Okoroafor: Huge Investments Needed to Grow Nigeria’s Crude Production, Reserves

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The Chairman of Petroleum Technology Association of Nigeria, Bank Anthony Okoroafor in this interview with Chineme Okafor, posited that Nigeria’s longtime aspiration to increase her crude production to 4million barrels a day and reserves to 40billion barrels can only be achieved with huge investments in exploration and development. He also advised that the fiscal terms be reviewed urgently to attract the needed investments in the oil and gas industry. Excerpts:

Following recent requests for government to divest some of its shares in national oil and gas assets, does it make any economic sense at a time the country is in a peculiar financial straits and seems desperate?

Not advised; what is required is to employ and retain professionals to run these assets in NNPC. After all, is Statoil not a 100% Norwegian government owned company? But they don’t behave like us. A change of behaviour is all that is needed. You do not sell your house because the key to your house is not working. Find out if people running our refineries are refiners, if NNPC put the wrong people in some of the assets, they should replace them with the right people who will do the job and get it right. Take the case of Eleme Petrochemicals in Port Harcourt that was sold to Indorama, Indorama did an audit of the entire staff and kept those with knowledge of petrochemicals to run the place and immediately turned to heavy profitability. There was not much to be done to return to profitability except putting the right people to the right jobs. Our national oil and Gas assets have been poorly managed. Why are IOCs’ assets doing much better? It is because they have always put square pegs in round holes. They use subject matter experts to add value in the various value chain. When NNPC had 80% of the shareholding in Jv’s, the divested some of their shareholding , what did we achieve with the money realised from those divestments? Nothing. If you sell some of these assets, you will not create new jobs, they will use the existing staff or drop some of them. People who want assets should bid for blocks. We should do bid rounds, when people get new blocks, it will create lots of new employment, add value , real money will be brought into the company. We should learn to honour our obligations and maintain sanctity of agreements and contracts. We should create greater institutions and not greater personalities. That is the problem with our joint venture (JVs). If you have the right people with the right attitude running the JVs as a business and professional entity, organisations would not be complaining.

If the government decides to sell, what or which oil and gas assets would you recommend it divests parts of its shares in?

My first option will be to put square pegs in round holes to run all NNPC assets. If we are unable to do that, then government can reduce NNPC’s JV equity. Other parties including capable Nigerian companies may bid for the divested equity. We should not sell our crown jewels or assets that are being run profitably well. NLNG is being run profitably well because it is run like a private company because the government is not the majority shareholder. The inefficiencies in government assets are not there. The NNPC owns 49% of the shares, Shell Gas owns 25.6%, Total LNG owns 15%, Eni owns 10.4%. Statoil is a 100% Norwegian company like the NNPC, it is not a private company but it is one of the best performing companies today because of their government and management discipline. Assets that are not running profitably that we are not able to put subject matter experts to run them profitably should be sold to private organisations with the technical and commercial know-how. We must remove sentiments and politics in taking pure and fundamental economic and business decisions. Statoil has a lot of patents both in upstream and downstream. What is NNPC Research and Development (R&D) doing, it looks like a place to dump people not liked by the Corporation. It is just a cost centre with nothing to show. They do not do any research or any intellectual development. Egg heads must be sent to head R&D departments and has it properly funded with key performance deliverables.

There are insinuations that Nigeria’s oil industry is fast losing its competitive edges – we’ve lost our status as Africa’s top oil producer, lost market shares in the global LNG destinations and rely heavily on imported fuel, are these real issues to be worried about?

We are no longer the beautiful bride because we do not have the enabling laws, our reserves are low, our investor confidence is low, our ease of doing business index is not encouraging. As an investor, you want to know the laws the country has because it is those laws that determine whether your investment is safe. We do not have the laws or fiscal regimes required to invest. Is it decree 51 or which version of PIB? We are in a state of loss on petroleum laws. We should as a matter of urgency review our fiscal terms to maintain attractiveness and investment. Investment goes to friendly environment. People are not investing in refineries because we set prices for the products. We do not allow market forces of demand and supply to determine the prices.

To date, are you able to quantify or evaluate the impacts or imbalances the lack of needed reforms in the industry has created or caused?

It has cost us so much on lost investments and opportunities.
– No enough gas to power our power plants;
– Negative growth in reserves;
– Our dream of 4m bopd still a mirage and Loss making ventures
Some people are canvasing for Incorporated Joint Ventures (IJVs), citing the NLNG as a case in point. We should understand that not all oil companies will be able to operate like the NLNG. It will be quite cumbersome. You can get your partners to fund some of your activities without necessarily going to incorporate IJV or ceding or pledging assets. We just need to create a trustworthy template that the Ministry of Finance and IOCs will have confidence in.

The country’s oil reserves are depleting, no new developments to grow them, what best option is available to overcome this?

Our biggest danger is that our reserves are going down in an uncomfortable manner. Lower reserve creates lower investor confidence. It weakens us as a country. We no longer command the respect that we used to have. It also weakens our currency power. The strength of Saudi Arabia is on its oil reserve, which is about a 268 Billion barrels. That makes its currency strong. Saudi Aramco is a force to reckon with. Our reserve is less than 30 billion barrels. We have been suffering negative reserve growth since 2007. Our best option now is to stimulate exploration. The initiatives should not be left with government because its intentions are mostly political and short terminism. Let’s stop blaming cash calls.

