Oil Depression: Hard times for marginal field operators

As the slide in oil prices bite harder on stakeholders in the Nigerian Oil and Gas industry, OLUWAGBENGA BANKOLE examines the severe effect of the current situation on marginal field operators in the country.

Introduction
It is no longer news that the Nigerian oil and gas industry is passing through a turbulent period due to the drastic dropped in global oil prices. The oil prices slide from about $110 per barrel few years ago to less than $30 per barrel.

The collapse of crude oil prices in the second half of 2014 caught many by surprise. The price of Brent crude fell more than 50 per cent from $115 per barrel (bbl) in June to below $50/bbl by early January in 2015 and shows no sign of reaching the bottom just yet. For four years up to June 2014 oil prices had remained consistently above the $100/bbl mark

Oil has certainly been tumbling recently. International benchmark Brent crude twice last week set a new near 13-year low of below $28 a barrel, as fears over persistent oversupply reached fever pitch following the news that Iran will return to export markets this month. A slowdown in China that could hit demand is also exacerbating bearish sentiment.

Effect on marginal field operators

 In an exclusive interview with our correspondent, the Managing Director of Platform Petroleum one of the Marginal Field Operators in Nigeria Mr. Owieadolor Osariemen said that the price is squishing their company very severely.

He said it has been cost adjustment all the way and they don’t even know where to adjust now, saying that as a matter of fact, balancing their budget for 2016 is a very huge challenge for them at the moment.

“At less than $30 per barrel it is a huge struggle for us. But we are doing everything to see how we keep adjusting our cost because that is what we can do, while also hoping that the oil price is likely to see the last phase of this low regime. Surviving this year is a critical thing for us. Once we survive this year things are likely to go up subsequently,” he disclosed.

While speaking on the cost of producing a barrel of crude oil compare to current price of curde Osariemen said; “the cost of production today is almost the same thing with oil price. It varies from company to company. It depends on your funding source. It is in the range of $20 to $30 per barrel depending on so many factors which include your overheads, volume and capital.”

He also said that Platform Petroleum we have done a little cut of their staff members because of the current situation.

Also speaking with our correspondent, the Chairman/Managing Director of another marginal field operator, Dansaki Petroleum Engr. Adenrele Afolabi said that cost of producing a barrel of oil is higher than the cost of oil per barrel for marginal field operators who are producing on their fields.

He noted that due to the current situation some marginal field operators who are still developing their field are now re-negotiating with their service providers in order to have a lower service cost.  

While responding to the mail of our correspondent, the Managing Director of Energia Limited, a joint venture operator of the Ebendo and Obodeti marginal field, Mr. Felix Amieye-Ofori  said that dealing with sub $30/bbl crude price is quiet challenging because their revenue has collapsed from $110/bbl to $28/bbl.  

He also said that service cost hasn't changed that much, neither has ones bank loan changed, adding that the only way for them is to cut back on operation and they only carry out maintenance activities just to keep afloat.  

He however said that this is the time to have more volume to compensate for falling crude oil prices, saying that though they have stopped new drilling, but they are embarking on workover operations to bring in more crude.

Way Forward

Speaking on the way forward for Marginal Field Operators in the country, the MD of Platform Petroleum Osariemen said that Government must begin to look at the fiscal terms with which most of the marginal field operators are operating, adding that the fiscal terms are no longer realistic.

“The present situation requires collaboration from everybody. The government, the Banks, service providers etc. It requires all industry stakeholders collaboration,” he said.

On his on part, the Managing Director of Dansaki Petroleum Engr. Afolabi said government should look at how they can assist marginal field operators not necessarily in terms of giving money, but in terms of tax measures, bund.

The Managing Director of Energia Limited told our correspondent that the way forward is prudence and operational efficiency, adding that marginal field operators also have to pay closer attention to HSE and Community Relations as both or either of them can trigger unplanned expenditures.

According to him; “there is also need for more collaboration amongst operators; to share resources, facilities and contracts. The other strategy is to renegotiate all existing contracts with service providers and also discuss with banks for better payment terms on existing loans.” 

He added that as marginal fields, government must also begin to look at some incentives for the operators if we are to stay afloat.