NIGERIA STEPS UP ACTION TO DEFINE AND INCREASE ITS OIL RESERVES

Norman Page
Geophysical Consultant
Houston

Within the past 18 months, the Nigerian Ministry of Petroleum Resources has moved aggressively to increase investment in known producing areas and stimulate exploration in frontier regions in order to define and expand the country's reserve base for the start of the 21st century.

At industry seminars held in November and December 1991 in Houston, London, and Lagos, the Ministry in association with TGSI-Mabon Geophysical Co. reviewed the Nigerian political and economic climate, recent industry development and leasing activity, deepwater geology and exploration potential, and the probable areas' terms and conditions for a new bidding round to be announced in early 1992.

BACKGROUND

In his keynote address at the seminars, G.P.O. Chickelu, director general, Ministry of Petroleum Resources, said Nigeria has been in the forefront of the movement towards democratization and free market economics that is now sweeping much of Africa.

In the political arena, President Babangida is carefully disengaging the military from the political role it has played in Nigeria. On Dec. 31, 1992, military rule in Nigeria will give way to democratic civilian rule after 9 years of military government. There is cautious excitement at the prospect of the military voluntarily handing over power to a freely elected civilian government based on a two party system.

Elected local government councils are already installed, carrying out development projects and local administration in the form of the two registered political parties, the National Republican Convention (NRC) and the Social Democratic Party (SDP).

Elections for the governors of Nigeria's 21 states and the Abuja mayoralty will be followed by the election of a federal House of Representatives and a Senate. This process of democratization will be completed in the fall of 1992 with the election of a civilian president and his assumption of power from the Armed Forces Ruling Council.

ECONOMIC ADVANCES

At the same time, it has been recognized that democratic government requires a sound economic basis built on the solid foundation of a free market. This basis is being laid through the implementation of a Structural Adjustment Program (SAP), which, with its tough measures and pragmatism, has won the approval of the International Monetary Fund (IMF) and the World Bank, though not without painful social costs.

Through the SAP, most of the economic controls that previously acted as disincentives to foreign investment have been dismantled.

Daily auctions of hard currency, carried out under the supervision of the Central Bank of Nigeria, now make it possible for investors to obtain foreign exchange for their deposits while repatriating their profits without difficulty.

The SAP's objective is to eventually make the Nigerian currency, the naira, convertible.

New investment in the oil and petrochemical sector aimed at diversifying Nigeria's sources of foreign exchange earnings, makes the prospects of a convertible naira excellent. Inflation is being brought under control, bringing industrial peace to the nation.

BUSINESS ENCOURAGED

Private enterprise is being given as much encouragement as possible.

In 1990 alone, the government allowed as many as 30 enterprises which it formerly owned, or in which it used to hold controlling shares, to be sold into the private sector. Some 32 more public enterprises that are not to be sold are being forced to become commercially profitable by adopting more realistic pricing policies or trimming staff.

The 1991 Nigerian budget was based on an oil price of $21/bbl. The Gulf War ensured that this price was exceeded for some time, and Nigeria thereby reaped a windfall in oil earnings estimated to amount to at least $3 billion. Earnings from oil exports rose to about $11.2 billion in 1990, compared with $7.5 billion in 1989.

In response to this, the government set up special accounts for windfall proceeds and used these to meet some debt repayment commitments. This has helped transform a balance of payments deficit on current account of $2.06 billion in 1989 to a situation where the Central Bank reported its external assets in 1990 as being well in excess of $4 billion.

In the meantime, Nigeria has skillfully conducted negotiations with the Paris Club, a group of official lenders, with a view to ensuring that repayments on its external debt of $45 billion do not exceed 30% of total foreign earnings.

OIL DEVELOPMENTS

The oil industry is the backbone of the economy; oil produces 96% of foreign exchange earnings and actions have and are being taken to protect, diversify, and expand the earnings capacity of the oil sector.

First it was necessary to make better use of the resources already existing. Gas production for 1990 totaled 1,003.9 bscf, of which 791.5 bscf had to be flared. This wasteful flaring of gas made Nigeria determined to enter the liquefied natural gas (LNG) market.

The LNG project, being jointly undertaken by the Nigerian government and three major international oil companies-Shell, Elf and Agip-is making steady progress. By the end of 1990 $164 billion had been spent on it out of a total estimated cost of $3.7 billion. The plant's capacity will be at least 4.5 million tons/year, and it is expected to deliver its first cargo of LNG between 1995 and 1996.

Huge investments are also being made in the petrochemical industry. The first phase of the project is already onstream at facilities attached to the Warri and Kaduna oil refineries.

