The presence of government has not been much felt by the people of the oil-bearing communities. In this interview with Segun James, the Chief Executive Officer of Neconde Energy Limited, a member of the Obijackson Group, Frank Edozie, bares his mind on happenings in the petroleum industry and why the people of the oil-rich communities should be made major partakers in the activities that impact their lives directly. Excerpts:
Neconde is a major player in the nation’s oil and gas sector, can you give us an overview of your participation in the industry?
Neconde is an exploration and production (E&P) company that is a subsidiary of the Obijackson group. As an E&P company, it is an equity holder in Oil Mining Lease (OML 42) in a joint partnership with the Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC.
OML 42 is an asset that is in the swamp area of the Niger Delta. Neconde equity share was acquired when Shell, Elf and Agip divested their interest and by virtue of that, came into joint partnership with the NPDC. The facilities as at the time Shell divested had been vandalised as a result of the Niger Delta crises, and so, one of the early challenges that Neconde had to wade through was to bring the facilities back to life.
In terms of numbers, in 2012 when the OML was acquired, it was producing just 8,000 barrels per day, but before then, it was doing about 60,000 barrels. So from 2012 until now, it has been a journey for the company in partnership with the NPDC to restore the OML 42 to normal production. So, as at today, we are doing between 55,000 and 60,000 barrels per day. At the beginning of the year, we were doing almost 80,000 barrels per day. We had to deal with some issues this year.
It is surprising that you are still investing so much in this industry given the fact that the world is moving out of the fossil fuel market. Why are you investing so much in this market?
The truth is that the world is actually not moving out of the oil and gas industry. In fact, I think oil and gas will be with us for a long time. The truth, however, is that the price of oil and gas will vary every now and then, but as a source of energy, I am of the firm belief, and this is backed by the way we are developing alternative source of energy, that we will be with oil and gas for a long time.
Let me give you a very simple example: you can spend a lot of money installing a solar power in your house – may be you have an inverter – but to charge your inverter, you will still need oil and gas!
The federal government’s policies on the oil and gas have in recent years been erratic and somewhat confusing, even to players in the industry, most especially now that the president is the Minister of Petroleum Resources. How has that affected or impacted the industry?
I think the biggest policy challenge we have today is the stance of government on the petroleum industry bill. You of course know that this bill has been in the making in the last 10 years; and the way the industry has responded to this long time making of the bill has been “wait and see.” What that means is that there has been little investment in the long time survival of the oil and gas industry.
Oil and gas is a depleting commodity. That is to say, if you have a 100,000 barrels and you produce 10; that means, tomorrow, you have 100,000 less the 10; and to replace it, you need to put in more money to find additional oil to get back to 100,000. So, what has not been happening is, people putting additional money to find a replacement for what has been taken out. In the industry parlance, it is called the reserve replacement ratio. It should at least be one to one. If you take out one, you put one back; now that is the problem. We have not been doing anything about replacing what has been taken out! So, our reserve replacement ratio has been declining. That has been the most direct impact of the absence of a clear law that governs what goes on in the industry.
Over the long term, this will cause severe injury to Nigeria’s ability to maintain its place as an oil and gas producing country. And it might also affect the viability of the local oil and gas industry.
Let’s talk about gas. Nigeria is said to be one of the gas-bearing countries in the world, but we hardly use gas. I happen to know that your company is investing heavily on natural gas. Can you tell me why your company is investing so much on a product that Nigeria does not even use at all?
Okay, the gas story is a long one. Let me make a general statement. Nigeria is producing a lot of oil today; my belief is that Nigeria is actually a gas province with a lot of oil. Most of the gas that we have discovered in the country today, we have found incidental to while looking for oil. We haven’t actually gone out looking for gas.
Then, you ask yourself, why are we where we are? There are a number of reasons. First one is, the government’s involvement in the determination of the domestic price of gas is impairing development. For example, the government restricts the cost of gas to power at $2.50 for million standard cubic feet. For many of the producers, this is sub-economic and therefore, people will only strive to meet what their minimum domestic obligations are and do more. That is, meet the domestic supply need.
We understand government wants to keep the price of domestic gas supply down, but we have to take a bigger and long-term view of this by making the price more realistic. Then we will free up the constraints that are there, and the result would be that a lot more people would invest money to produce gas for the domestic market.
There is a lot of money that is being wasted today in people buying diesel or petrol to run their generators to supply power. You have many factories that closed down because they don’t have power, or are producing at very high cost because they have to provide their own power. On the other hand, if you run a generator, many people do. You know what it cost to have one bulb lit. Now compare that to what you pay the old NEPA for power. What it simply means is, what we are paying for the public supply of power far less than the true price.
Politicians make wrong assumptions about the ability of the man on the street to pay for power. We have a lot more that people can do in terms of paying for power. The challenge is guaranteeing people that the power will be available.
There are estates here in Lagos, along the Lekki axis where people generate their own power supply. People pay as much as N55.00 per kilowatt of power, but when they get their bills from the DISCOS, it is N21.00. A huge difference! So, there is a lot of opportunities if we remove the bottlenecks in the production of gas to drive local industry if only government will get away from attempting to control the price of gas to power.
