History of Oil and Gas in Nigeria

The early history (1908 – 1960) – The history of oil exploration in Nigeria dates back to 1908 when Nigerian Bitumen Corporation conducted exploratory work in the country; however, the firm left the country at the onset of World War I. Thereafter, license was given to D’Arcy Exploration Company and Whitehall Petroleum. However, both companies did not find oil of commercial value and returned their licenses. In 1923 new license covering 357,000 sq. miles was given to a new firm called Shell D’arcy Petroleum Development Company of Nigeria. The new firm was a consortium of Shell and British Petroleum (then known as Anglo-Iranian). The company began exploratory work in 1937. The consortium was granted license to explore oil all over the territory of Nigeria but in 1951 and then between 1955 and 1957, the acreage allotted to the company in the original license was reduced. Drilling activities started in 1951 and the first test well was drilled in Owerri area. Shell-BP in the pursuit of commercially available petroleum found oil in Oloibiri, Nigeria in 1956 and came on stream producing 5,100 bpd. Production of crude oil began in 1957 and in 1960, a total of 847,000 tonnes of crude oil was exported.

Major Dates in Early History of Nigerian Oil and Gas Industry

1908: Nigerian Bitumen Co. & British Colonial Petroleum commenced operations around Okitipupa.

1938: Shell D’ Arcy granted Exploration license to prospect for oil throughout Nigeria.

1955: Mobil Oil Corporation started operations in Nigeria.

1956: First successful well drilled at Oloibiri by Shell D’Arcy

1956: Changed name to Shell-BP Petroleum Development Company of Nigeria Limited.

1958: First shipment of oil from Nigeria.

1960: Other non-British firms were granted license to explore for oil like Tenneco

The Mid History (1961 – 1990) – at this period, Nigeria was just understanding its latest grounds as an oil exporter and developing its export market. It was during this time that commercial exploitation of the country’s reserves began with the Nigerian Government introducing its first regulations governing the taxation of oil industry profits in which the profits were to be shared 50-50 between the government and the oil companies. By the later part of the 1960s, the Nigerian Government considered ways to utilize the resource being exploited by the western countries to develop the country and with this thought formulated its first agreement for taking equity in one of the producing companies, the Nigerian Agip Oil Company, jointly owned by Agip of Italy and Phillips of the United States. The option to take up an equity stake-in effect the first step toward the creation of the NNPC-was not, however, exercised until April 1971. In 1970, the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production.

Major Dates in Mid History of Nigerian Oil and Gas Industry

1961: Shell’s Bonny Terminal was commissioned; Texaco Overseas started operations in Nigeria.

1962: Elf started operations in Nigeria. (As Safrap), Nigeria Agip Oil Company started operations in Nigeria

1963: Elf discovered Obagi field and Ubata gas field, Gulf’s first production

1965: Agip found its first oil at Ebocha, Phillips Oil Company started operations in then Bendel State

1966: Elf started production in Rivers State with 12,000 b/d

1967: Phillips drilled its first well (Dry) at Osari -I, Phillips first oil discovery at Gilli-Gilli -I

1968: Mobil Producing Nigeria Limited) was formed, Gulf’s Terminal at Escravos was commissioned

1970: Mobil started production from 4 wells at Idoho Field, Agip started production, Department of Petroleum Resources Inspectorate started.

1971: Shell’s Forcados Terminal Commissioned, Mobil’s terminal at Qua Iboe commissioned

1973: First Participation Agreement; Federal Government acquires 35% shares in the Oil Companies, Ashland started PSC with then NNOC (NNPC), Pan Ocean Corporation drilled its first discovery well at Ogharefe -I

1974: Second Participation Agreement, Federal Government increases equity to 55%, Elf formally changed its name from “Safrap”, Ashland’s first oil discovery at Ossu -I

1975: First Oil lifting from Brass Terminal by Agip, DPR upgraded to Ministry of Petroleum Resources

1976: MPE renamed Ministry of Petroleum Resources (MPR), Pan Ocean commenced production via Shell-BP’s pipeline at a rate of 10,800 b/d

1977: Government established Nigerian National Petroleum Corporation (NNPC) by Decree 33, (NNOC & MPR extinguished).

1979: Third Participation Agreement (throughout NNPC) increases equity to 60%, Fourth Participation Agreement; BP’s shareholding nationalized, leaving NNPC with 80% equity and Shell 20% in the joint Venture, Changed name to Shell Petroleum Development Company of Nigeria (SPDC)

1984: Agreement consolidating NNPC/Shel1 joint Venture.