– Put an executive bill to National Assembly to put aside one billion dollars every year to fund exploration; Take some percentage from the oil exploitation tax to fund exploration on a yearly basis; The PTDF should fund exploration;
New blocks should be given out for people to explore; Conduct blocks and marginal bid rounds so people will explore and share with government; Incentivise people to come and explore new areas; new bid rounds under laws that are friendly to investors.

If we did not give favourable terms to deepwater, we would not have discovered Bonga.
We should stop talking and start working. It takes a lot of efforts to discover one new barrel of crude oil. If you discover a new field, it creates more jobs, creates a field in the offering, more facility work to develope and produce the field and add to reserve. Our proven reserve is less than 30 billion barrels as at 2015. The target of increasing our crude oil reserves to 40 billion barrels and production to four million barrels per day can only be achieved when we invest in explorations and developments. There are many factors that contribute to this. Oil & Gas projects tend to have medium – long term gestation periods particularly gas projects. The decisions we take today will shape the outcomes in seven to ten years’ time in future. We must explore to grow our reserves and drill several wells to increase our production. We have not added any reserve in the past 10 years. We need attractive fiscal terms. The failure in the passage of the PIB when the price of crude was high and oil companies were willing and able to invest was a missed opportunity. The objectives of the PIB were to enhance exploration and exploitation of petroleum resources; to significantly increase domestic gas supplies especially for power and industry; create competitive business environment for the exploitation of oil and gas; establish fiscal framework that is flexible, stable and competitively attractive. Also our inability to explore our inland basins is also a big issue.

The NNPC recently announced its foray into exploration in the frontier inland basins, is this new venture economical, does it make sense at all?

Some people will want the money to be applied to offset cash call obligations. But I believe that exploration in all our sedimentary basins is the right thing to do. Timing is also right, as we stand a good chance to get the services at a minimum price. When you have sedimentary basins in your country, there is always a need to explore them. You have to stimulate a growth for investors to come in. Government should take the lead and stimulate it. Money should be provided for it on a yearly basis. We should not compel the IOCs to go there now. We have to prove what is there first. It belongs to us. IOCs are always not interested unless they see interesting opportunities. All major discoveries were stimulated by NNPC before IOCs started showing interest. All the discoveries were sold to the IOCs but they were stimulated by NNPC before IOCs started showing interest.

The NNPC started exploration in Chad basin in 1983. Chad basin is a very wide place. We need to adopt a sound strategy. Only government can do it. We are all beneficiaries of the Shell D’Arcy until they struck Oloibiri. They explored all over the place. Government has that responsibility to explore the frontier basins. Once there is discovery up there, all the IOCs will want to expand their coast there. The inland basins of Nigeria include Anambra basin, the lower, middle and upper Benue, the southeastern sector of the chad basin, the mid Niger Bida basin and the Sokoto basin. Upper Benue was done 20 years ago, but not very intense, they drilled one or two wells. The NNPC carried out exploratory seismic work in Anambra basin more than 20 years ago. No serious work has been done in Bida basin. Geological survey was done in Sokoto basin. We do not have much data on Inland basins. Now with improvements in technology and seismic, it will do our country great in acquiring reliable data on the inland basin; relaunch a licencing rounds in our inland basins.

When you consider that this is happening at a time the global industry is on a very low ebb, do you think there will be genuine interests for investments into this?

Government should take the lead and stimulate it. Others will follow once the hydrocarbons are proven. The IOCs are always not interested unless they see interesting opportunities. All major discoveries were stimulated by the NNPC before IOCs started showing interest.

Has gas been given the kind of policy thoughts it needs to drive the Nigerian economy, what do you think about it as a stand-alone industry, can it happen in Nigeria?

There is none. At best we have tactics driven by the need to sustain current power sector demand. There is no policy on oil and gas by this government, but they are acting on impulse laced with politics. Gas does not really need to stand alone as an industry, but all the plans already in place need to be properly and efficiently executed. We don’t need additional bureaucracy for this. Gas tracks oil both in price and availability, and we need to look at this together. Gas should not have an industry of its own. It plays complimentary role to oil. We just need to optimise what we have. We do not need additional bureaucracy. Do you need to discuss Non Associated Gad (NAG) or Associated Gas (AG)? If Non associated gas, if exploring for gas and run into oil, do you shut down or close down. If Associated gas, what happens if gas is standalone?

Gas and oil should remain as a single industry complementing each other.
If Gas is a standalone, it will depend on what oil producers are doing, if they shut down, you shut down. Today, all export terminals are shut down, we are not exporting from them, all tanks are full, all inland flow stations tank farms are full, only FPSOs are operating now. If you have a gas business, you are forced to shut-in.

Are you able to honestly define or spot the policy thoughts of the current government for the oil and gas sector?

None has been articulated so far. There are no defined goals not to talk about strategy.There is no policy on oil and gas by this government, but they are acting on impulses laced heavily with politics. You do not make policy peace meal, it has to be holistic.
Exploration of frontier oil needs to be a policy; Spending one billion dollars every year to fund exploration should be a policy;

Government should focus more on exploration.
We should have gas pipelines going to all corners of Nigeria. We should make a policy, which allows people or makes it practical to:
– Transport any associated gas from any field to the nearest gas line taking gas to a power plant, it should be metered and paid for;

– Anybody producing oil or gas should be guaranteed that the gas will be taken off him from the nearest backbone;
– The idea of gas re-injection or flaring should not be accepted,
It will also take care of stranded gas. If I am developing in a remote location, I will know that there is a backbone close by to take my gas.