Liberia’s Hope For Oil Falters As ExxonMobil Fails to Find Oil
Monrovia – The future of Liberia’s oil and gas industry did not depend entirely on the outcome of ExxonMobil’s drilling activities last month but it has been dealt a significant blow.
Report by James Harding Giahyue
There were high hopes that success in the Mesurado-1 well, 50 miles off the coast, would have seen an immediate restart of the collapsed Liberian oil sector.
More than one year since it was announced, ExxonMobil finally began drilling on November 22, 2016, the first time since the company signed a production sharing contract for block 13 with Liberia in 2011.
Unfortunately, ExxonMobil found no oil and announced on December 19, 2016 that the well was dry.
In oil terms, a “dry well” could have no oil in it at all or not in commercial quantity. “Commercial quantity” means that there is not enough oil in the well to get more than the money required to invest in extracting the oil from the well.
“We are naturally disappointed by the lack of hydrocarbons in the targeted reservoir sands in the Mersurado-1 well,” said Arthur Millholland CEO of COPL, which holds a 17 percent in the project, in a story in HERE.
But Milholland did provide a glimmer of hope, saying there was enough evidence in the rock samples that were extracted from the seafloor to keep Exxon investigating other spots in the block. They will do this with cheaper exploration tools rather than drilling which can cost as much as $1m a day.
“The lack of hydrocarbons [oil] at this location where our seismic data presented attributes indicative of hydrocarbons will cause us to do additional work on the 3D seismic over the block, and reevaluate the other leads we have mapped on LB-13,” Millholland added.
Liberia’s burgeoning industry experienced collapse just in the last two years mainly due to the collapse in oil prices and partly due to failures of NOCAL management. Liberia has since done much to reform its oil and gas industry, bracing for a brighter future.
In October, the Petroleum (Exploration and Production) Law of 2014 was passed into law, replacing the National Oil Law of 2000. Global Witness, which has published several reports pushing Liberia for sector reform, praised the country for the move.
The passage of the law automatically lifts a moratorium placed on shelf wells as well as making it possible for the National Oil Company of Liberia (NOCAL) to conduct bid rounds.
NOCAL reckoned in a statement published on its website in October 2016 that the new law would “increase investors’ confidence and lead to more investments that will keep the Liberian basin active despite current global downward trend in exploration activities in the oil & gas industry”.
In the new law, NOCAL is restricted to acting only as a negotiator, with a petroleum ministry and a directorate to handle the regulation of the industry, and overseeing bid rounds.
The law also sets a standard for royalties and other fees in production sharing contracts.
This makes the industry compatible with international best practices.
Some members of the House of Representatives earlier this month raised qualms that some portion of the new oil law had been altered to remove clauses regarding local content.
NOCAL did not respond to requests for comment.
But experts say structural reform is not the only challenge the Liberian oil and gas industry faces.
The geology of the Liberian basin is complex, and finding oil will be extremely difficult. Much more drilling will likely be required.
In November, African Petroleum relinquished the blocks it held—blocks 08 and 09—blaming market challenges and lack of interest in the Liberian oil basin due to the history of no discoveries in the basin.
Urias Taylor, a Liberian petroleum engineer, said that Liberia should consider doing everything possible, including a tax holiday, to attract more oil companies to keep the hope of finding oil alive.
According to Taylor it will likely take much more drilling in the basin to find oil.
“The matter of fact is if we start to have more players going into the area, there is high chance of us making discovery [of oil in commercial quantity],” Taylor said.
“You have a history of limited people (companies) participating in offshore drilling activities but later on when the number started increasing the chances of uncertainty started reducing.”
“If you look at the size of the area and looking at the number of people [companies] you have available, the chance of you getting a reserve is still slim.”
Taylor referenced the situation of Ghana, which drilled more than 50 wells before its Jubilee field was discovered in 2007. In Liberia just 10 wells have been drilled so far.
At the same time experts grapple over the rationale of ExxonMobil’s decision to drill in Liberia now.
A number of oil companies have relinquished oil blocks, including Anadarko, Repsol and Tullow and recently African Petroleum.
Some point to setbacks Exxon has suffered in the global market.
In October 2016 Exxon said that it stood to lose 4.6 billion barrels of its global reserves, amounting to 19 percent of its reserve, the largest of such loss since 1999, according to Bloomberg news agency.
Bloomberg reported that the company also recorded its lowest oil and natural gas production in seven years in 2016 as well as a further 2.5% fall in its profit, the largest since 1988.
