ThisDayOnline (Nigeria): At Last, Bonga Oil Field Begins Production: Project costs $3.6bn, says Shell: (With added commentary by a Shell Insider): Tuesday 29 November 2005
By Mike Oduniyi, 11.28.2005
After several delays and mounting anxiety over its running cost, the Bonga deep offshore oil field has finally begun production, raising Nigeria’s daily oil output by 10 percent to 2.63 million barrels per day (bpd). Nigeria currently produces 2.4 million bpd of oil.
Shell Nigeria Exploration and Production Company (SNEPCO), the operator of the field, however, put the total cost of developing the field at $3.6 billion (N468 billion).
The Senate Committee on Petroleum Resources only last week launched an inquiry into an alleged variation in the overall cost of executing the Bonga project.
Announcing the start-up of the huge field, the Managing Director of SNEPCO, Mr. Chima Ibeneche, said production actually commenced Friday, after suffering two years of delay and that the first cargo of crude will be exported before the end of this year.
Bonga field, according to Ibeneche, will hit its peak production capacity of 225,000 barrels per day (bpd) of crude oil and 150 million standard cubic feet of gas per day, early next year.
Ibeneche added that the additional oil output from Bonga field is expected to come in handy to meet the present growing demand for oil in the international market.
“Bonga will deliver excellent value to the government and people of Nigeria, co-venturers and to the shareholders for many years to come… Production from the field is an important step in support of the Nigerian government's aspiration to raise the country's crude oil production to some four million bpd by 2010.
“Bonga opened up new discoveries during the process of doing the work. We intend to continue to produce at over 225,000 bpd for over 10 years, meaning that we might have the possibility to produce up to one billion barrels through its lifetime. That brings the operating cost to a very competitive level when compared with elsewhere in the world,” he added.
On the controversial issue of the actual cost of the project, Ibeneche said the expenditure had risen from the initial estimates of $2.9 billion to $3.6 billion due to challenges SNEPCO encountered in developing the Bonga field, which he said was the first of its kind in Nigeria.
He maintained that even the actual cost incurred was still very much competitive with what obtained in the West African sub-region as well as in the Gulf of Mexico.
“To understand the issue of cost, we need to appreciate the complexity of the Bonga project. The Bonga FPSO alone is huge. It is not surprising that when we have such a complex pioneering project that you will have some cost overruns from some surprises. What is important to note is that we have dealt with those issues and today we are able to announce that we have started production in Bonga,” he stated.
Chairman of the Senate Committee on Petroleum, Senator Lee Maeba last week queried the failure of Shell to bring the field on stream as scheduled, which he noted could mean that the Nigerian government may get little or nothing from the profits of crude exported from Bonga.
The committee had employed a New York-based tax management consultant, Sloane, Burford & Fulbright to assist in investigating the project costs.
The Bonga field was developed under a Production Sharing Contract (PSC) agreement signed between SNEPCO and the Nigerian National Petroleum Corporation (NNPC), in 1993, meaning Shell will bear 100 percent funding for the project and will first recoup all its investment before subsequent sharing of the profit with the Nigerian government.
However, defending the viability of the project, the SNEPCO boss said the prevailing high oil prices meant that the time Shell would recoup its investment “will be faster than earlier anticipated, which has in a way mitigated against some of the impact of the cost overrun we see so far.”
Oil price closed yesterday at $57 per barrel compared to the average price of $16 per barrel in 1993 when the Bonga field license was awarded.
“We are cooperating very well with the Senate investigation because we know that the PSC that we are doing is transparent and we are working with NNPC/NAPIMS to go through the PSC procedures in justifying cost for production.
“It is also important to note very clearly that when you compare the cost of Bonga with other development of its size in the West African sub region, it is competitive. Today, up to this point, we have spent $3.6 billion to bring it to first oil,” Ibeneche stressed.
Located in Oil Prospecting Licence 212, the field is situated in water depths of more than 1000 metres. Production facilities comprise one of the world's largest Floating Production Storage and Offloading (FPSO) vessels and deepwater subsea infrastructure.
The field's initial 16 subsea oil producing and water injection wells are connected to the two million barrel storage capacity FPSO by production flowlines, risers and control umbilicals.
Other joint venture partners in the field are ExxonMobil, 20 percent, Nigerian Agip, Exploration Limited, 12.5 per cent and Elf Petroleum Nigeria Limited 12.5 per cent.
Comment on this article by a Shell insider: the capacity of the FPSO is 2 million barrels - i.e. 9 days production at a rate of 225,000 b/d, but that oil will not be offloaded until "the end of the year". Are they planning to shut Bonga in next Sunday for the rest of the year, or is the production rate rather less than they are saying? 80,000 b/d seems to be a realistic assessment.
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