By Sebastine Obasi
THE number of upstream projects reaching final investment decision (FID) in 2017 could double to 25 compared to only 12 last year, according to a recent Wood Mackenzie report, “A big year for FIDs: 2017 marks a turning point.” This is coming at a time the international oil companies, IOCs, in Nigeria are in favour of disposing more assets after the passage of petroleum industry bill, PIB, and expiration of their licences.
The Mackenzie report stated that in the first half of the year, the industry has already witnessed 15 project sanctions, which equate to about 8 billion barrels of oil equivalent, Bboe of reserves, mostly in brownfield projects. This is almost comparable to project sanctions in the whole of 2016, which saw 12 FIDs and 8.8 Bboe of reserves approved.
“These are positive signs that the upstream industry is continuing on the road to recovery and that the more competitive conventional projects are moving down the cost curve sufficiently to attract new investment,” says Angus Rodger, research director, Asia-Pacific upstream. Eleven of the 15 project sanctions year-to-date are either brownfield expansions on existing fields, satellite developments or subsea tiebacks. Not only are these projects less risky than greenfield developments, they also tend to be less capital-intensive and are quicker to bring on stream, offering a quicker payback and better returns on development dollars,” says Rodger.
“This is reflected in lower development capital expenditure, CAPEX, per barrel and stronger project returns. For example, on average, project CAPEX is down to $11/boe versus $15/boe in 2015,” says Rodger. Another clear trend is that the Majors dominate the FIDs scene. Eight of 15 project sanctions in 2017, are operated by the Majors.
Of the 35 mid-to-large projects sanctioned since the start of 2015, 19 were Major-operated. This equals just under 14 Bboe of the 22 Bboe total of commercial reserves sanctioned. Wood Mackenzie estimates that these projects would make up 1.6 MMboed of net new production to the Majors by 2024, which is around 6 percent of total output from the peer group.
Conversely, national oil companies (NOCs) were said to have tightened their purse strings and have been noticeably inactive on new project investments over the 2015 – H1 2017 period. Operating less than one bnboe of the 22 Bboe total of sanctioned commercial reserves, NOCs need to be on the lookout for investment opportunities as many face significant production declines post-2020.
“The second half of 2017 could see another 11 Bboe of reserves hit FID, and again we expect strong activity from the Majors.
However, it is also important to note that last month Exxon Mobil sanctioned the first phase of development on the 1.5 Bboe Liza oil field.
This goes to show that it is not just about short-cycle investments; the best greenfield opportunities are also moving forward to commercialization,” says Rodger.
In Nigeria, a former Minister of State for Petroleum Resources, Mr. Odein Ajumogobia has hinted that the asset disposals of the IOCs will continue in the foreseeable future, with up to $12 billion of the portfolio of oil multinationals potentially up for grabs.
Speaking recently at a dinner organised by the Petroleum Club in Lagos, Ajumogobia said that some of the IOCs would likely divest more blocks in line with their strategy to reposition their deepwater portfolios.