A class action lawsuit, reported by Bloomberg, by investors in Texas, USA, over allegations of overstating the value of its recoverable oil and gas reserves do not make its situation any better (Ramirez v. ExxonMobil Corp. , N.D. Tex., No. 16-cv-03111, complaint 11/7/16 ).
“There are many factors why they might decide to drill,” says Robert W. Taylor, the vice president of the International Human Resources Development Corporation (IHRDC) that provides services to oil and gas companies.
“Sometimes it’s as simple as having an obligation to use the rig which is under contract; then again, it may be a window of commitment made to the Liberia government in the terms and conditions for which we do not have information on,” he added.
“My sense is that it was a combination of events that led them to drill, not the least of which is their geologists ranked this particular prospect worthy of the drilling investment cost.”
ExxonMobil’s Regional Public and Government Affairs Advisor Matthew Scharf declined to comment specifically on the on the drilling but average drilling costs up to US$1 million a day.
Meanwhile, there are signs that the global oil crisis might be coming to an end.
Activity in oil exploration has increased markedly in the last year.
The worldwide number of rigs in action for the last week in the year was 1678, up by 58, according to Baker Hughes, a firm based in the United States that tallies rig counts globally, including those related to oil and gas.
In the United States along, Baker Hughes reported that the number of oil rigs increased by two, from 523 to 525. That was the ninth rise in number of U.S. oil rigs in a row, according to the firm.
Oil prices have started to move higher again for the first time since a big increase in production from oil fracking in the US in 2014 drove a huge increase in supply that drove prices down.
In December 2016, oil producing countries led by Russia reached an agreement to cut supply by 558,000 barrels per day (bpd), the first such deal since 1998. This cut in supply was designed to drive prices higher.
Member-states of the Organization of Petroleum Exporting Countries (OPEC) had earlier agreed in November to cut supply by 1.2 million bpd.
These moves had an effect. Oil prices have risen to US$55.87 per barrel, the highest since 2014 when prices began dropping.
This may have been a factor pushing Exxon to act in Liberia.
“As you know, oil is approaching the mid-$50s in price this week. Companies like Exxon need to replenish their ‘booked’ reservoirs and take in stride the various drilling opportunities around the world to do so,” added Taylor of IHRDC.
There are 24 Liberians working on the rig, performing skilled, semi-skilled and unskilled labors. Because the rig is closer to Ivory Coast, they travel there to get onboard a helicopter that takes them on the rig.
“Some of them have been enthusiastic about the job because they had been sitting down home without work,” said William Montgomery Jr., Acting Country Manager of Menergy International Liberia Limited, a company that provides oilfield services on rigs drilling offshore Liberia.
He revealed that one Liberian rig worker had told him that he was going to use his wages to settle his trip to the United States after winning the Diversity Visa (DV).
The rig is called West Saturn and is owned by Seadrill, a company that leases rig and provides services to oil and gas companies.
Seadrill is headquartered in Bermuda and run from London.
West Saturn is the first for Menergy since halting its operations in 2014 due to the Ebola crisis.
“The only sad part about it is that the project is a short-term project,” Montgomery added.
Meanwhile, ExxonMobil has provided more than US$500,000 to local and international nongovernmental organizations through NOCAL for its corporate social responsibility projects in the health, education and agriculture sectors.
The disbursement was NOCAL’s first since the industry experienced setbacks. NOCAL said on its website following the disbursement of the funds in November that the NGOs had been scrutinized and due diligence performed to make sure the funds were used for the intended purposes.
Life for African Mothers, a local NGO, has received US$40,000 to run a project involving the training of more than 400 midwives across six counties in Liberia with the assistance of more than 75 midwives and doctors from the United Kingdom.
The project seeks to reduce the high rate of maternal mortality in Liberia that stands has soared to more than 1000 deaths per 100,000 live births after the Ebola crisis, one of the highest in the world.
It wants to fill the void left after many healthcare workers died due to the Ebola crisis.
“I am a health worker and knowing that some times to get some basic skills and access to some basic technology is sometimes lacking in totality, so we believe that with the help of our UK counterparts, the money we received from NOCAL will actually boost up the health sector when it comes to the reduction of infant and maternal mortality in our country,” said Abdul-rahman Bah, Director of the local midwifery group.
“We owe it to them because it is a social corporate responsibility project. The health of the women of this country relies on us, so if for any reason that we do not implement our project it will be a disaster for our country,” Bah added.
This story was produced in collaboration with the Thomson Reuters Foundation/New Narratives Liberia Oil Reporting Project, which is part of the Foundation’s pan-African program Wealth of Nations (wealth-of-nations.org)