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Shell Nigeria output drops to 412,000 b/d


Written by Hector Igbikiowubo

Tuesday, 14 October 2008
….Opex averages $6.99/b

CRUDE oil output of Nigeria’s largest upstream oil and gas exploration and production company, Shell Companies in Nigeria (SCiN), has dropped from an all time high in excess of 1.0 million barrels per day to an average 412,000 barrels per day owing to militancy in the Niger Delta and funding constraints.

Similarly, operating expenditure of the group in the country has gone up sharply recording $6.99 per barrel in 2007, with security costs alone accounting for $4.29 per barrel during the period under review.

Shell Petroleum Development Company (SPDC), one of the companies in the SCiN group and operator of the NNPC/SPDC Joint Venture estimates that out of the average 412,000 barrels per day production projected for this year, 275,550 b/d would come from the Bonny Light system.

A United Kingdom based publication, Menas Associates disclosed however, that another planning scenario shows that output could be static at about current levels for over two years and gas production could suffer as a consequence.

The 2008 figures represent a further deterioration in production performance in recent years. In 2007 the production of crude ‘lost’ or deferred amounted to an average of 614,000 b/d.

In 2006 the volume deferred as a result of third parties and operations amounted to 528,000 b/d.
It was gathered that even though there has been some success in the restoration of some output volume in the badly hit Western division of Shell operations, where approximately 200,000 b/d of capacity has been restarted, security conditions in the Niger Delta remains challenging.

For instance, it now appears certain that the Forcados rehabilitation programme will be extended into 2009 and the big challenge to come is the re-opening of the key Trans-Ramos pipeline which sustained damage at seven key points.

Other restoration work scheduled for 2008 includes the re-opening of four of the company’s key facilities – Benisede, Opukushi, Tunu and Jones creek all in the third quarter of this year.

The restoration programme also includes the Forcados terminal and the repair of Flow-lines in the highly vulnerable northern swamp area.

Left in abeyance till 2009 are the restoration of six key facilities – Odidi 1, Odidi 2, Egwa 1, Egwa 2, Batan and Ogbotobo.

Faced with funding constraints, the big challenge for the Shell in Nigeria would be how to continue restoration work when the NNPC has not contributed its counterpart JV funding.

Vanguard also learnt that as with all other operators, Shell cannot suspend its activities until funding issues are sorted out, an indication it may have to carry out these expenditures in the hope of later recovery.

Meanwhile, SPDC’s planning is also challenged by an escalation in its operating cost as a result of the Niger Delta crisis.

Figures show that cost per barrel jumped in 2007 as the production shut-ins took effect in the Western division.

SPDC calculates that the company’s per barrel cost averaged $6.99 per barrel in 2007 in which security costs accounted for $4.29 per barrel.

Even without the impact of the Niger Delta crisis, there are indications that operating expenditure (opex) costs are rising due to the increased cost of managing recovery from some reservoir.

For 2008, the SPDC had proposed a JV budget of $5.3 billion but the NNPC through NAPIMS capped spending at $2.94 billion.

The unexpectedly low ceiling is indicative there will be little oil and gas growth by SPDC in 2008 while the flares down programme would be impacted by the lack of funds.

A government official justified the shorter budget citing security challenges in the Niger Delta operating environment.

Similarly, NAPIMS and Shell agreed that larger volumes may be shut-in in the course of the year owing to the activities of insurgents in the area.

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