1986: Signing of Memorandum of Understanding (MOU)

1988: Formation of 12 strategic business units, covering the entire spectrum of oil industry operations: Nigerian Petroleum Development Company (NPDC), Nigerian Gas Company (NGC), Products and Pipelines Marketing Company (PPMC), Integrated Data Services Limited (IDSL), National Engineering and Technical Company Limited (NETCO),Hydrocarbon Services Nigeria Limited (HYSON), Warri Refinery and Petrochemical Co. Limited (WRPC), Kaduna Refinery and Petrochemical Co. Limited (KRPC), Port Harcourt Refining Co. Limited (PHRC), NNPC Retail, Duke Oil

1989: Fifth Participation Agreement; (NNPC=60%, Shell = 30%, Elf=5%, Agip=5%).

Recent History (1991 – date) –

1991: Signing of Memorandum of Understanding & joint Venture Operating Agreement (JOA)

1993: Production Sharing Contracts signed -SNEPCO, Sixth Participation Agreement; (NNPC=55%, Shell=30%, Elf= 10%, Agip=5%), the coming on-stream of Elf’s Odudu blend, offshore OML 100.

1995: SNEPCO starts drilling first Exploration well, NLNG’s Final Investment Decision taken

1999: NLNG’s First shipment of Gas out of Bonny Terminal.

2000: NPDC/NAOC Service Contract signed

2001: Production of Okono offshore field.

2002: New PSCs agreement signed, Liberalization of the downstream oil sector, NNPC commences retail outlet scheme.

The Value Of Investing In Renewable Energy

The success of the Department of Energy’s (DoE) Renewable Energy Independent Power Producers Procurement (REIPPP) Programme is a shining example of South Africa’s ability to undertake large infrastructure programmes to boost the local economy despite the current period of slow growth internationally. This public-private partnership programme has allowed for energy growth and successful private investment, which contrasts with a number of other international renewable energy programmes that have faced difficulties and setbacks.

The renewable energy developers involved in the REIPPP Programme have funded their facilities largely through independently sourced international investors and local banks making these projects viable in the SA market. About R47bn of the programmes awarded bidder status reached financial close in the first round and R28bn in the second round of the REIPPP Programme.

A recent Investec report on renewable energy pointed out that, in terms of contribution to South Africa’s gross fixed capital formation, the first and second round of successful REIPPP bidders accounted for 12.7% and 7.1% of private sector fixed investment respectively. This investment allows for further energy creation and thus enables an environment which will positively contribute to improving growth of the currently constrained GDP (at approximately 3.5%) in South Africa.

In comparison, the building of coal stations such as Eskom’s Medupi and Kusile required government funding and guarantees. In early 2015, the interest bill for Medupi and Kusile amounted to R29.2bn and R48.7bn respectively. The fact that the projects are running years behind schedule also means that this contributes to the countries confined GDP growth, as described above.

The amount invested in the De Aar project totaled R2.2 billion for the first phase and R2.6 billion for the second phase – making an overall investment of R4.8 billion in the development of the facility. Although this involved considerable startup costs, it is budged for an eleven to twelve-year payback term.

It is important to note that the Department of Energy (DoE) is currently taking firm steps to improve financial energy investment models in South Africa. In the Budget Speech on 24 February 2016, it was announced that the REIPPP Programme will be extended to include coal and gas power projects. This is a logical way forward in terms of investment, but is likely not the fastest way to provide further energy to South Africa.

When building its 175MW solar facility in De Aar, 9000 panels were mounted in one day. The farm itself was efficiently constructed in 28 months (inclusive of both phase 1 and 2 of the project). Not only will this allow power to be supplied to 75 000 homes per year, but with the upcoming investment in back-up power storage there will be ability to feed stored electricity into the grid between the 07h30 and 09h00 morning peak demand.

Coal powered stations have traditionally been built to deliver more electricity than solar power. Eskom reports that Medupi and Kusile will have a capacity of 4 800MW each. However, the DoE is invested in providing a well-thought-out electricity mix to the country and, as such, announced in October last year its intention to create a 1 500MW solar facility in the Northern Cape.

According to research, the running costs of Medupi and Kusile, when taking into account externalities such as the cost of water usage and CO2 emissions, are approximately R2.35 and R1.94 per kWh. In comparison solar power in South Africa can now be produced at a cost of under R0.70.

The global electricity produced by solar power has doubled seven times over since 2000. Part of the reason for this is that solar is not a fuel, but a technology. Owing to economies of scale and increasing efficiency, prices of solar technology and supply continue to fall, as does the price of batteries for energy storage. As a result, the need for fossil fuels is falling internationally. It is only developing countries like South Africa that are still adding coal to the energy mix, more as a result of a rapid demand for further energy supply.

Investing in solar power makes sense. It has minimal operation costs, it is environmentally friendly and the source of energy is abundantly free, green and sustainable. It is the way the world is moving and South Africa is fast becoming a leading force in renewable energy programmes.