Okoroafor: Lack of Reforms in Oil Sector Stalling Investments

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Bank-Anthony Okoroafor

Bank-Anthony Okoroafor is the Chairman of Petroleum Technology Association of Nigeria and MD/CEO of two leading oil service companies – CB Geophysical Solutions Ltd and Vhelbherg International Ltd. In this interview with Oluchi Chibuzor, he speaks about developments in the oil and gas sector

What is your take on the decision by President Muhammadu Buhari to once more retain the position of Petroleum Minister and what are your expectations from the sector?

The industry expects a lot from the petroleum ministry. It would have been good to have a substantive Minister of Petroleum. The oil minister is the de- facto federal government in all dealings between the government and any group in respect to any matter in the petroleum ministry. The minister regulates and exercise supervisory functions of his ministry, counsels the federal government on areas pertaining to oil and gas, record and report developments in the petroleum ministry to the Federal Executive Council, counsels the president on the appointment of the chief executive officers of his ministry, represents and negotiates on behalf of Nigeria in international organisations interested in Nigerian oil and gas. With so many reforms ongoing and oil being our biggest foreign exchange earner, we should have made it a priority to have a substantive minister.

So what agenda will you like the President (Petroleum Minister) and his Minister of State in the ministry to pursue?

Oil industry reform bill. They are expected to assent to and speedily sign the PIGB (Petroleum Industry Governance Bill), PIFB (Petroleum industry Fiscal Bill), PIAB (Petroleum Industry Administration Bill), PHICDB (Petroleum Host and Impacted Communities Development Bill). Timely conclusion of the ongoing industry reforms will guarantee legislative certainty and clarity. They have to work with the National Assembly and critical stakeholders to actualise this. This is holding down lots of FID’s and critical investment. The passage of and the assent by Mr. President to the PIB’s is important to send a signal to the market that this government is serious about the oil reform agenda. The uncertainty created by the lack of passage of the reforms have significantly affected investments in the Nigerian oil and gas sector. Communication – They need to be sending our investor friendly messaging to remove this negative cloud on investments in Nigeria. Everything that is anti-investment, anti-entrepreneurs must be removed. Sanctity of contracts and rule of law has to be enforced. In addition, issues of taking peoples’ licences without due process and tax men harassment of companies without following due process sends the wrong messages which are not good for us. They must attract FIDs and ensure fiscal terms remain competitive and resolve ongoing PSC disputes. This will definitely unlock the entire deep offshore market and bring most projects to FID. The proposed deep offshore/inland basin PSC amendment bill 2018 seeking to introduce 50 per cent royalty in revenue above $20/barrel will drive investments to other countries. There are lots of discoveries everywhere and we should desist from acts that are not investment friendly. This would worsen our competitiveness thereby limiting our ability to attract investment and will consequently hamper long term oil production growth. With 50 per cent royalty, NPV will be very low and unattractive for investment. Fifteen per cent Internal Rate of Return (IRR) is not enough in Nigeria because risks are high. This can be enough in USA or middle east because of low risk. Also, we should clear uncertainties around commercial frameworks and make room for attractive fiscals and regulatory regimes to pull investors. The NNPC should approve and escalate to other projects, the proposed framework between itself and operators on OML118. In the area of security of assets and personnel, they have to ensure safety of lives and security of assets. A good approach is to establish a coast guard to be responsible in protecting all assets and personnel in water instead of all companies having their own security and security vessels/gun boats. In the area of law and order, the ministers have to entrench an atmosphere of law and order in the ministry; ensure court orders are obeyed and maintain sanity of contracts and agreement. In the area of bid rounds, they should conduct bid rounds for major and marginal oil fields. There is no time, oil is going out of fashion, we have to monetise it fast. The last bid round is more than 12 years now and the country has lost so much because of this. They also have to make local content a national agenda. With the successes achieved in the oil and gas sector since the NOGIC Act was signed into law, in order to sustain, improve on the successes achieved, it is imperative to make local content a National agenda. NOGIC Act signed into law in 2010 makes it sustainable for all stakeholders. The journey so far seems to be in the right trajectory. The successes so far in the oil and gas industry includes the following: Equipment ownership, fabrication capabilities, EPCI, pipelines, operation and maintenance, production operations, well completion, engineering and well services. Nigerians are now involved in all areas of the oil and gas value chain. Asset ownership by Nigerians have increased considerably. Indigenous vessel ownership has increased to over 38 per cent. Nigerians now own drilling rigs, pipe pills, pipe coating facilities. In all, 80 per cent of engineering are presently done in-country. Fabrications done in country has increased considerably. So much has been done in human capital development. In-country value retention has increased considerably from less than five per cent before the signing of the act into law to above 27 per cent. Also, Nigeria has witnessed capital flight of more than $380 billion in 50 years of oil and gas exploitation in Nigeria. We have witnessed development of several Nigerian entrepreneurs.

There have been talks by the government about growing the country’s oil reserves. How can this be achieved?

