How Oil Output from Addax-operated OMLs Fell from 130,000bpd to 7,000bpd Amid OPEC Deficit
in Abuja
Production from assets operated by Addax Petroleum slumped massively from 130,000 barrels per day to 7,000bpd amid disagreements with the federal government, a new document released by the Nigerian National Petroleum Company Limited (NNPC) has revealed.
The NNPC’s latest quarterly publication of its activities indicated that the Production Sharing Contract (PSC) on Oil Mining Leases (OMLs) 123/124 and 126/137 crumbled after the Chinese-owned Addax declined to make new investments on the assets, leading to a fall of budgetary allocation from over $2 billion to barely $200,000 when the firm was exiting the assets last year.
The NNPC had on January 31, 2023 announced the termination of the 24-year deal with Addax Petroleum Development (Nigeria) Limited, marking the exit of the Sinopec of China’s subsidiary.
The official end to the business relationship came three months after the execution of the Addax Transfer, Settlement, and Exit Agreement (TSEA) for the PSC Oil blocks, OMLs 123/124 & 126/137, with the assets then transferred to the concessionaire, NNPC.
The PSC for the oil blocks was initially signed in 1973 between the NNPC and America’s Ashland, but was terminated after 25 years. Subsequently, the NNPC signed another PSC with the Swiss and then with China’s Sinopec, which retained the name Addax in 1998.
However, the Addax PSCs were associated with significant intricacies and complexities and attendant disputes, even threatening the diplomatic relations between Nigeria and China at a point.
Multiple litigations then ensued, hindering the attainment of the desired objectives of value creation to the PSC parties, government, and other stakeholders.
Now renamed Antan Producing, a Special Purpose Vehicle (SPV), the NNPC in the publication stated that after initially raising production from 7,000 bpd to 15,000bpd, the target this year is to further increase production to 30,000 bpd.
The new Managing Director of the oil asset, Sagiru Jajere, interviewed by the NNPC in-house staff, said that with the support from the parent body, the NNPC, he had begun to gradually sort out the problems with the assets.
“On the day the assets transfer agreement was signed when we took over, production was just above 7,000 bpd. But as of today, we are doing well over 12,000 barrels from OML 123 alone. We are doing another 3,000 barrels from OML 126. That is 15,000 bpd, up from 7,000 bpd, ”he said.
However, Jajere stated that more investment was required on the asset to ensure increased production.
“The only way to increase production in a sustainable manner is to get more investment. That is necessary for this business. We knew why we came down to the weak production status.
“But you can remember that at a time, we were producing well above our OPEC quota. In fact, there were times we were penalised for producing above our quota. Gradually, we saw the figures dropping, ”he added.
He argued that there are fiscal terms, which have made some investors to stay away from investing in the sector.
“Unless we do something to attract investments, all these activities we’re doing to bring up production to meet the OPEC quota will not amount to much. So, we are trying to make the business attractive so that people can come back and invest, ”he stressed.
Jajere disclosed that the NNPC had had to re-enter some wells that were shut for no real reasons, explaining that it was discovered that some wells were shut at the slightest challenge by the former operators.
“We believe that will give us a volume that will most likely take us to somewhere around 25,000 to 30,000 bpd. In the long-term, we are also looking at OML 137, which is also a big reservoir of oil with a lot of gas.
“This is a huge opportunity that we are looking at. By the time we get there, the production from Antan will be somewhere above 50,000bpd, plus the gas we want to develop and commercialise, ”he stated.
According to him, the issues with Addax were withdrawal of financial incentive package and lack of investments in the asset.
“Everything was going down. We saw it from outside. But you have to be in before you can see some things. The day I stepped into the office at Addax, that was when I realized how terribly bad things had gone, ”Jajere stressed.
If Adax was producing up to capacity, a THISDAY calculation showed that it would be adding up to 4 million barrels every month to Nigeria’s Organisation of Petroleum Exporting Countries (OPEC) quota, which at the end of 2023 was still short by over 500,000 bpd.