$1.3b facilities idle as delay stalls upstream sector projects

Stakeholders appeal to FG over looming 30,000 job losses

If a new upstream project is not approved after the completion of the Egina Floating Production Storage Offloading (FPSO) vessel, ship repair and fabrication yards wort

h over $1.3 billion may remain idle, with about 20,000 workers risking job loss. More than 10,000 jobs may also be affected, if the Final Investment Decision (FID) on the Zabazaba deep water project is delayed beyond the second quarter of 2018.

The Guardian reported that uncertainty over fiscal terms in the Petroleum Industry Governance Bill and low oil prices contributed to the delay in FID by investors.

Indigenous companies like Dorman Long Engineering Nigeria Limited, Nigerdock, Aveon Offshore Limited, Energy Works Technology Limited (EWT), Lagos Deep Offshore Logistics Base (LADOL) had invested in building yards to enable them to contribute to the Nigeria content in the Egina FPSO project.

LADOL, Nigerdock, and Samsung Heavy Industries, for instance, invested over $1.3 billion to enhance their productive capacity for Egina and other projects in the sector.

The companies engaged in the fabrication of approximately 60,000 tonnes of equipment in various yards in-country, including specialised equipment like pressure vessels, flare tower, helideck, living quarters, large FPSO structures and complex subsea structures.

But with other projects that would have kept the yards busy yet to be approved, some of the indigenous firms have remained idle while their workers have begun losing their jobs.

The $13.5 billion Zabazaba deep water oilfield, with proven reserve of 560 million barrels of oil in Oil Prospecting Lease (OPL) 245, is yet to be finalised. The oilfield measures 1,200 – 2,400 metres. Its main features include the construction of the FPSO, sub-seal installations and drilling rigs.

The BSWA deep water project is also yet to make a headway. The field is located in the Gulf of Guinea. Shell had described the project as needing tendering cycle, resolution of non-technical risks, quality and timeliness of Front-End Engineering and Design (FEED) delivery, and Nigerian content requirements.

A visit to some of the yards showed they were totally empty while activities at others had slowed. Nigerdock was said to have sacked over 2,000 workers, following the completion of fabrication for the Egina project. Other companies slashed the salaries of workers, pending the availability of new projects.

The LADOL SHI-MCI yard in Lagos, which has a new fabrication and integration yard and a new purpose-built 500-meter long integration quay, was constructed under the FPSO package contract for the fabrication of six FPSO topside modules.

Aveon Offshore Limited, an oil and gas engineering and fabrication company, was awarded a sub-contract from FMC Technologies Limited Nigeria for the fabrication of subsea structures for the Egina Field. The company provided more than 5000 tonnes of subsea structures.

Energy Works Technology Limited (EWT) also invested billions of dollars in the construction of a fabrication yard where it built nine OLT BOUY Anchor Mooring Piles, each measuring 5m OD x 24m high x 40mm wall thickness and weighing 141 tonnes. The piles were built for Saipem Contracting Nigeria Limited for the Egina UFR Project in Port Harcourt.

Dorman Long Engineering Nigeria Limited also invested in a fabrication facility based in the Onne Oil and Gas Free Zone for the completion of the FPSO.

Lamenting the challenges in the sector, the Chairman of Jagal Group, Anwar Jamarkani, said the company might be forced to sack workers if there were no new projects.

He said: “Over the years, we have invested millions of man hours in training, skills development and welfare of our workforce. But we need to do more. We are, therefore, concerned that projects that were originally scheduled for commencement are now being shelved to the detriment of companies like ours.

“With no new projects on the horizon, companies may be forced to shut down. It is not our intention to send any more of our workers home.”

Samsung Heavy Industry Nigeria, recently, established a multi-million dollar FPSO integration facility on the back of the Total Upstream Egina project. It, however, needs new jobs to justify the investment.

The Managing Director, Chamwang Kim, said: “We decided to invest in Nigeria for the long term, not just for Egina. It would not make sense to invest for just one project. It is difficult to recover the investment in a short period. We do not know about next projects, but we need the support of all stakeholders.”

To ensure that new deep water projects are developed speedily, the Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB), Simbi Wabote, stressed the need for a close collaboration among industry stakeholders, particularly the Nigerian National Petroleum Corporation (NNPC), National Petroleum Investment Management Services (NAPIMS) and the Department of Petroleum Resources (DPR).

“This is the beginning. We know Zabazaba is coming with an FPSO. We have made it mandatory on forthcoming major projects that Egina will be used as a minimum. It means we are going to dream big and fabricate and integrate more modules in-country,” he said.

He noted: “One of my concerns in the country’s local content policy is that if there are no projects, what will happen to the capacity created through the Egina FPSO project? If the Egina project did not come to stay, there would not have been these numerous achievements. There would not have been the direct and indirect employment we have here today.

“Therefore, there is the need for us to support the Minister of Petroleum, to ensure that more of these types of projects are sanctioned and begin to take leverage from the Egina project. About 4,000 jobs were created through the Egina FPSO project. What is going to happen if there are no more jobs? I appeal to the Minister to help us ensure that more projects are sanctioned.”

The Chairman Senate Ad hoc Committee on Local Content, Solomon Adeola, however, said the committee would support the commencement of similar projects in the country. He promised it would also ensure a full implementation of the Nigerian Oil and Gas Industry Content Development Act (NOGIC).

He noted: “The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, and the Federal Government are working hard to ensure that projects as huge as Egina come on stream as soon as possible.

“We are going to work hard to push other companies to reach proper terms. Job is still ongoing on the Egina project. We are going to ensure that some of the skills that have been acquired by workers on Egina FPSO fit into the development of the country.”

On the challenges of the Local Content Policy, a research assistant at the Economics Department of the University of Lagos, Jean Balouga, said despite the ever-growing number of local oil service companies, its yearly gross earnings still accounted for less than five per cent of the sector’s aggregate yearly contracting budget.

“The current state of Nigeria’s needs is a clear indication that a responsible and dynamic approach to sustainable local content development has to be adopted by government policy makers and upstream operators, to guarantee a better future for the nation’s oil and gas industry,” he said.

On the effects of delay in the takeoff of other projects similar to Egina, he said: “When one project gets completed and there is no other to take over from it, the facility will lie fallow, implying that millions of dollars are wasting away. To avoid this colossal waste, facility management could be undertaken, otherwise decommissioning has to be done.

“If no project is approved very soon, I conjecture that between 1,000 and 1,500 people will directly be affected through the loss of their jobs. However, many more, about 5,000 will indirectly lose their means of livelihood. The whole thing depends on the value of the multiplier, which is the number measuring the link between ‘fabrication’ and the whole economy.”