Oil and Gas in East Africa

oil and gas in east africa

Augustin Nkuba is a true professional of the extractive industry and a great example that demonstrates how knowledge combined with experience in a diverse and multicultural environment can be valuable to the upstream oil and gas industry.

Augustin started his professional career as an engineer in 1982, and has worked in a variety of roles in the mining, oil and gas industries to date across the world.

With over 30 years of experience in the  industry, Upstream Award’s Joe Watson Gakuo sought Mr. Nkuba’s insights and thoughts on the oil and gas exploration cycle,  and on how oil discoveries can drive growth and  integration of the East Africa Region.

Would you please tell us about you and your journey in the extractive industry, especially in Oil and Gas?

I obtained Bachelors and Masters Degrees with distinction in electrical engineering at the “Faculte Polytechnique de Mons” in Belgium. I am also a geophysical engineer from the Schlumberger School in Port Harcourt, Nigeria.

Short after  graduation in Belgium,  I briefly worked as a junior research engineer on a European satellite project and then went back to DR Congo to work as a maintenance engineer for a mining company extracting gold, Colombo-tantalite (Coltan) and cassiterite (tin ore) in eastern DRC.

In 1984, I joined Schlumberger overseas where I worked as a wireline engineer onshore/offshore in the prospection of hydrocarbons using sophisticated geophysical tools and a telemetric cable in several countries in Africa. The Schlumberger job was challenging, very demanding and also rewarding for a young engineer.

In 1987 I joined Mobil Oil in Kinshasa, DR Congo as a lube oil blending plant manager and progressed in a variety of positions including construction, engineering and operations manager.

In 1995 I was transferred to France to serve as operations and engineering advisor for the 29 subsidiaries of Mobil Africa with office in Paris. Subsequently I was seconded to the Detroit retail market in the USA before I was appointed as General Manager for several ExxonMobil subsidiaries in Africa and in the Americas.

In 2005 I was President of Orely Consulting, a small consulting firm based in Ottawa, Canada, working on oil and gas developmental projects across Africa. It was in this capacity that I came across Erin Energy Corporation in 2012 and accepted a position as their Managing Director for the Kenyan subsidiary.

My current job is to lead all operations related to oil and gas exploration in four blocks onshore/offshore located in the Lamu basin.

As you can see, I have been involved with the oil and gas industry from the production well to the petrol station pump, and also spent some time in the mining industry.

As an expert of the Oil & Gas Industry, can you expound a bit about petroleum, its origin and how to get it from the ground to the market?

Petroleum comes from “petra” and “oleum” respectively meaning in Latin rock and oil.

Petroleum is a thick, flammable, yellow-to-black mixture of gaseous, liquid, and solid hydrocarbons that occurred naturally beneath the earth’s surface several millions of years ago as a result of organic material, remains of plants and animals compressed in a fine-grained shale sedimentary rock (called source rock or kitchen) at specific temperature and pressure range.

The hydrocarbons formed in the source rock migrated towards thicker, more porous sandstone or limestone called reservoir rock. Movements in the earth trapped the hydrocarbons in the reservoir rocks between layers of impermeable rock, or cap rock, such as granite or marble.

Petroleum or crude oil can be separated, through distillation and other processes, into fractions including natural gas, gasoline, naphtha, kerosene, fuel and lubricating oils, paraffin wax, and asphalt and is used as raw material for a wide variety of derivative products.

The oil industry classifies “crude” by the location of its origin and by its relative weight or viscosity (“light”, “intermediate” or “heavy”). The relative content of sulphur in natural oil deposits also results in referring to oil as “sweet,” which means it contains relatively little sulphur, or as “sour,” which means it contains substantial amounts of sulphur.

There are three major phases that characterize the oil upstream industry in getting crude oil and natural gas from the subsurface to the market. These phases or stages are Exploration, Development and Production, and Transport. They are capital intensive and involve huge amounts of money in billions of USD.

Oil and Gas Exploration in Eastern Africa.

Oil exploration include among other things geological, geophysical and geochemical studies, acquisition of gravity and magnetic data, acquisition of 2D and 3D seismic data and drilling of exploratory wells which are necessary to have a better understanding of the sedimentary basin and its potential working petroleum systems; and to eventually extract oil and/or natural gas from their reservoir to the surface.

