Few days ago in Abuja, the group managing director, Nigerian National Petroleum Corporation (NNPC), Mohammed Sanusi Barkindo, disclosed that the corporation may soon become a deepwater player.Indeed, Africa is expected, according to analysts, to be the leading deepwater development area between 2008 and 2012, and to also account for 40 percent of global expenditure in the oil zone within the period. Already, in Nigeria, about 6 billion barrels of oil and over 10 trillion cubic feet of gas have been discovered from the province in water depths, ranging from 500 metres to 2000 metres. Thus, not a few analysts say it is good for the NNPC to position itself to benefit from these opportunities. But then, with the resolve of the corporation, comes tough challenges of exploring for oil and producing in the deepwater province, which currently accounts for 40 percent of Nigeria’s crude oil production with the commencement of production from Bonga, Erha, Nda, Abho, Agbara, and Agbami fields.Some of these challenges, Barkindo had also identified while dropping the hint. One of the key challenges, he identified, is security. According to him, security of operations is an issue of importance in Nigeria. “Insecurity in the Niger Delta threatens the confidence of investors and impacts heavily on the competitiveness of the development projects from Nigeria. Significant progress has been made by the Federal Government in engaging the issue of the Niger Delta.”The group managing director also identified exploration success rate as another basic challenge, explaining that after a sustained period of exploration success, the deepwater region experienced a drop in average reserves per well from a peak of about 65 million barrels per well to a low of about 20 million barrels per well in 2006.“Whilst this trend is showing signs of reversal, the prospectivety appears to have dropped from the peak in the late 90s. This has an impact on project as unit technical costs for such small discoveries tend to be much higher than would otherwise be for bigger discoveries. “A better understanding of the deepwater is required to ensure the enhanced success of exploration, thereby reversing the trend,” he declared.Another major challenge he identified was fiscal term, saying the long-run sustainability of the sector is anchored on a robust fiscal scheme that encourages investments. As the demographics of the Niger Delta crude oil supply capacity shifts with an increasing proportion of deepwater production, a robust fiscal policy needs to be entrenched, such that major dips are not experienced in government revenues given that deepwater developments are based on Production Sharing Contract (PSC) arrangement, he said. “Beyond ensuring stability and robustness in the fiscal terms, there is also an urgent need to develop terms for deepwater gas, which currently do not exist and as such delaying the active exploitation of over 10 trillion cubic feet of gas.”Another challenge, according to Barkindo, is cost of operations, referring to it as the most critical challenge. He explained that deepwater development, particularly in the ultra-deep offshore, required a sustainable crude price in excess of $40 a barrel to support continued production, exploration and developments. “Given the uncertainty in long-run crude prices, the industry is challenged by rising cost of operations and consequently needs to examine ways of achieving a step reduction in costs. Key areas of challenge include availability and affordability of drilling rigs, support vessels, operations support infrastructure such as field logistics bases, sub-sea technologies, three-phase flow metering and offshore hub development concepts.” The NNPC chief also saw challenges in accessing small discoveries as a problem, noting that there existed small discoveries, which are not easily developed in view of cost based on the development philosophies currently adopted for the major fields.Another challenge, he identified, is technology to access new potential, stressing that despite the high prospectivity experienced in the relatively shallow deepwater plays in Nigeria, the potential in the corresponding series of rocks (Oligocene) needs to be rapidly evaluated. He however explained that the pace of progress was challenged by the availability of seismic technologies to better define these plays as well as drilling and completion technologies, which could cope with anticipated high pressures and high temperatures that will characterise the plays.Another issue highlighted by Barkindo is the challenge of human capacity.“This is a generic problem across the industry. However, with deepwater, there is the urgent need to develop critical skills and capacities in the areas of sub-sea engineering, drilling, and reservoir/geological modelling.”The lack of availability of adequate in-country facilities engineering, fabrication, and manufacturing is threatening opportunities provided by the deepwater for the local economy, he added.For Barkindo, there are big opportunities in the deepwater, saying that not less than 4 billion barrels reserves could be unlocked through smaller discoveries.The scale of investments anticipated in the deepwater and the potential for future oil-find indicate that there is a huge opportunity to further enhance the local content part of deepwater operations, according to him.For managing director, Shell Exploration and Production Company of Nigeria Limited, Chike Onyejekwe, successful cooperation between international oil companies, government, local companies, and communities, is the key to further unlocking Nigeria’s hydrocarbon resources and achieving energy security.