Within the face of declining oil manufacturing and financial challenges, Nigeria’s oil business stands at a vital juncture. The pressing want for effectivity and price discount has by no means been extra obvious. This text explores the transformative potential of enhancing drilling efficiency and decreasing properly supply prices, highlighting the numerous alternatives and techniques that may drive the business ahead and safe its long-term sustainability.
To cite Joel Barker in “The Enterprise of Paradigms,” “It’s really easy to say no to a brand new thought. In any case, new concepts trigger change; they disrupt the established order. They take folks out of their consolation zones and create uncertainty… Plus, it’s much less work to do issues the best way we’ve got all the time achieved it. Much less work, possibly. Pricey, positively.”
New concepts are resisted from greasy rig flooring within the Niger Delta Swamps to soft enterprise places of work and convention rooms in regulators’ places of work in Abuja, every with very prohibitive prices of inaction.
But it’s enterprise as traditional in Nigeria’s oil business regardless of present financial realities within the nation, which give the impetus for a radical transformation of its price base. Pulling the ailing economic system from the brink requires a radical enchancment in effectivity inside its mainstay business. Dwindling day by day manufacturing and considerably lowered overseas trade earnings and overseas reserves set up the urgency to drive down the unit price per barrel of oil produced.
Merely said, at this time’s ‘good’ is tomorrow’s ‘not ok,’ and what units us aside at this time would be the baseline tomorrow. The long run belongs to those that act with urgency and foresight.
A Big, But Untapped Alternative
Profitable upstream operations are underpinned by the power to stability the trio of price, schedule, and manufacturing and maximize NPV, i.e., produce essentially the most barrels within the quickest method doable on the most cost-effective imply price throughout a portfolio of property.
Incremental enchancment in properly supply (drilling & completion) effectivity within the US characterised the shale oil increase, which successfully started in 2007. Effectivity positive factors reduce properly prices by a 3rd and lowered price per barrel by 75% within the decade between 2007 and 2017. In impact, America grew to become an oil and fuel powerhouse inside this era, doubled US shale manufacturing, and tripled complete day by day oil output.
In Nigeria, the oil and fuel business is the biggest income contributor to the Nigerian economic system, however manufacturing has declined by 40% from 2010 thus far. Declining oil manufacturing presents main income challenges and precipitates power macroeconomic crises within the brief to medium time period.
Decreasing unit manufacturing prices by driving down properly supply prices presents an untapped alternative to extend authorities earnings and cut back its fiscal deficit.
Being essentially the most advanced, pricey, and extremely specialised upstream growth exercise, which simply accounts for as much as 60% of oilfield growth CAPEX, drilling presents a novel alternative to cut back the price of oil manufacturing.
Because of this, within the early eighties, drilling engineers and different personnel working within the UK North Sea acknowledged the necessity to study from one another and evaluate performances throughout one another’s drilling operations. This led to the formation of the Drilling Efficiency Overview (DPR) in 1989, a drilling benchmarking membership. The vast majority of worldwide operators who’re value-driven proceed to subscribe to the DPR to today for the inherent profit to their world operations and enterprise monetary efficiency.
Typically, as much as 60% of drilling time goes to non-productive time (NPT) and inefficiencies, recognized in drilling parlance as invisible misplaced time (ILT). The price of ILTs, being an invisible issue, to the Nigerian oil business is within the order of billions of {dollars} overspent yearly.
Bettering drilling efficiency, due to this fact, is an enabler to decreasing the price of oil manufacturing. Decrease drilling prices stimulate extra drilling actions, which in flip will increase manufacturing and reduces unit manufacturing prices.
You Can’t Enhance What You Don’t Measure
Drilling efficiency in Nigeria is laden with super inefficiencies. An indicative benchmark of a mean Nigerian and an identical North American properly reveals important underperformance within the Nigerian properly as measured by days to drill a ten,000-foot properly. A ten,000-foot properly routinely delivered in 10 days within the US/Canada might take so long as 85 days in Nigeria. This disparity is surmised to be the reason for the persistently excessive properly supply price in Nigeria. Disproportionately lengthy properly durations delay time to market (deferred manufacturing), cut back challenge NPV, and dear wells cut back the variety of worthwhile alternatives, which in flip reduces rig actions and related demand for providers.
By top-down estimates, the business spends circa $11.4 billion to provide 1.25 million barrels day by day and roughly $6 billion in drilling wells. A 30% efficiency hole between the licensed expenditure (finances) and precise prices, as gleaned from an evaluation of Nigerian wells, represents a $1.8 billion a 12 months alternative.
The relentless pursuit of excellence in properly supply begins with establishing key indicators, which should be tracked with rigor, and supplies a sign of drilling efficiency and effectivity tendencies.
A superb drilling effectivity metric generally tracked is the spend ($) per reservoir foot of gap. US-based oil providers analysis agency Spears & Associates, Inc. checked out this metric in US land operations from 2006 thus far, displaying the price of a foot of uncovered reservoir falling by 75% in over a decade when contemplating what was paid to the contract driller. Equally, the directional driller price per uncovered reservoir foot fell from $45 to $35, a lower of 25%.