So, Neconde as an oil and gas company sitting on gas reserves, what we have done working with our joint venture partners is that, we have just completed one half of a train that will bring in 40 million standard cubic feet (mscf) of gas to the domestic market by the end of this month. We will inaugurate the second part that brings in a total 80 mscf to the domestic market! This is gas associated with the production of oil.
We also have it in the pipeline to bring in 200 mscf by exploiting non-associated gas that will come in into full development in the next two to three years. So, that is what we are doing to demonstrate our belief and commitment that there is money to be made from gas. If there wasn’t, we won’t do it.
Where is this your gas plant located?
We have four fields, three of which are producing – Odidi, Jones Creek and Batan. We also have Egwa, which is our fourth field that was trashed, we are still in the process of bringing it back to operation.
As a player in the oil industry, one policy that has been of interest is the local content. What is your view about this?
Local content! Neconde is a full Nigerian company, 99.9% of our staff are Nigerians; we use as much as possible, local industry and local services and so on, to deliver our services. Having said that, a lot of the methods we use are hi-tech. Therefore, we are working with partners, who have international affiliates and so on. We are working with partners, who are at close consult with the Nigerian Content Development and Monitoring Board (NCDMB). We have their full support in the activities that are going on.
Along the same line, within the Obijackson Group, we have a lot of services in support of the oil and gas industry, all of which are indigenous. And many of the services in which we carry out our day-to-day job, we have the support of all the subsidiaries of the Obijackson Group. We are also working very closely with the local communities from whom we take the services in our operations.
Talking about the communities, I was at the last conference of the Nigerian Association of Petroleum Explorationists (NAPE), where one of the founding fathers of the association, Bishop Precious Omuku, a former director with Shell and one of the nation’s leading advocate of local content, suggested that for rapid development to take place in the oil-bearing communities, and also to stop restiveness in the Niger Delta region, the communities must be made to have a sense of ownership. He suggested that they should be given at least 10 per cent equity ownership of the companies operating on their land. What is your view on this?
Well, there are two parts to what Bishop Omuku said: One, do we need the local communities to be an integral part of the operation of the companies operating in the different areas? Definitely! Yet, we need that sense of belonging and a sense of ownership from the communities, otherwise, we will be in the same vicious circle, where the people complain that, they taking their resources without them getting anything in return. So, they need to be part of what goes on. But how we make them part of what goes on is where I defer on the views expressed by the Bishop.
10 per cent? Look at how the joint ventures are funded. For the sake of argument, you say $50 million budget. If you own 10 per cent of the equity, how much do you pay? $5 million and if you own 90 per cent, the same. So if you introduce ownership by the community at equity level, you need to understand what this means in terms of funding the activities that go on in the joint venture.
The oil and gas industry is a capital intensive business, so I do not think, giving where we are, ownership at this level is what we should strive for.
Instead I would ask that we should strive for active participation and a sense of ownership by communities. I will say yes, but not by equity.
On the development of the oil-bearing communities, the federal government always give the impression that it could do the job better; that is why they set up the OMPADEC and now the NDDC. But from what we have seen so far, they can’t handle it. What is your position on the development of the communities where the oil is gotten?
The NDDC as a policy direction is flawless. It is the way to go. But the challenge we’ve had is that the NDDC and other such intervention agencies set up by government have not been executed properly.
If you go to many of the areas, where we operate like the Jones Creek, Odidi, there is a total absence of government in spite of all of the money that goes into the NDDC. So, what we need to do is take government and governance to the people. Has government embarked on infrastructure development that would change the perception of those communities about who government is to them?
In many of the areas where we produce, people look to us as government! If there is no water and electricity, it is the oil company. If there is no road, it is the oil company. But the oil company pays tax, pays royalty and pays the NDDC fees! So, where is all the money going? Why is it not taken back to the communities?
We have to tell ourselves the truth. Many of the communities leaders have seen restiveness as a means to personal wealth. So, they get up to make noise, hold the companies to ransom, collect money from them which unfortunately, does not go back to the communities; rather, it ends up in Port Harcourt, Warri, Abuja and Lagos! How do you solve that?
So, it is a dilemma that we can only address by being truthful to ourselves about what the causative factors are, and then have a honest commitment by government to do something in those communities, that’s it.
The areas where you operate today were the places restiveness in the western Niger Delta started. What has been you relationship with the people?
Well, we’ve had a good relationship. What has made it possible for us to be successful in our relationship with the people is that we introduced ourselves and got the confidence of the people, so we were able to have access to those facilities that were trashed. Second is that, we recognise the institutions that exist in those places. So we know the traditional rulers and they know us as their tenants; and we are present in their lives.
We also use elements from these communities in our daily operations. If you go now to Odidi or Jones Creek, I have workers from the communities in our day-to-day operations. If you go to Odidi, we just commissioned electricity supply to the community. A similar project is now going on in Jones Creek.
In some area, some community people have been able to develop expertise in some services that we use. That way, we are integrating the communities into our operation and integrating ourselves into the communities. This is one of the ways that we have been able to surmount all of the misconceptions and mistrust that existed in the past in our day-to-day operations.
We are not where we could be, we are not where, ideally, we should be, but we are making progress. The next big step will be getting government to be more present in the areas. That will be how to make the NDDC count in these communities. That way, they will be able to complement the efforts we are making.