EXPECTED PRODUCTION LEVEL OF 110,000BPD BY YEAR-END 2018

Nigeria 2018 | ENERGY | VIP INTERVIEW

TBY talks to Frank Edozie, Managing Director of Neconde Energy, on main operations, infrastructure, and the Trans Forcados Pipeline.

Can you tell us about Neconde Energy's main operations and the main projects it is currently involved in?

Neconde Energy is in a joint venture with the Nigerian Petroleum Development Company (NPDC) to manage OML 42. OML 42 is a swamp asset that was acquired from Shell Petroleum Development Company in 2011. Neconde owns 45% while the other 55% belongs to NPDC on behalf of the Nigerian government. We have gone through a fairly checkered history from acquisition to date, dealing with such issues as who has operatorship rights and challenges with evacuation of crude due to the 18-month outage of the Trans Forcados Pipeline (TFP) which takes crude from our fields to the Forcados terminal. The outage of the pipeline was as a result of the insurgency in the Niger Delta. That long outage led us to experimenting with barging as an alternative method of crude evacuation.

How does the new barging line of business change Neconde's operations?

We lost access to the Trans Forcados Pipeline to transport our products from the well to the export terminal, where crude is processed to make it export quality. We had to recreate the pipe using boats, barges, and so on; we transported produced oil from the well into a vessel that would sail down a river or creek to a floating storage vessel that accumulates crude until it has enough volumes for export. This completely changed the nature of our company. We used to be just an oil and gas company but have now also become a marine company. To manage the marine spread we need barges, holding vessels, tug boats, and so on. A major part of the challenge of the experimentation was trying to keep all the elements working in sync to replicate the seamless flow through a pipeline. We do not want any break in this chain as that would lead to a stop in production.

What is the advantage of barging over using the Trans Forcados Pipeline?

Barging is not necessarily cheaper; however, it gives us the assurance that we can always produce. Since the Trans Forcados Pipeline became operative again there have been considerable improvements in its up time. However, the pipeline still goes down every four to five weeks because of leaks; it is over 40 years old and has been abused by all the attempts to steal crude from it, the bombings, and bunkerings; therefore, it is structurally weak. When it goes down, production has to be stopped. One feature of this production is we need to nurse our wells and take great care of them. With barging, we are no longer exposed to shut downs as a result of TFP outage. This also means we are better able maintain our wells at peak performance. These are some of the benefits of having usingbarging as a means of crude evacuation.

What is your strategy and timeframe to achieve your goal of reaching a peak production of 100,000bpd from OML 42?

The alternative pipeline solution is a key component in achieving and sustaining that level of production. It is one thing to attain a level of peak production; it is another thing to keep production going at the peak. More importantly, following the restoration of the Trans Forcados pipeline, we have a lifting of the restrictions that we had earlier and can at least produce and export products. Our target is 80,000bpd by the end of January. Later in the year, we have a number of major interventions that we have to carry out and a number of additional wells we need to drill; through these, we expect to achieve a production level of 110,000bpd by the end of 2018.

What is your involvement with gas today?

One of the features of OML 42 is that it is a gas-rich asset. We are currently commissioning the Odidi Central Processing Facility, which will add significant volumes of gas to the domestic gas supply grid for power. We have in the pipeline projects that we are considering developing for 2018, 2019, and beyond in collaboration with interested parties and investors. We will either have co-development or bring in parties that will either do BOT, build to toll, and so on. We see OML 42 as being a key player in the supply of gas to the national power grid. One of the subsidiaries the Obi Jackson Group is developing a Power Plant in the southeastern part of the country and its feed gas will come directly or indirectly from OML 42.

Some claim indigenous companies have been unlucky as they purchased assets from IOCs at a time of high oil prices. How are they dealing with recovering such investment in this new era of low oil prices?

Firstly, a company needs to become creative, such as our barging alternative evacuation. It was developed out of a need to survive, because there were bankers waiting for interest and principal to be paid and companies cannot continue to say there is no production. The second aspect of the solution is a more meaningful dialog with lenders. As with many other companies in our position, we are amending the facilities that we entered into in 2012, 2015, and so on to bring about more realistic expectation of the asset returns to lenders. One interesting dynamic of this is although we are borrowers, we are now being selective about where we borrow money from. For example, offtakers have a better understanding of the oil and gas business and typically have cash and it makes sense to put cash in upstream companies so that they can guarantee offtake for a number of years. That is easier funding than we would receive from a high street bank. The final aspect that we are moving into and which will be seen more in the coming two or three years is companies such as Neconde going public to acquire funds.

What do you expect from 2018?

2018 will be more of a consolidation year; we would like to have high targets hat we want to meet and surpass, though we are also looking at the macroeconomic environment and the fiscal enablers. We would like to see more of a settlement of the questions around the Petroleum Industry Bill. Removing that cloud from the business environment would also make additional investment easier because a bad bill is better than the uncertainty of the current moment. I am also hopeful that with more of the things that we are doing in Neconde, we will begin to see an end to the restiveness of the Niger Delta in 2018.