It is a valuable resource for understanding who our new partner is, what track record they have in Nigeria, and what their other interests there may be:
Here is the speech, with a lot of detail that is not usually available:
Challenges and opportunities in the oil industry
Tuesday, December 20, 2005
I would like to spare a thought on challenges and opportunities facing the industry in the future. In my view, the future of the Nigerian oil industry indigenous operators, international independents and the majors is bright. I hope to share my thoughts on this with you today and perhaps provoke some dialogue among the attendees of this conference.
What has impressed me is the significant reduction in unit opex to a level below even $6/bbl. The number would be even lower if Addax were to own rather that lease terminal facilities.
In 1998 OML 123 had an ultimate recovery is less than 100 MMBO. But this figure has dramatically changed from 1998 to 2004. Through an aggressive drilling and development campaign, the number of producing fields and ultimate recovery has increased significantly. Now the ultimate recovery is projected to be over 250 MMBO - an increase of almost threefold. Further increases have occurred in 2005 including a recent discovery at Kita Marine (adding something on the order of MMBO of reserves).
While one cannot guarantee the same outcomes for all the recent awarded blocks it is clear that significant increases could be expected assuming an aggressive drilling and development campaign similar to what Addax followed for OML 123.
What an incredible outcome for both Addax and Nigeria! It is interesting to note that the cumulative production of OML 123, Adanga South at this moment in time the same of the estimate of the total STOIlP of the previous operator. Addax inherited the infrastructure from the previous operator.
We have expanded the existing infrastructure adding new production facilities, well jackets and pipelines. Development is continuing with fit-for-purpose, unmanned, satellite wellhead platforms using well conductors as platform legs. These platforms can be installed by either a construction barge or the drilling rig.
If I were to give a similar presentation to you next year you would see an even greater developed OML 123. Remember that we just recently had a new discovery that will require further development, hook-up and commissioning.
I have covered our exploration and development activities for OML 124 (onshore including the Ossu and Izombe fields) and the extensive efforts for the offshore OML 123 block. I would now like to move to our efforts on OPLs 90/225.
For OPL 90 we have the recent development of the Okwori field and the planned development of the Nda field as a tie-back to Okwori.
The development of the Okwori field was not a trivial undertaking. Discovered in 1972 and appraised between 1973 and 1996, Addax has succeeded where previous operators failed bringing this marginal field on stream.
Clearly technology played a key role in the successful appraisal and development of this field. We will need to be aggressive in technology deployment in the future development of new fields on both onshore and near shore blocks if we hope to be economically successful.
Since we are dealing with stacked reservoirs with generally relative small connected reserves full flexibility is required to maximise recovery. Further, the poor consolidated reservoir sands of the Okwori field need sand control.
Production casing across individual prospective zones was perforated, and Expandable Sand Screens installed, with packers ensuring proper zonal isolation.
Okwori has been a success! The field was brought on production in March only 18 months after Final Investment Decision, FID.
Okwori has been the fastest subsea development in Nigeria and clearly could be seen as a template for similar development other offshore blocks in Nigeria.
The production growth has been impressive. There has been a significant increase since March and there should be another significant jump in production this month with the addition of Okwori no 7 (a recent workover) and Okworl no 12 (a recently drilled development welt).
I have summarised here some of the key Okwori milestones:
*Development drilling started in July 2004.
First oil was achieved only eight months after spudding the first development well. Current production is about 25,000 bopd headed towards over 351,000 by year-end The Nda development is about to start- this will be a full subsea development tied-back to the Okwori FPSO.
What made Okwori success? I would like to take a few minutes to discuss each of these factors.
A strong subsurface team: We are an asset-based organisation in Addax wherein we have separate asset teams for each of our key assets. The Okwori team has been particularly successful in bringing to bear all the key subsurface disciplines (earth science, drilling, petroleum engineering, and operations) to bear on the development planning effort.
Service company involvement:
The close working relationship we have experienced between the Addax subsurface asset team and key service companies has also been a contributor. We need to engage the service companies early in the development planning exercise to ensure success.
*New Technology: Technology will play an increasingly important role in the exploration and development of onshore and near shore blocks.
*Intelligent well completions: Clearly the use of intelligent well completions has been a key factor for the Okwori development.
Government Relations: We could not have achieved success at Okwori without the support of both NAPIMS and the Department of Petroleum Resources (DPR). I sincerely believe that building and maintaining an excellent working relationship with these two bodies is essential. I would like to compliment both NAPIMS and the DPR for their help in making Okwori a success.
The second example of what I would call working or perhaps “sweating” the assets is the further exploration and development of OPLs 90/225.
We plan the development of the Nda field with first production in 2006. This will be followed by an exploration well in POL 90 to evaluate the Okporo prospect.
For OPL 225, we have a planned 3D seismic acquisition programme planned for later this year/early 2006. This will lead to the mapping of prospects and then exploration drilling.