Along with the lowered price per barrel, different implications of drilling effectivity positive factors break down as follows:
- The value of contracting a rig in 2006 is now the worth of 4 rigs in 2023, i.e., 4 rigs will be working at this time for what it price 16 years in the past.
- 4 rigs drilling means 300 oilfield staff employed (as a substitute of 75 on one rig). That is direct labor. We all know what number of mouths get fed when 300 staff are employed as a substitute of 75.
- 4 rigs working means the next rig depend general. The next rig depend means extra providers contracted, e.g., wireline, mud logging, casing, and cementing crews, and so on. This implies 4X the variety of casing working crews, mud logging crews, wireline crews, and so on., wanted (in addition to the variety of mouths every of them feed). This merely means greater exercise and spending within the sector.
- 4 rigs working means extra reservoir publicity, greater manufacturing, greater chance of recent discoveries, which will increase reserves, and interprets to greater revenues for the nation within the type of (a) elevated authorities share of oil manufacturing and (b) elevated taxes and royalties accruing to the state.
- Driving down drilling prices could make the distinction between a marginal subject holder’s capability to commercialize an asset.
The place There Is a Will, There Is a Method
Investments within the Nigerian oil and fuel sector declined by 70% between 2017 and 2021, carefully correlating with the contraction in manufacturing output. Nigeria might solely appeal to $3 billion in investments (roughly 5% of the whole funding into the sector in Africa) within the 5 years between 2017 and 2022 regardless of having 38% of the continent’s complete hydrocarbon reserves. As the federal government pushes for extra switch of useful resource possession to locals by way of organized acreage farm-outs and Worldwide Oil Firm (IOC) divestments, Nigeria’s oil business’s uncompetitiveness is definitely at its pinnacle.
For the sake of the business a few of us love for being the supply of our livelihood, the a whole lot of 1000’s of mouths it feeds instantly, and the a whole lot of tens of millions of Nigerians it’s long-term sustainability impacts, pulling the business (and by extension the economic system) again from the brink isn’t elective, however a matter of feral urgency, a process which rests squarely with the business regulatory businesses.
Tepid because the implementation has been, the Petroleum Trade Act emboldens the Nigerian Upstream Petroleum Regulatory Fee (NUPRC) to drive price and capital effectivity in oil business upstream operations. A complete transmutation of NUPRC’s working philosophy from that of its predecessor company, the DPR (not the business-as-usual strategy), will likely be required to unlock a $2 billion a 12 months alternative in these vital occasions because the oil business continues hemorrhaging unabated.
Native operators and IOCs proceed to battle a worsening capital drought and business contraction. Stakeholders who will likely be convening within the nation’s capital on the twenty sixth and twenty seventh of June on the NUPRC-organized business consultative workshop will likely be in search of steering from their hosts, curious to study what recent concepts will likely be unveiled that can provoke the cataclysmic actions to stem the existential disaster confronting the sector.
Present realities present the impetus to institute a deliberate drilling price discount initiative in Nigeria. Effort must be made to sustainably cut back properly supply prices throughout all joint ventures, sole danger, and manufacturing sharing contract (PSC) operations for the lifeline it presents to an business actually tethering on life help.
Operators deserve insights and solutions to those vital questions, which satirically will be extracted from gigabytes of drilling information in PDFs, and in 1000’s of arduous copy folders sitting in dusty cupboards in NUPRC’s warehouses.
- Who’re the Finest in Class / Prime Quartile Nigerian Operators throughout key efficiency metrics (drilling effectivity (pace) and price ($)) in every terrain?
- What are the efficiency gaps between their very own wells and the very best at school wells?
- What are the causative elements for the discrepancies in efficiency (hole) between their wells and the very best at school wells?
- What can they do to shut the gaps and pull up their efficiency in the direction of the very best at school?
Whereas they scratch their heads looking for solutions, we suggest the regulator urgently institute efficiency enchancment applications that leverage the newest computing applied sciences in addition to an abundance of human capital to drive the systematic optimization of drilling applications and the entrenchment of business sustainability throughout the breadth of Nigerian drilling operations. This can function an financial stimulus by decreasing all key metrics, together with unit working, in addition to discovering and growth prices. It can enhance the fiscal breakeven worth of oil.
There isn’t any standing nonetheless. We’re both rising or dying, and since we aren’t rising, as established by all indices, we problem the custodians of this atrophying business to guide, observe, or just get out of the best way.
Concerning the Writer
Dimeji Bassir is an completed oil and fuel government with over twenty-five years of worldwide expertise working with multinational operators and oilfield service firms. All through his profession, he has held varied operational, consulting, and industrial roles at Chevron, Baker Hughes, Halliburton, and Common Electrical. At the moment, Bassir leads Ofserv, an impartial consultancy specializing in subsurface engineering, challenge administration, drilling efficiency enchancment, and reliability providers. Earlier than Ofserv, Bassir was the Nation Supervisor for Nigeria at GE Oilfield Know-how and a Drilling Reliability Advisor at GE Power Companies. He additionally served as a Drilling Efficiency Advisor for purchasers reminiscent of BP, Shell Worldwide, and ConocoPhillips, and held subject engineering positions in each onshore and offshore drilling operations with Baker Hughes, Halliburton, and Chevron.