Kachikwu: Nigeria’s Oil Industry Can’t Afford Further Lethargy

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Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, in this interview with select journalists, including Chineme Okafor, at the 2017 Offshore Technology Conference in Houston, Texas, responded to questions on recent developments in Nigeria’s oil and gas industry. Excerpts:

Could you clarify the $400m cash call debt payment you said government made to the IOCs?

At the time that we did the joint venture review that we came up with, we had two components to it. The first was the $6.8 billion of arrears covering about six years which were owed the oil companies. In our negotiations we were able to trim that down to about $5.1 billion, so we knocked off $1.7 billion out of it and then spread the $5.1 billion over the next five years to be paid from incremental production, not from existing production, in other words, they will have to go fine new oil and from that new oil, pay that money because we didn’t want to imperil the 2.2mb that everybody was already used to.

The second tranche of the money which was not in the $6.8 billion or the $5.1 billion depending on where you land, was a figure of about $1.2 billion which represented only 2016 arrears, and the oil companies insisted that it needed to be paid out completely because they couldn’t begin to add that to the $5.1 billion.

We eventually agreed to pay several tranches. $400 million out of that for the first tranche and then the remaining $700 million paid on monthly instalments for a period of one year, in other words, that will roughly be about $60 or $70 million every month after the first $400 million.

In specifics, how is this going to impact the industry?
The payment of the first $400 million was going to jump-start the whole process of crystallising the agreement that had been reached on JV funding and that was paid a couple of days ago, that was a major milestone and we have made provisions through the Central Bank of Nigeria for the payment of the balance on a monthly basis.

What that does for us is that it restores confidence in the sector, that we are addressing the issue of arrears, at least, the ones that we have agreed to pay, and the ones that will fund, they will have to do that themselves.

But more important and significant even more than the payment of the outstanding, was the structure of the JV cash call. Previously, what has happened was that all income went back to the federation account and from then you budget and send back to them some money. Invariably, even when there was a budget, we never met that, we ate both the cost and revenue.

What this has done now is to skew that to the other direction that from production after royalty, you take away the cost of production on a budgeted basis and then the balance goes back to the federation account, hopefully, going forward we shouldn’t have that problem again.

What we cannot cover, in terms of budget, the oil companies will go out to raise a loan from third parties to enable them continue their much more aggressive exploration and production.

What this would do will be that it addresses arrears, current cash call requirements and then investment funding requirements, that’s the beauty of what is happening and the net effect over the last two months is that we have seen Zabazaba and Bonga coming back, all the production.

We have today, cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels, over and above the 2.2 million barrels per day, that is why I can say with confidence that we are in a position to move up to 3 million barrels very quickly.

You talked about setting up an African version of the OTC in Nigeria, Bayelsa State indicated interest to host this, how do you plan to go about this?
I am hoping that we will set up our own time to be at least a month before the real OTC. If you do it at the same time with the OTC, some of the companies will be turn between being here and there, and you might not have as much attendance as you want because it will not just be African alone attending but these big companies here.

The very first one can’t be in Bayelsa. It has to be in Abuja and one of the successes of OTC is that it is major event and you have to look at the logistics. If anybody has to land in your country and take another flight to the venue, they won’t go, so it has to one first drop point, which leaves us with just about four choices – Port Harcourt, Lagos, Abuja and Kano. But the first has to be in Abuja. I have held talks with about seven of my co-ministers in Africa and they have expressed a lot of interests. It is going to be a lot of work next year, and this is not anti-OTC, it is just us trying to bring the resources to our country.

Will this be different from the annual NOG and APPA conferences?
I am trying to collapse them. So, it will probably collapse NOG into it, all of them will happen at the same time and I think APPA will gladly fit into this and we will have one major conference for all players in the industry in Africa can participate in and we are already having a lot of interests.

How realistic is the push to end fuel importation by 2019?
I think that anything you set your mind to achieve as human beings you can achieve, I am a very optimistic person. What does it take to get us out to a point where at least most of our refineries are fairly at 90 per cent production levels? In some cases, not a lot, sometimes they are minor repairs or parts delivered but not yet fixed.

We’ve been able to do a pie chart that shows us we will be able to deliver on the 2019 spectrum. We’ve taken the first six months to really analyse what the issues are from a third-party NETCO-type review and from the template to negotiate with those who are coming in.

But the way I see it, even if in 2019 we don’t achieve 100 per cent of our target, I still will reduce importation substantially, and it is better than not doing anything.
On the co-location, there was an alignment problem. I set up the co-location concept but it took NNPC a while to come on board because they were focused on the four refineries, but they have realised it is not an NNPC activity but simply a new person who wants to have 100 per cent control of his refinery but leasing infrastructure from the NNPC refineries.

For the co-location, there have been challenges but we have been able to show through utilisation of opportunities from the Direct Sales Direct Purchase (DSDP) that they (investors) can recover their money and the government is prepared to give guarantees in the event they don’t.

We had actually identified two companies out of 10 that had shown interest and competence. Right now the co-location for Kaduna and Warri are almost wrapped up, but Port Harcourt is a bit of challenged.

But the downstream market is still not deregulated, how would this play out?
I totally agree. Until you deal with that issue, you are going to be struggling with some of these concepts but I am just proceeding with them with the expectation that as we get closer to it and get out of the emergency two-year period when importation will be taken out, that the need to look at that sector will become critical.

There are expired or expiring OMLs and of course possible bids for marginal fields, how’s this going?

