As security costs far outweigh company operational costs, international oil companies are divesting themselves from onshore blocks.

in figures

OML 30 production as of December 2015: 50,000 bopd

Duration of Trans Forcados pipeline shut down in 2015:115 days

Amount OML 30 should produce by Q1 2017:80,000-90,000 bopd

Area of OML 30:1,000 square kilometres

Nigeria’s risky onshore

March 1, 2016

The CEO of Shoreline Natural Resources, Ladi Bada, speaks to TOGY about costs incurred by security risks onshore and how the government and the private sector could work together to mitigate those hazards. Shoreline Natural Resources is a Nigerian joint venture which holds a 45% interest in onshore oil mining lease (OML) 30. It also operates the Trans Forcados pipeline.

What differing security costs are incurred by exploration and production companies onshore?
As security costs far outweigh company operational costs, international oil companies (IOCs) are divesting themselves from onshore blocks. Operation costs for onshore exploration and production companies are generally lower than that of offshore operations. However, the breakeven price for onshore exploration and production companies in Nigeria can be much higher due to security costs.
When applicable, security costs come in two forms. The cheaper form is the cost of additional security while the more expensive cost comes from deferment caused by attacks on the pipeline, bunkering or community shut down.
More of the loss comes from deferment rather than from the oil price reduction. Onshore companies, especially indigenous ones, face the double threat of lower oil prices coupled with deferment from shut downs.

How have shutdowns impacted local revenues and production?

The year 2015 has been a difficult one, particularly for onshore companies. In Nigeria, around 95% of indigenous companies operate onshore. Only a few of them are offshore. IOCs such as Shell, Chevron and ExxonMobil can better accommodate the cost associated with a shut down, but an indigenous company based onshore simply cannot in the long term. Domestic companies do not have the kind of cushion an IOC would have and they are facing a combination of high security costs and low oil prices.
Attacks on pipelines occur mostly in swampy areas, where bunkering activities are better hidden. To repair the pipeline, a swamp buggy needs to be brought in, which requires getting the vessel, reassembling it, floating it and putting a crane on top to start bringing up the pipeline.
The logistics of operating in a swampy area alone drives up the cost of a single repair. Depending on the extent of the damage, repairing pipeline punctures can cost close to USD 1 million, compared to about USD 50,000 in a non-swamp area. Combined with losses incurred, this has a significant impact on a company’s bottom line.


What are the costs and logistical challenges of repairing the Trans Forcados pipeline?
If pipelines are in hostile or difficult areas such as swamps, putting a clamp or a valve on the line is harder. Onshore bunkering points are more visible. When the bunkering line is underwater, it is unseen and can produce for months, as long as the valves last.
Tapping this area of the pipeline is an elaborate criminal operation, and can only be done by people who know what they are doing. Even moving the liquid out is an elaborate procedure that requires an appropriate vessel. We cannot prevent this by simply working with the neighbouring communities alone. The government needs to increase enforcement. The 60% reduction in bunker rates since June is unfortunately not enough.

How could the government and the private sector collaborate to reduce bunkering?
The private sector can provide technology. Companies have developed tools to improve surveillance, such as installing fibre optics to monitor activity on the line. Thermal technology is also used to check whether oil is flowing out of the pipeline after an attack.
To reduce bunkering, different technologies should be used in conjunction with the government acting as the enforcer. Technology alone is not enough. The information collected needs to be passed on to someone that comes and handles the problem. We are surveilling for repair purposes only and we need better on-site enforcement to complement the technology, which would drive security costs down.

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