*What I would like to do now is to summarise the key elements of the Addax story and hopefully relate this to future opportunities for operators on onshore and near shore blocks.
*What has Addax done in Nigeria since taking over from Ashland in 1998? Let’s consider some of the high level accomplishments:
*Identified potential in existing acreage – clearly b oth OML 123 and OPLs 90/225 would fit in this category.
*When Ashland started operating the licences production from OMI. 123 and OML 124 peaked at approximately 46,000 bopd in1989, before declining.
*Addax Petroleum acquired the Ashland licenses in 1998, when production had dropped to below 10,000 bopd and Ashland believed that the licenses were not able to produce for more than two years. Addax managed not only to stop the decline, but to surpass previous production levels in a matter of four years.
*When the Okwori field in OPL90 was brought on stream earlier this year, total production increased to about 75,000 bopd and still increasing.
*Reserves have increased monotonically even with increasing production. Note that since 1998 there has been an almost four-fold increase in reserves.
*For capex, there has been a significant increase in capex since 1998 covering drilling operations and new facilities. Capex will be even greater in 2005 and 2006 as we initiate an accelerated drilling campaign accompanied by significant facilities upgrades and gas development. I will speak more about these later.
Implemented an aggressive appraisal/development programme consider the development of OML 123 - what was considered a dying prospect by the previous operator has been developed into a key producing property.
Increased Nigerian Content - the efforts on developing OMI, 123 for example have opened up opportunities for indigenous companies for fabrication, installation, services and engineering.
Government Relations - this is the key Nigerian success factor.
*Performance - can anyone question Addax’s performance with the impressive increases in reserves and production?
*I would like to take a few minutes to briefly cover Addax’s successful strategy for growth.
*Maximise returns from existing assets - clearly the OML 123 optimisation effort would fit with this theme Increase production from existing leases - both OML 123 and OPL 90 (Okwori & Nda) would fit with this theme.
Upgrade existing facilities - the planned upgrade of OML 123 facilities to provide for increased production and gas export would fit with this theme.
*Invest in new acreage - Addax’s recent acquisition of the Okwok field with tie-back possibilities to the OUL 123 facilities would clearly fit with this theme.
*I would like to take some time to discuss both challenges and opportunities for the future.
Challenges:
Fiscal Structures -It will be important that fiscal advantages are a not degraded significantly such that development or re-development of onshore or near shore leases becomes unattractive.
Contracting Issues - NAPIMS will need to be proactive in the interpretation and implementation of contracting guidelines so as to not adversely affect project cycle time.
Community Issues - We must address the “community issue” question for the Niger Delta to provide for development or redevelopment of onshore properties.
*Human Resource —This will be a key issue for the future. We must be able to secure adequate Nigerian staff for the anticipated growth in the future.
*Market Forces- I think that we are all keenly aware of the recent significant increase in rig rates and the costs for associated services. These will need to be managed in the future.
While we have significant challenges for the future we should not forget that we also have significant opportunities.
Opportunities
Exploration & Development Opportunities - Look at the Addax track record for OML 123. If similar results can be achieved for recently awarded blocks either onshore or near shore, the benefits to operators and Nigeria alike will be great.
Indigenous Companies – This is a period of great opportunity for indigenous companies - operators, engineering companies, service companies and fabricators.
The Addax-Oryx Group (or AOG for short) was formed in 1987.
AOG is a reputable, successful and expanding natural resources venture in Africa and now other parts of the world.
AOG covers Upstream, downstream and trading activities in oil & gas, as well as mining ventures. Let me say a few words about these activities starting with the upstream.
For the upstream - where this presentation will focus - we are the largest independent oil producer in Nigeria. Our Nigerian operation is managed from Lagos with some technical support from Geneva. We have a staff of over 300 with 95 per cent Nigerians. We are actively recruiting for our national staff and have added over 40 new staff members in the past three months.
For the downstream, we operate under the Oryx brand in 10 African countries in all aspects of petroleum distribution - storage; 100+ service stations, LPG bottling and retail; and finally lubricant blending and retail.
For trading, AOG focuses primarily on crude and products trading with a significant presence throughout sub-Saharan Africa. We are the largest independent merchant in Africa - we also have a major presence in the middle East and Asia.
Finally, for mining, we are active in gold exploration in six African countries.
Clearly, AOG is a major player on the African continent. In terms of chronology, our initial activity in West Africa was centred on oil trading. We first diversified into marine services and downstream operations, and then later into gold mining through participation in Samax and Axmin. Our upstream history began in 1994 with the formation of Addax Petroleum and our first acquisition in Nigeria was in 1998.
Our entry into the Nigerian upstream began in 1998 with the acquisition of the Ashland holdings. We later expanded into both Cameroon and Gabon, and finally we grew our operations in terms of producing properties with the development of -the Okwori field in OPL 90 earlier this year.
Jim Pearce delivered this paper at the National Association of Petroleum Explorations (NAPEE) Conference in Abuja recently.
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