NNPC’s Funding Delays Threaten Nigeria’s 4mbpd Target

04 Dec 2012

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NNPC Headoffice

Chika Amanze-Nwachuku

The Federal Government’s crude oil growth projections of 4 million barrels per day (mbpd) and reserves of 40 billion barrels may remain a mirage as multi-billion dollar oil and gas projects expected to increase output and create thousands of jobs, are said to have been bungled by the Nigerian National Petroleum Corporation (NNPC).

The projects, according to THISDAY investigations, include ExxonMobil’s Erha North and phase two of the Satellite field development project, Shell’s Bonga Southwest and North-west, the multi-billion dollar Nsikko project, Total’s Egina project and the Funiwa Gas project, some of which had been in the pipeline for more than five years.

The reluctance by the NNPC to commit to the projects, industry sources said, has prompted interested investors to pull out, while some of the projects have been abandoned.

But an official of the state-run oil company has blamed funding issues for the delay in the take-off of the projects, adding that they were not deliberately stalled.

Expressing shock at the NNPC’s surprising apathy towards these very vital projects, a source at the corporation told THISDAY at the weekend that the delays had not only resulted in cost overruns, but are constituting a major setback to government’s aspirations to increase oil production to 4 million barrels per day from the current 2.4 million daily output.

He also noted that the NNPC’s lack of interest in these projects undermines the objectives of the Nigerian Content Development Act, to grow indigenous capacity and create more job opportunities for teeming Nigerians.

Investigations by THISDAY revealed that the call for tender on the Erha North phase two project was conducted over two years ago and all the bids were submitted to NNPC in November 2011.

This was also applicable to the Satellite field development project phase two, but NNPC has since refused to move forward on both projects.

It was gathered that despite the fact that commercial bids for the Erha North phase two field development – a tie back to the main project - had since been concluded and submitted to the Group Executive Committee of NNPC by the National Petroleum Investment Management (NAPIMS), the investment arm of the corporation, no effort has been made to proceed to the next stage of the project.

A source at the Exploration and Production Division of NNPC, however, confirmed yesterday that the management of NNPC was actually ready to proceed with the second phase of the Erha North field, but would rather that the terms applicable to the development of the field as contained in the Petroleum Industry Bill (PIB) be applied retroactively.

ExxonMobil, the parent company of Mobil Nigeria Unlimited, has expressed concern over the fiscal terms in the PIB, insisting that if passed in its current form, it will affect the company’s investment in Nigeria.

THISDAY learnt that the Erha North phase two project has suffered four bids validity extensions in the last four years and the current validity extension will expire on December 31.  Obtaining a further extension would come at significant price increase or another tender process.

An official of Mobil, who did not want to be named, stated that if by January 1 the NNPC fails to give approval for the project, the development of the second phase of Erha North field would be suspended and the terms demobilised, which will result in significant cost escalation for Nigeria.

With respect to the second phase of the Satellite field project, which was a roll-over of phase one, THISDAY learnt that bids had already been taken and budget estimates put in place.

But more than one year later, the commercial bid opening was stopped by the NNPC, in what sources viewed as a deliberate attempt to truncate the whole exercise.

The directive halting the process, THISDAY learnt, was issued by the NNPC’s Group Executive Director (GED) in charge of Exploration and Production, Mr. Abiye Membere, who claimed the corporation wanted a price reduction.
The call for tenders on the project took place when Mr. Andrew Yakubu, who currently is the Group Managing Director of the corporation, was in charge of exploration and production.

Stopping the project, sources said, has called to question the three-tier tender process of the NNPC and Yakubu’s tenure in the Exploration and Production Division.

“The resultant effects are that contractors would have to demoblise their project teams and start laying off Nigerian workers. The Bonga SW/NW field development project, Egina field development project as well as the Funiwa Gas project are all victims of NNPC’s inability to bring to a close discussions started three years ago,” said the source.

The source disclosed that Yakubu, while serving as GED, had recommended the commencement of the Egina project to the Group Executive Committee, but “for inexplicable reason”, it never came up for discussion.

On the Funiwa gas project, THISDAY also reliably gathered that Chevron was forced to abandon plans to develop the multi-billion dollar Nsikko field development over the past few years owing to NNPC’s inability to propose a way forward and uncertainties surrounding the PIB, especially regarding the fiscal terms proposed in the bill.

The Nsikko field, in OPL 249, was expected to produce 150,000 barrels of oil within one year of initial startup. The initial date for the field to come on stream was 2011, but was later rescheduled to late 2012.

But five years after, the project has been abandoned due to delays in the passage of the PIB and NNPC’s inability to propose a way forward for the field’s development.
Similarly, the Funiwa gas project, which had been envisaged to create job opportunities for Nigerians, has since been stalled because its development was tied to the Brass Liquefied Natural Gas (LNG) project.

The development of Funiwa was put at $3 billion but has been stalled, because Brass LNG is yet to take off.

However, in a bid to defend the corporation’s role in stalling the major projects, an official of NNPC said yesterday that lack of funding was to blame for the delays.

He said aside from the issue of funding, there were other fundamental issues that the corporation needed to trash out. “For instance, how the projects would be managed by the partners,” he said.

He faulted claims that NNPC was not showing enough interest in the projects, stating that the oil companies wanted the projects run in a manner that would profit them, whereas the NNPC was working in the country's interest.

Tags: News, Nigeria, Featured, NNPC, Nigeria’s 4mbpd Target

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