DPR EMBARKS ON AUDIT OF THE NATIONS OIL AND GAS RESERVES



Additional Company Information Historical Background Our Roles in the society DPR Management Zonal & Field Office	DPR EMBARKS ON AUDIT OF THE NATIONS OIL AND GAS RESERVES The DPR has commenced the reserves audit of sixty-nine (69) JV, PSC, indigenous and marginal field companies; - this includes oil, condensates and gas reserves. The termination of the RAB (Reserves Addition Bonus) clause 2.9 necessitated the Department to evoke the Petroleum Act CAP 350 [Petroleum (Drilling and Production) Regulations 1969] section 55 which empowers the Department to audit the Oil and Gas Reserves base of all oil and gas exploration and production companies in Nigeria. This exercise is contingent on the need to grow the reserve base of the nation to 40 billion barrels and increase daily production to 4.5 million barrels per day, in accordance with Federal Government's targets. The Audit Teams were given the following terms of reference: • Authentication of booked oil, condensate Associated and Non-Associated gas reserves based on Proved, Probable and Possible reserves • Compliance with the approved “Standardisation of reserves definition, classification and Reporting format” in the reporting and classification of Reserves • Review and validation of input parameters for the Stock tank Initially in Place (STIIP), Ultimate Recovery (UR) and Remaining Reserves for oil, condensate, associated gas and non-associated gas for each field. • Review of Special Studies reports with emphasis on those that impacted on reserves changes • Review of all reports, data and any other documents submitted by the companies • Review of company procedures to ensure compliance with statutory requirements. At the end of the exercise a report is expected to be presented to the Director of Petroleum Resources. Brief History The unprecedented oil glut and its resultant low crude prices experienced in the 1980s led to a down turn in exploration and production activities in Nigeria . This made the Federal Government to sign an agreement, called the Memorandum of Understanding (MOU), with the oil exploration and producing companies in 1986. The MOU guaranteed the companies a profit margin and therefore provided incentives for investment in exploration and production activities. The government, in 1991, reviewed the 1986 “Memorandum of Understanding on Incentives for Encouraging Investments in Exploration and Development activities and Enhancing Crude oil exports” (MOU) to include among others the “Reserves Addition Bonus”. The Department of Petroleum Resources (DPR) in collaborating with National Petroleum Investment Management Services (NAPIMS) and OPTS (Oil Producers Trade Section) came up with two documents, “The Standardisation of Reserves Definitions, Classifications and Reporting Formats” and the “MOU Interpretation Guideline” which serves as procedure in authenticating the content of Ultimate Recovery of oil, gas and condensate report, submitted by the producing companies. These documents were used throughout the life of the RAB, 1991 – 2000 except for the 1991 and 1992 when the documents were being developed. Consequent upon the claims made by the companies in 1991and 1992, both NAPIMS and DPR faulted clause 2.9 of the MoU which empowered the companies to claim bonus with little investment on claims such as Reservoir Studies and Performance Reviews (Decline Curve Analyses). However, the two parties regarded drilling operations like exploratory, appraisal or development drilling as the most likely way of increasing the nation's reserves base in tangible terms rather than through reservoir studies, reserves upgrades or downgrade and performance reviews which requires little or no investment. These postures taken by NAPIMS and DPR, were seen by the companies not to be in line with the spirit of the MOU. A fervent call was made to government by these agencies to review the clause 2.9 to reflect drilling operation only in the determination of Ultimate Recovery. Even though, the clause 2.9 revision was not concluded until year 2000, DPR in its wisdom used “The Standardization of Reserves Definitions, Classifications and Reporting Formats” and the “MOU Interpretation Guideline” to benchmark the Ultimate Recovery determination to drilling activities and full field studies. This has been DPR's view ab initio. Contrary to all expectations, by 1 st January 2000, the 1991 MOU was terminated by government. Oil and Gas Reserves Audit The termination of the RAB clause 2.9 necessitated the Department to evoke the Petroleum Act CAP 350 [Petroleum (Drilling and Production) Regulations 1969] section 55 which empowers the Department to audit the Oil and Gas Reserves base of all oil and gas exploration and production companies in Nigeria. The exercise is necessitated by the need to grow the reserve base of the country to 40 Billion barrels and increase oil productivity to 4.5 Million barrels per day. There is therefore the urgent need to accurately determine and classify the nation's proved or bankable reserve, determine the extent of associated and non associated gas reserves available for effective utilization and national planning. The reserves audit will also validate the reserves figures and the input parameters that resulted in those figures. The reserves audit will be conducted on all the sixty nine (69) Joint Venture, Production Sharing Contract, Indigenous and marginal field companies. The Audit Teams were given the following terms of reference: • Authentication of booked oil, condensate Associated and Non-Associated gas reserves based on Proved, Probable and Possible reserves • Compliance with the approved “Standardization of reserves definition, classification and Reporting format” in the reporting and classification of Reserves • Review and validation of input parameters for the Stock tank Initially in Place (STIIP), Ultimate Recovery (UR) and Remaining Reserves for oil, condensate, associated gas and non-associated gas for each field. • Review of Special Studies reports with emphasis on those that impacted on reserves changes • Review of all reports, data and any other documents submitted by the companies • Review of company procedures to ensure compliance with statutory requirements. At the end of the exercise a report is expected to be presented to the Director of Petroleum Resources.