Bavijas Review

On Tuesday this week, a 400-level student of Petroleum Engineering at the University of Uyo asked me why the Dangote refinery is sourcing crude oil from far away the US when it has NNPC Ltd. as its equity shareholder. And I gave him an honest response that went thus:  “Dangote doesn’t seem to trust NNPC Ltd much when it comes to crude delivery. NNPC Ltd has failed before, so it (Dangote) is taking an extra layer of supply assurance.” Manufacturers with large production output worry when their supply base can't deliver on their promise. It makes them vulnerable to demand disruptions and volatility, which, of course, are undesirable for businesses.   To avert this, they often depend on a list of external suppliers to cut lead times and achieve assurance of supply. This is exactly what Dangote is beginning to do to sustain its refinery operations since NNPC Limited, its equity shareholder, couldn't deliver as when due. I don't think Dangote broke any agreement with NNPC Ltd. b

Globally, oil and gas development and production often require high capital expenditures (CAPEX), high technological expertise and the ability to manage investment risks. Oil companies that don't have the financial wherewithal to undertake such capital-intensive investments or projects will either bow out of the bidding process or adopt strategic approaches that could help them develop enough capabilities to overcome challenges waiting up front. Usually, two contractual arrangements are adopted to achieve this. One is a Joint Venture (JV), while the other is a Production Sharing Contract (PSC). What is a Joint Venture (JV)? A joint venture (JV) is a strategic equity-sharing agreement where two or more parties combine resources to execute an oil & gas transaction and mitigate the risk associated with the business. You may also call it a Joint Operating Agreement (JOA). Typically, the operators of a JV asset each have to contribute funds, in a proportionate degree, to develop the

Tar sandstone, from California, USA. Source: WikiCommons

In the extractive industry, mineral resource estimation is often classified and reported in a manner that may not be understood at a mere glance by the unfamiliar. For instance, in the oil and gas industry, hydrocarbon reserves are often categorised into Proven, Probable, and Possible depending on their degree of recoverability or extraction. Proven reserves  tell us that the mineral or hydrocarbon in commercial amount exists and can be extracted or recovered. It has a 90% degree of recoverability. Probable reserves tell us that a probable commercial amount of mineral or hydrocarbons exist but the chance of extracting it is 50%. Possible reserves suggest that an amount of mineral or hydrocarbons exist. While it has only a 10% degree of certainty, its recoverability as a commercial reserve is often disputed. Such reserves are usually evaluated for findings or information sake as their commerciality and cost of drilling are higher than the perceived economic returns. By exte