. For this reason, we established the Oil and Gas Alternative Dispute Resolution Centre (ADRC), which implements the pertinent means for resolving issues without going to the courts. This saves time and money, being a more efficient mechanism.
The Integrated Data Mining and Analytics Centre (IDMAC) is another crucial pillar in our cost reduction drive. Data is key as it allows for robust decisions, be it technical, financial, funding or investments. We want to create value for prospective investors and make sure we have data that is reliable and bankable. To take a technical decision, one needs reliable sources.
For instance, IDMAC will mine the data to see how many strings you can have on a well, which helps with field development and budget reduction. Thanks to this, you can determine if you need casing, chrome or a hot oil wash. Parallel to this, our National Data Repository and Enterprise Data Warehouse are crucial as they harness all the data in a central database. The latter compiles in real time all the information coming, for example, from installed sensors found in filling stations to accurately track their volumes.
Another key centre is the National Improved Oil Recovery Centre (NIORC), which aims to formulate and implement strategies for improved and enhanced oil recovery methods to achieve maximum performance at the lowest cost possible. The average recovery factor in this country is 44.97%, but this can be increased by stimulating the reservoir. Nigeria has over 1,700 developed reservoirs for which there are significant IOR/EOR opportunities and prospects of lowering the average cost per barrel by around 12%.
As a regulatory agency, we continue to use engineering science and best practices to see how to stimulate and gain maximum economic recovery at optimal cost. Thus, the approach is to be customised to each and every asset since no two fields are the same.
Last but not least, we have the Oil and Gas Competence Development Centre (CDC), which will be a regional hub to deliver training for oil and gas industry practitioners. This centre will include training facilities, meeting rooms, coworking spaces and an electronic library to provide an enabling environment for learning, capacity development and skills acquisition. The CDC will feature state-of-the-art facilities and virtual reality and visualisation to stimulate creative thinking among energy sector practitioners.

How is DPR embracing the Fourth Industrial Revolution?
As a department, we have made sure that all our processes are automated by the application of best-in-class digital and business automation tools/resources. As a result, the department ensures that every DPR-issued permit is processed within 72 hours, subject to minimum compliance requirements. Our Central Electronic Licensing and Permit System (CELAPS) gives our technical personnel the ability to make more effective inputs and we are migrating it to be more intelligent, applying AI. The next step will be to apply IoT and machine learning in our licensing and permitting processes.
Currently, we run the smart inspection application, which is accessible from one’s cell phone and contains information and facts from something as intricate as deepwater production to the operations of petroleum products retail outlets. Any DPR officer can virtually access the co-ordinates (longitude, latitude) and location of a given facility with his device, obtaining real-time information directly fed into our Enterprise Data Warehouse and the IDMAC. Application of technology in this way improves efficiency and reduces logistics costs and attendant impact on cost per barrel.
Additionally, our electronic access systems enable us to know the performance of every one of our 2,390 wells, and this is why we have been able to comply strictly with <a href='https://theenergyyear.com/companies-institutions/opec/’>OPEC quota and production curtailment arrangements. Thus, when it comes to production or liftings, one can see the performance – minute by minute, well by well and tank by tank. One can track every oil or gas molecule and every facility where flaring occurs. This is the beauty of technology.