My understanding is that by the end of May we should have all the data that we need. We have identified about 40 to 45 marginal fields. We are not contemplating the major OMLs right now, OMLs renewals, yes, we are. We have already sent out letters on those for existing OMLs but in terms of issuing new blocks we are probably not contemplating that for the rest of this year.

But marginal fields we will deal with by end of May we should have all the data that we need. We have identified about 40 to 45 marginal fields, we hope to increase those, we will go forward to a bidding process and then see how we can go forward with that.
The contracting cycle is still high in spite of your claims, are you good with this?
It is about nine months now, down from two years. We made a lot of progress in one year. We knocked off close to about 13 months, and the push is still there.

What then is the greatest constrain?

It is making sure that you don’t risk efficiency on the altar of speed, because in there is NAPIMS work which is to ensure that the oil companies follow processes, that the prices are right, costings for projects are right.

If you speed up the process in such a way that they don’t do those, you may turn around and get speed but then you get a bloated contract. What we are trying to do is put a governance process within the oil companies themselves which will include NAPIMS and when they are embedded, they can sort out these issues and then we can have a third-party consultant who then analyses this on the basis of comparative comparisons of countries.

We are working on those, I am happy with the level of speed we have improved on, I’m not where I will like to be, I said six months but 90 days is where I’ll like to be, and if I can get to the six months bracket and it is religious, then we are getting there.

Could you explain your words that government is punchy about getting the IOCs to relocate their headquarters to the Niger Delta, which suggests a forceful demand?

I wouldn’t use the word force. When I mean punchy, I mean we are bullish about having them get back to those areas, some are already there. Preponderance of oil companies have what you call their operational headquarters in a lot of the Niger Delta areas what they don’t have is ‘headquarters’ and I have tried to let the states know that there is a difference between administrative headquarters and where the work is done.

Let’s not focus on the wrong things and they give you a headquarters and move the operational headquarters which has 80 per cent of their employment. But what are state governments after? They want related development, they want income from Personal Income Taxes to hit them and obviously they want infrastructural development to hit them; all that you get with operational headquarters.

I am focused at more on operational headquarters than administrative headquarters and on physical presence. Like in Bayelsa state oil state some oil companies don’t even have an office not to talk of a big office. So, if you wanted to address something in Bayelsa you brought in somebody from Port Harcourt. But why? One of the reasons is that Bayelsa doesn’t have an airport. So, there are certain basic infrastructure that you have to put in place for those things to work but when you already have those infrastructure it’s a lot easier.

You’ve been on tour of IOCs headquarters to invest in refineries in Nigeria, have they listened to you?

I have visited Agip and Exxon Mobil. Agip was very receptive, in fact they are getting involved in Port Harcourt, and they are going to be one of the preferred partners, so they are receptive as taking over and repairing what is there now. They also will ultimately expand and possibly if it is ever available for sale, they will buy.

From a refining concept they are ready to put money there. Exxon Mobil was not too receptive. Their argument was what they are getting from downstream all over the world and Nigeria where they just sold their affiliate. Two, you have got to deal with the issue of pricing which isn’t encouraging for them.

My solution to that is that we are prepared to give you (investors) export licence. So, build it, export all your oil, if Nigeria wants to buy from you they pay the export price. If they don’t want to buy from you, you go and sell it outside.

There are indications from the House of Representatives that the PIB isn’t with them, are you aware of this, does that worry you?

It is a long story, the Senate has gone quite far and believes it is more of the Senate’s responsibility, and when they finish, all they need to do is to get their colleagues in the House on a joint committee to pass the bill, but the House doesn’t believe that. The House says: ‘no, we are willing to do our’.

The Senate has gone very far, and one of the things I have done is that I have held a meeting with the leadership of the House to try to get them to start their process to catch up with the Senate and they can adopt what the Senate has and look at it rather than begin a fresh process, and I think we are almost aligned on that and they are likely going to adopt what the Senate has and then the joint committee can come up maybe in July.

What are you expecting to see in the PIB when it is passed?

I won’t go into the details for obvious reasons because I don’t want to be seen jumping ahead of the senate. I am happy so far with the cooperation going between both of us. I am also happy that a lot of the initiatives that we created have actually been adopted as part of their PIB.

From everything that we are doing when PIB is done and dusted and alive, we should be able to transit very smoothly during the one year transition period which the minster is supposed to help manage. But I don’t want to go into specifics, the bill is still in third reading but everything I have seen so far in terms of collaborative work has been very positive.

There is nothing we are doing that is not within the ambits of regulation. In terms of basic policies, like we don’t want to flare gas, we want to create incentives for CNG, these are within policy. I have seen a lot more interests in what we are doing. We just can’t sit on one point doing nothing and having a lot of reasons why we are not moving, as a country we no longer need that, we need to keep moving.

What about the fiscals, taxes and royalties, are the IOCs still kicking?

What I heard in terms of the fiscal changes that we had suggested have been the usual IOCs complaints that it is going to kill investments, but I have being in this sector for 30 years and every changes will come up with ‘it is going to kill investments’.

If you benchmark them against what is happening in other countries where they are doing investments, you will realise that at some point, Nigeria is going to take a decision about what is good for it.

I am very pro-business and you can understand that for me to be supportive of anything, I must have seen that it is not going to kill investments. If they think so, we will look at it, we will engage, we will not impose or force it down their throats, at some point we will have to pass the law and I told them that it is better they are talking to me now than an assembly that is not willing to listen.