The contracts for the design, construction and procurement of equipment for the second phase, the Eleme petrochemicals complex, have been awarded. This plant is expected to produce 250,000 metric tons/year of polyethylene and 80,000 metric tons/year of polypropylene.

MORE PROJECTS

In addition, International Finance Corp., Mobil, and Nigerian National Petroleum Corp. have put together a $530 million initial financing package for the offshore Oso field condensate project that will ensure the elimination of wasteful flaring of gas during the production of as much as 100,000 b/d of condensate to be sold to international markets (OGJ, Apr. 29, 1991, p. 38).

Within the past year, agreements have been reached with the current major oil producers to provide new incentives for investment and bonuses for increasing reserves. For the Shell-Elf-Agip group, NNPC's major concession partners and largest producer (900,000+ b/d), the minimum margin under the renegotiated memorandum of understanding was increased from $2 to $2.30 or $2.50, depending on capital spending (OGJ, July 22, 1991, p. 24).

Mobil has also reported significant development plans for the offshore Edop field and has major new discoveries at Yoho and Omon. Based on Mobil's revised memorandum of understanding, which increases margins to $2.50/bbl, Mobil Nigeria's productive capacity is expected to jump by 255,000 b/d by 1995.

Chevron Nigeria, too, is increasing expenditure from about $270 million in 1991 to $370 million in 1993 as eight new fields are put on stream.

ACREAGE AVAILABILITY

To complement these developments in the major producing areas, the ministry wished both to evaluate the reserve potential of the frontier areas, most especially those deepwater blocks where the possibility of major new reserve additions is greatest, and also to strengthen the local private sector oil industry.

Accordingly, more than 130 blocks were made available for the first competitive bidding round, which closed in January 1991, and for discretionary award to small indigenous companies. In summary, preliminary awards were made in 1990 and 1991 to 17 indigenous and 11 foreign companies.

Sixty-one blocks were awarded: 23 in the Niger delta (onshore and offshore), seven in the deep offshore, four in the Benin basin, and 27 in the Benue basin (Fig. 1).

Deepwater blocks were awarded to the BP-Statoil combine (OPLs 217, 218), DuPont E&P (OPL 220), Mobil (OPL 221), Elf (OPLs 222 and 223), and Agip (OPL 211). In the frontier areas of the Benue and Anambra troughs, awards were made to Chevron (12 OPLs), Agip (nine OPLs), Elf (three OPLs), and Deminex (three OPLs).

The 17 indigenous companies that received awards mainly in the shallower offshore and onshore Niger delta are actively seeking foreign partners to finance their operations and negotiate the final terms of their agreements with the Ministry.

The remaining available deepwater blocks will be included in the 1992 bidding round together with any other blocks not taken up by the time the bidding window opens.

DEEPWATER POTENTIAL

TGSI-Mabon made a comprehensive new data base available to industry in 1991.

More than 23,460 km of very high quality 192 channel, 96 fold seismic, and associated gravity and magnetic data were acquired and processed by GECO-Prakla Geophysical Co., mainly beyond the 200 m isobath (Fig. 2).

Also made available by TGSI over the same area is a Sequence Stratigraphic Interpretation of the regional portion of the seismic data tied by new biostratigraphy from 16 wells; a surface geochemical study based on 600 cores; an interpretation of the gravity and magnetic data, and a Velocity Data Base Interpretation Project using techniques developed in the Gulf of Mexico.

This data package provides the foundation both for exploration drilling in those blocks already awarded and for evaluation of and bidding for the remaining deepwater blocks. Licensing of part of this seismic data is required by the ministry prior to the final award of an oil prospecting license on blocks covered by the seismic data.

Interpretation of this new information confirms the conventional view that most of the offshore Niger delta overlies Cretaceous oceanic crust. The northeast-trending Chain and Charcot fracture zones can be traced from the abyssal Atlantic past the current shelf edge and modern coastline.

TOE-THRUST BELT

Basement highs with as much as 5 km of relief flank both fracture zones on the southeast and apparently control the location of a compressional toe-thrust belt more than 300 km long (Fig. 3).

The hanging walls of thrusts and the cores of associated diapir ridges are largely highly mobilized, ductile shale (fig. 4). Oceanic crustal subsidence and growth-fault systems provided accommodation space for accumulation of highly prospective clastic sedimentary packages in shelf and slope basins more than 10 km thick.

Detailed biostratigraphic analyses of planktonic and benthonic species by Calibre Consulting Services Inc. were used to define regional condensed sections that mark major flooding surfaces in the transgressive units. The condensed sections were used in turn to date and to help identify the unconformity-bounded depositional sequences.