What major efforts is DPR making to enhance the use of natural gas domestically?
The Nigerian Gas Transportation Network Code (NGTNC) is a key enabler for migrating the country to a gas-based industrial economy. It is a unified platform for suppliers, transporters, shippers and agents, aiming to boost delivery of natural gas to the domestic market. The Network Code brings together where the gas is located, who is transporting it and who the agent is, creating an integrated collaborative platform to deepen transparency and professionalism in the gas market.
The ongoing operationalisation of the code represents the start of materialisation of dynamics such as gas-to-people, gas-to-power and gas-to-industry, which we very much need to achieve the Decade of Gas initiative. The demand for gas is growing and so is the need to supply it. For example, for gas-to-industry, one has to create the means of getting the gas through pipelines. The construction of the three critical pipelines is the expansion needed to create a corridor on which industries can thrive.
The critical component of the infrastructure blueprint is the Ajaokuta-Kaduna-Kano (AKK) pipeline now under construction and when that is finished and the corridor is open, there will be an economic boom powered by gas. One must understand that this corridor was the bedrock of the Nigerian economy for ages, linking the entire trans-Saharan route. It will definitely impact the lives of millions of Nigerians.
Additionally, the use of virtual pipelines is gaining ground to address the current infrastructural gaps to enable that gas – LPG, CNG and LNG – to be delivered from the supply centre to demand centres across the nation.
Another major advancement feeding into the domestic gas market is the Nigerian Gas Flare Commercialization Programme. We flare around 8% of our gas annually, equivalent to 700 mcf [19.8 mcm] per day. Out of over 100 available flare sites, 48 have been offered. We have finished the bid round evaluation and when projects are awarded and implemented, they will take about 45% of the flared gas.
By 2023, we will have commercialised all the flare points. We are the first in the world to do this programme and we are doing it correctly, becoming a true reference point. We believe this will contribute to solving the energy poverty issue we have in this country by bringing energy closer to people.

How determined is DPR to make Nigeria West Africa’s refining epicentre via its refining revolution?
DPR created the refining revolution as both the state-owned refineries and private-owned modular refineries are licensed by the department. In recent years, we have made laudable efforts to encourage the private sector to make inroads in the refining sector by simplifying the licensing regime. Within 72 hours you can get a licence to establish a refinery once you have a suitable site and meet basic requirements to demonstrate feasibility.
As of today, we have 28 active licences as well as eight private refineries under construction or already at the production phase. By the end of 2022, there will be 750,000 bpd of refining capacity added to the current 445,000 bpd.
Exciting prospects are due in the modular space in the coming months. The 5,000-bpd Waltersmith refinery was commissioned in December 2020 and the Duport Refinery, with an initial capacity of 2,500 bpd, has completed the OSBL [outside battery limits], and the ISBL [inside battery limits] is at an advanced stage. Subsequent modules will be introduced to expand its capacity to 10,000 bpd in due course.
In addition to this, the 10,000-bpd OPAC Refinery is 100% complete, while the Edo Refinery, with a capacity of 2,000 bpd, is near commissioning. Also, the Azikel 12,000-bpd refinery has finished the OSBL, but the ISBL is still under construction in the US.
The benefit of increased in-country refining capacity is a steady change in market dynamics from smuggling to trading. This will also put an end to many of the downstream issues and distortionary market trends prevalent in the West African markets that depend on Nigeria for fuel. Hence, the refining revolution will make Nigeria a true regional leader and hopefully, a net exporter of refined products in the next few years. So, DPR will continue to drive this refining revolution, which will spur opportunities and development of the entire economy.

What focal areas and objectives does DPR have for 2021 and beyond?
Our main objective for 2021 is to hit the 3-million-bopd production capacity target. Based on research conducted in the NIORC, once we raise the recovery factor by 5%, we will exceed that target before 2022. We have already identified some 1,700 reservoirs to focus on. Now, the highest recovery factor – 47% – is from JV assets, while PSC assets have a recovery factor of around 38%. There is significant scope to grow production capacity.
DPR has developed the Maximum Economic Recovery (MER) strategy, geared towards creating healthy competition to optimise recovery amongst the producing companies through introduction of incentives such as additional production allowable, the Annual Improved Oil Recovery (IOR) award, etc.
In a similar vein, our strategy and focus for gas in 2021 is to drive the implementation of the country’s Decade of Gas initiatives and grow the overall importance of the industry via increasing its contribution to Nigeria’s GDP. Currently, that contribution is in the single digits. A modest additional increase by 5% would mean more jobs, more opportunities and more taxes being paid.
Additionally, once more marginal fields come on stream and modular refineries are developed, our focus on creating a formidable industry will be on the path to realisation.

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