For the past 10 years, Nigeria has been carrying about 37 billion barrels of reserves. Angola was carrying two billion, today they have something like nine billion. A small country like Ghana had zero when we were carrying 37 billion, now it has almost 800 million.
We have not had any major discoveries for the past 10 years. We need to ring-fence budgets for exploration. We need to finance our budget for exploration, because the balance sheet of oil and gas goes down without replacement of reserves. We are not replacing, so we become less attractive. Your industry becomes attractive when you have good reserves. If your reserves are declining, it’s like a country where the balance of payments is going down. It’s strategic to do something fast, and to do it now. To achieve a 45 billion reserve, we must carry out exploration and drill more wells. Nigeria has the lowest well services activity in the world. Most of the IOC’s are not exploring and drilling activity is minimal.

There has been calls for the federal government to abolish its fuel subsidy policy. What is PETAN position on this?

Although Nigeria produces 1.7 million barrels of crude per day, it has very little refining capacity and imports roughly 90 per cent of its fuel negating much of the benefits oil producing nations accrue. The issue of this subsidy will not exist if we are not importing 90 per cent of our needs. Fuel price in Nigeria is the sixth lowest in the world. It is priced at $0.4 per litre while the average price of petrol globally is $1.14 per litre. Petrol subsidy payment is simply unsustainable, I belief it must have risen to above one trillion naira per annum. The average subsidy cost per day runs into several hundred millions of Naira which imposes a heavy fiscal burden on NNPC that are carrying it now. Our stand is for government to focus on refining at least 50 per cent of our crude production in-country to steer our economy from a rent economy to an engine of economic transformation which will create jobs, earn foreign exchange for government

Can you assess the contribution of indigenous players in the E&P segment of Nigeria’s oil industry?

NPDC has transformed well and demonstrated that it can take production to the next level. Indigenous players in the E & P segment have done very well. Seplat has done a lot in gas and oil production. Their focus on in-country utilisation of gas as agent for economic transformation is legendary. Walter smith have transformed from oil production and now are moving into refining. Aiteo is pushing the boundaries and planning to get production to 200,000 bond. Neconde is waxing stronger. Eroton and midwestern has demonstrated it can be done. Niger Delta petroleum has transformed from production to refining. First E & P have progressed so much on their drilling. Amni is doing well. Frontier, Brittania-U have all demonstrated that Nigerians can run an E & P outfit well. On the service sector, the successes so far in the oil and gas industry includes the following: Equipment ownership, fabrication capabilities, EPCI, pipelines, operation and maintenance, production operations, well completion, engineering and well services. Nigerians are now involved in all areas of the oil and gas value chain. Asset ownership by Nigerians have increased considerably. Indigenous vessel ownership has also increased to over 38 per cent. Nigerians now own drilling rigs, pipe pills, pipe coating facilities. 80 per cent of engineering are presently done in-country. Fabrications done in country has increased considerably. So much has been done in human capital development. In-country value retention has increased considerably from less than five per cent before the signing of the Act into law to above 27 per cent. We have witnessed development of several Nigerian entrepreneurs.

So, are there challenges the indigenous E&P players encounter that if removed would raise their efficiency?

Access to cheaper funds. There must be a genuine desire to grow the indigenous companies just like the Samsung’s and Hyndai’s were a creation of their countries economic policies to grow them to be giants. All Major project consortiums must be led by Nigerian companies

The Nigerian National Petroleum Corporation (NNPC) disclosed that it recorded a 77 per cent rise in cases of oil pipeline vandalism on its network of pipeline infrastructure across the country in June 2019. There are allegations that security agents are involved in this. How true is this allegation and what are the likely implications on the economy?

This is a serious issue. It is difficult to say for certain the real culprits without technology monitoring. The key thing is to bring all stakeholders together and ascertain why the sudden increase in line vandalisation. There are technologies that can be used to visually monitor these pipelines. We should invest in that plus the usual pipeline surveillance contracts if any in these lines which needs to be seriously reviewed.

How can government address the issue of pipeline vandalism?

Pipelines are strategic national assets and has to be properly guided as other strategic national asserts. Government needs an integrated approach involving the Government, community and all manner of people that have direct impact on the pipeline. Community – People around the area are the first and primary line of defence for the pipeline. Somebody will know that something will happen. We can put them on monthly rental to protect the pipelines. A rent aligned with success based incentives and transparent and accountable needs-based community development
Technology and surveillance contracts. We need technology ( can be CCTV on Poles, drones, Fibre Optics etc) as a detection system around the pipeline. (Lots of cameras on poles and a control room). Intervention System – We need immediate intervention system once we have detected it via technology, something that must be done immediately. You need human beings to go there and take action. (Team of Special Pipeline Police – Patrolling and in-charge of control room). Legal System – When you catch somebody, you must prosecute. Finally, a sustainable approach is to reset relationships between government, oil companies and communities as first step to tackle pipeline vandalisation, maintaining oil production while reinforcing peace in the Niger Delta.