The clastic sediments that have accumulated in the shelf and slope basins range in age from Cretaceous to Recent. Although sediments from Cretaceous to Lower Miocene can be recognized on the seismic data and have been penetrated by wells on the western side of the delta, in the central offshore the units are either too thin or have been mobilized such that sequence boundaries are unrecognizable.

EXPLORATION TARGETS

The Sequence Stratigraphic Interpretation, therefore, focused on delineating sequences and component systems tracts in the Upper Miocene through Pleistocene strata where the most likely exploration targets occur (Fig. 5).

Three sequences in the Pleistocene, six in the Pliocene, and two in the Upper Miocene can be delineated on the seismic data and mapped across most of the slope. In some of the deeper basins Middle Miocene sequences can be recognized.

Eighteen isopach/facies maps will be generated for mappable prograding wedges and slope fans.

Three structure-contour maps have also been made on near top Pliocene (DB), the middle Pliocene (SA), and the Upper Miocene (MDB) sequences, respectively.

The systems tracts are similar to those developed in the Northwest Gulf of Mexico and exhibit similar characteristics on seismic data. Lowstand basin floor fans show a well developed upper reflection that either downlaps along the sequence boundary or abuts against a growth fault on the downthrown side. Similar units in the Gulf of Mexico are small in areal extent but very sandy.

The lowstand slope fan contains channel complexes characterized by chaotic bedding with small amplitude anomalies and rare, large channels that exhibit concave-upward reflections.

These features suggest that the channel complexes contain a significant amount of sand. There is a well developed updip shallow-water facies of the slope fan that may contain shoreface sands.

Large amplitude anomalies in the lowstand prograding wedge suggest well developed sheet sands are present. These sands are in both shallow-water delta-front facies and deepwater shingled turbidite facies. The transgressive and high stand systems tracts are generally very thin or absent, and the upper boundary of the high stand typically displays erosion.

PLAY STYLES

Several play styles have been noted in the deepwater Niger delta that are very similar to those in the deepwater sediments of the Gulf of Mexico.

Subsequent or contemporaneous movements of the ductile shale and growth faults have produced untested structural closures more than 10 km wide and 30 km long (Fig. 6).

Clusters of strong amplitude anomalies in both shallow (0-2 km) and intermediate (2-5 km) parts of the section identify key faults that have apparently served as hydrocarbon migration paths.

Fault traps are very common and occur across the slope of the Niger delta. Stacked and extensive amplitude anomalies mark these faults as major migration routes as well as traps with multiple pays (Fig. 7).

Reservoirs occur in the basin floor fan/slope fan and prograding wedge systems tracts. Vertical and lateral seals are internal in the strata as overlying shales or stratigraphic terminations of the reservoir. Updip seals are the shales of the juxtaposed slope fan.

Other potential plays with varying risk are flanks of diapirs and truncation traps. These vary in size from potentially very large to quite small,

The thick section, abundant traps and direct hydrocarbon indicators combine to make the untested deeper offshore Niger delta blocks attractive exploration targets with potential reserves in the billions of barrels.

BIDDING TERMS

In the next bidding round, all unallocated blocks in the Niger delta, the continental shelf, the deep offshore, and Chad basin will be offered as OPLs.

An OPL confers exclusive rights of surface and subsurface exploration for petroleum in an area not more than 2,590 sq km (100 sq. miles) in size for an initial period of 3 years with the option of renewal for a maximum period of 2 years.

Companies applying should possess or have access to technical competence and adequate financial resources and undertake to prosecute an agreed minimum seismic and drilling work program in the acreage licensed to it.

The minimum expected work program varies according to the terrain but can be summarized (Table 1).

All bidders are expected to pry or purchase a data package on the block applied for. Prying will not apply to new seismic data on offshore blocks awarded. Applicants should also indicate their degree of willingness to explore blocks in frontier areas and agree to pay a minimum bid (reserved value) price according to the terrain in the amounts shown (Table 2).

Bids will be evaluated among other things on the premiums offered. The minimum required premiums were determined on the basis of the prospects for oil and gas reserves, the terrain types in regard to the technological and investment requirements, and other competing offers made by the other interested parties (Table 3).

The application will also be considered in the light of any involvement by the applicant in other projects of national interest.

In this bidding round the government wishes to enter into Production Sharing Contracts or into Sole Investment Agreements, (indigenous companies) and these types of contracts should be indicated by the bidders. It is expected that a bidding window will be opened early in 1992.

As soon as possible following the close of the bidding period, preliminary awards will be made and successful applicants invited to negotiate the final terms of their respective contracts.