Seismic data acquisition surveys and drilling operations are carried out following an exhaustive Environmental and Social Impact Assessment (ESIA) to make sure that negative impact of the surveys are eliminated or mitigated to protect the fauna and the flora, and to preserve the livelihood of the populations in impacted areas.

During the oil exploration phase, the Petroleum geologist is the key resource and the focal point in identifying potential hydrocarbons leads and prospects.

The petroleum geologist, working with the geophysicist and others, will use a huge amount of data that includes gravity and magnetic maps, seismic data, electric logs, core records, drilling records and scout tickets to identify potential oil deposits and locate the best places to drill exploratory wells or wildcats.

He will also want to know what type of trap he is dealing with, and the composition of the sedimentary rock he will be drilling through.

At this point there are two important reservoir characteristics that are extremely important and worth mentioning: The porosity and the permeability. Without them, there is no reservoir.

Porosity and Permeability in Oil and Gas Exploration

The porosity is the existence of holes or pores in the sedimentary rock in order to hold oil, and the permeability is the measurement of how good the pores are interconnected to allow oil to flow.

The ideal situation is to have a reservoir rock of high porosity and high permeability like some sandstones. But, this is not often the case.

Once the petroleum geologist is satisfied with the prospect and the location to drill defined, he will put a concise package together in order to sell his prospect to non-geologists that usually include managers, engineers, bankers, and oil and gas investors.

As drilling is very expensive, the petroleum geologist will be looking to convince his clients that – the prospect is worth drilling – investors will get a fair return for their money – the provided financing will be wisely spent.

Once the decision to drill the exploratory well is made, the petroleum geologist will ensure that all permits to drill are in place and that a competent and cost effective drilling contractor is selected together with an adequate rig to carry out drilling operations.

Drilling a well is a very complex procedure involving many critical steps and many people. It is done around the clock and is attended by the petroleum geologist who will select specialized contractors for key wellsite activities like electric-logging and mud-logging.

With the result of the logs, the petroleum geologist will recommend the hole to be completed or abandoned. If the exploratory well is dry, meaning it does not contain any hydrocarbons, the well is plugged and abandoned, and restoration of the wellsite is carried out to return it to its initial condition or better.

In case a hydrocarbon occurrence has been discovered in the wildcat, the petroleum geologist will work closely with the petroleum engineer to complete the well.

Well completion procedure which involve running casings, cement job, perforation, acid jobs, surface well-head connection, etc. is a very expensive and delicate operation that needs to be handled very carefully not to kill the well.

Once the oil and/or gas discovery is satisfactorily establish following results of completion tests, the appraisal stage is recommended.

The Appraisal stage is used to delineate the extent of the discovery. It involves determination of hydrocarbon reservoir properties, connectivity, hydrocarbon type and gas-oil and oil-water contacts in order to calculate potential recoverable volumes.

This is usually done by drilling more appraisal wells around the initial exploration well. Production tests may also give insight in reservoir pressures and connectivity.

Geochemical and petro-physical analysis will give information on the type (viscosity, chemistry, API, carbon content, etc.) of the hydrocarbon and the nature of the reservoir (porosity, permeability, etc.).

At the end of the appraisal stage, which closes the exploration phase, commerciality of the discovered petroleum field may be declared, paving the way for the development and production stage.

Oil and Gas Development and Production Stage

The development and production stage focuses on extracting the hydrocarbons in a controlled way (without damaging the formation, within commercial favorable volumes, etc.).

Production wells are drilled and completed in strategic positions including horizontal drilling. Sometimes enhanced recovery (steam injection, water injection, pumps, etc.) is used to extract more hydrocarbons or to redevelop abandoned fields.

Oil and Gas Fracking

Also “fracking” is used to enhance production in rock formation with poor porosity and permeability.

Fracking which has been in the news of late, not always for good reasons, is the injection through wellbore perforations and under high pressure of fluids such as water, carbon dioxide and diesel oil.

Combined with other material such as sand and artificial proppant in order to fracture the rock formation to increase its porosity and permeability when pressure is released.

Although fracking has been used for over 60 years, latest development and advances in fracking techniques have allowed its use on large commercial scale leading to tremendous increase of oil production in shale rock reservoir in the USA, Canada and China.

Oil and Gas Production

Once crude oil is produced and depending on where the oil field is located (onshore or offshore), storage tanks, floating barges, pipelines, flowlines and other transport systems can be used to move crude oil from production sites to the refineries for processing or to the coast for export by means of tankers.

Finally it is good to know that that O&G exploration licenses are awarded for a period varying from 5 to 7 years, and that development and production contracts are signed for a duration of 25 to 30 years.

They are commonly done in form of Production Sharing Contracts / Agreements (PSC or PSA) that clearly specify contractual obligations for both parties, the Government and the O&G explorer.

Oil and Gas infrastructure and logistics in East Africa Region?

Although oil & gas exploration in East Africa started in the early 60’s, it is fair to say that the East Africa region is a new oil and gas exploration frontier where oil discoveries have been recently made onshore and gas found in huge quantities offshore.

Resurgence of hydrocarbons search in the East Africa region is mainly due to the proximity of emerging countries like China and India that have enjoyed an economic boom establishing themselves as big consumer poles for petroleum products.

While waiting for east African petroleum products demand to grow to justify expensive investment in transformational infrastructure like refineries, petrochemical and natural gas plants, it is essential to build infrastructure to take discovered oil from deep inland to the coast for export.

Revenues from oil exports will in turn boost the regional economies to create more opportunities for local consumption of petroleum products through derivatives industries. The one key infrastructure that is most needed to enable effective export of crude oil is the pipeline or a network of oil pipelines.

In my opinion there are 3 potential major projects that will help with the economic integration of the east African countries. These projects would involve all stakeholders’ countries in the region to be shareholders, preferably in all projects.

A room would be left for international partners to also participate in the projects. The projects would be implemented through Public – Private – Partnerships (PPP) and would be executed using Build, Operate and Transfer (BOT) arrangements among other financing methods.

The participating countries would work out an equitable mechanism to open employment in the projects to manpower from the respective countries.

The first project is the pipeline to transport crude oil from producing sites to the Indian Ocean coast. This pipeline, which can extend as far as the eastern DR Congo, should have provisions to form a reptile like pipeline system that will collect production coming from sites of future onshore oil discoveries.

Although I have my own preference for the route of this pipeline, I will leave it to the regional political leadership to make a decision on the route taking into account national and mutual interests, experts’ advice, security considerations and cost implications.

Even though Uganda has decided to transport its crude oil through Tanzania to the Tanga Port, regional integration in terms of pipelines still remain possible as there are many other players in the Region.

The second project is the pipeline to transport refined petroleum products from the Indian Ocean coast to the participating countries. The existing pipeline from Mombasa to Eldoret can be upgraded and extended deep into eastern DR Congo to service several countries.

The third project is a big and modern refinery. It is preferable to have this refinery located at the coast so that it can use the refined products pipeline to supply the countries in the region, and also provide a possibility to export by sea finished products to other countries for increased revenues.

Other projects like a petrochemical plant and a power plant using gas can be added to the three projects above to further enhance economic integration of the region.

Finally, implementing this kind of projects is not new to the region. Countries in the East Africa region should take inspiration from the two projects jointly executed by Tanzania and Zambia more than 40 years ago.

The TAZAMA Pipeline (a 1700 Km buried pipeline transporting crude oil from Dar Es Salaam to the Indeni refinery in Ndola, Zambia) and the TAZARA Railway also known as UHURU Railway running over 1860 Km from Dar Es Salaam to Kapiri Mposhi in Zambia.

What needs to be done to get Eastern Africans, people and businesses, to play a significant role in the oil and gas industry in the region and how to develop required skills?

Contrary to North and West Africa, oil and gas upstream industry is new in the East Africa region. At this stage, most indigenous people and businesses involved in hydrocarbons prospection in the region are pioneers of an industry poised to grow bigger.

Now that oil and gas have been discovered in the region, there is need for a long term approach in educating, training and upgrading the skills of potential manpower, both blue and white collars.

One way to achieve this, is to incorporate in the post-secondary and university education curricula, specific geoscience and petroleum engineering modules related to O&G upstream industry.

This should be coupled with hands-on experience through internship placements in O&G companies with solid footing on the ground.

The ministries in charge of O&G in the respective countries should spearhead the education effort and obtain concurrence from the International Oil Companies (IOCs). 

Local businesses in the region should make an effort to identify and understand the needs of the O&G upstream industry. Thereafter, you should make necessary investment in people and equipment.

In addition, you should put in place strategic alliances with experienced international players in order provide adequate services to the IOCs. It is at this cost that a legitimate content will be put in the “Local Content” concept.

But, providing services alone is not enough. What the region needs to see in the mid-long term, is to have indigenous companies set up as operators and eventual producers of oil and gas.

This will not be easy as the upstream industry is capital intensive and very risky. Moreover since oil and gas have been discovered in the region, the stakes have been raised and exploration acreage has become expensive.

It is no longer awarded on the first-come first-serve basis but rather through licensing rounds with competitive bids.

As a result, indigenous businesses with limited financial and technical capabilities will not be able to compete with majors like ExxonMobil, Shell, Chevron, BP and Total. This would be similar in the case of large independent exploration and production companies.

Therefore the governments in the region need to put in place incentive programs to encourage indigenous companies to enter the upstream industry with the potential to become operators one day.

Here is how I see things. The governments would, without renouncing the bidding mechanism for IOCs, use their discretionary power to award a number of blocks to deserving indigenous companies at preferential terms to be defined.

“Deserving companies” would be companies willing to take some risks and with sufficient funds to sustain a minimum organization including a geologist and a geophysicist for the duration of the exploration period.

The deserving company will be obliged to identify a farm-in partner with technical know-how and financial muscles to form a venture to embark on oil and gas exploration.

To prevent the deserving company from auctioning the block and walking away, the deserving company should at all times, keep a  minimum of 30% working interest in the block and maintain its functional organization in the venture till the end of exploration.

This will also be a way to ensure technology and know-how transfer from the farm-in partner to the deserving company. In case oil is discovered and produced, 30% stake will represent a lot of financial resources that will boost the chances of the deserving company to establish itself as a potential operator down the road.

If the deserving company fails to meet the stipulated obligations and commitment, the government would automatically retrieve the block from it and decide on the way forward.

To sum up, if the governments in the region do not do anything to help indigenous businesses to enter the oil and gas upstream industry, these businesses will remain eternal bystanders of the O&G upstream industry in their own countries.

Having said this, I know that there are regional national state owned companies involved in oil and gas exploration and production.

But, it is important to note that the outcry about oil resources becoming a curse for most African countries is due to Kleptocracy, mismanagement and rampant corruption within the state owned oil and gas companies. Hence the case for private operators.

What do you think of the current downturn in the upstream oil and gas industry?

The current downturn in the oil and gas industry is more serious that initially thought. In the past, the downturn cycle would last about 18 months. But this time around the depressed market conditions will more likely last longer.

The rivalries and conflicting interests between major OPEC and non-OPEC crude oil producers, coupled with the economic slowdown in major emerging countries will not help the recovery any time soon.

After an observation round, oil and gas companies are now bracing for lasting low crude oil prices by drastically cutting down their costs, unfortunately resulting in loss of employment for a lot of people.

But as usual there are always seeds for an upcycle in a down cycle. This is also the time to prepare and get ready for future growth.

Well-equipped companies will catch the opportunity of low contractors and vendors prices resulting from the depressed crude oil prices. This is to execute some much needed investments like drilling wells and conducting priority geophysical surveys.

It is also an opportunity for some to seize the occasion to hire some really top experts released by struggling companies.

Conclusion

Finally, there is no doubt that crude oil prices will rebound to enable more O&G exploration and production. This is in order to replace depleting oil reservoirs and the crude oil we consume every day.

In addition, it is going to cater for additional global demand as more countries aspire to development and improved standard of living, – and to prevent several companies with high production cost (i.e. shale oil and oil sand companies, etc.) from irreversible collapse.

Thank you very much Mr.Nkuba for your time.

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