‘Over $30bn Oil Sector Projects Still Awaiting FID’

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By Peter Uzoho

Nigeria’s oil and gas industry has continued to record heavy drop in investments for many years and in the last five years the sector has suffered more inactivity as over $30 billion projects are still awaiting Final Investment Decisions (FIDs) to take off.

The revelation was part of the concerns raised by oil and gas industry professionals and stakeholders at the recent 27th Pre-Conference Workshop of the Nigeria Association of Petroleum Explorationists (NAPE).

The workshop with the theme: “Levers for Optimal Cost Reduction in Nigeria’s Oil and Gas Production: Positioning for the New Normal”, was held virtually.

According to a communique from the session which was jointly signed by the newly inaugurated President of NAPE, Mrs Patricia Ochogbu and her immediate predecessor, Mr. Alex Tarka, the current slide since the price crash of 2015 has seen investment drop almost 18 per cent year-on-year to date.

They blamed the non-passage of the Petroleum Industry Bill (PIB) for the massive drop in investments and stalled projects in the petroleum sector because of the uncertainty it had heightened among operators and prospective investors.

The participants observed that the average production cost in Nigeria was among the highest in the world, with various estimates placing the country in at least the 70th percentile for high overall production costs in all terrains.

They also argued that there had been significant tax burden associated with operating in Nigeria.

According to them, the many years since the PIB was first mooted in 2000 and the various iterations it had undergone without being passed, have impacted negatively on investors’ confidence in Nigeria.

“It should be noted that even at the height of the oil price boom from 2008-2014, CAPEX (capital expenditure) investment in the sector actually fell due to the uncertainty of the passage of the bill.

“The current slide since the price crash of 2015 has seen investment drop almost 18 per cent year on year to date. As a result, over $30 billion of projects are still awaiting FID.

“The break-even price and payback time for projects in Nigeria for new projects is one of the highest in the world. There is a capital cost premium ranging from 35-100 per cent for project costs in Nigeria,” the communique stated.

The participants, however, pointed out that the time it takes to realise projects in Nigeria was very long, attributing the situation partly to the long protracted contracting cycles and approval processes most companies have to undergo.

They said these are further elongated by increased travelling costs that comes with inspection of facilities and operations of contractor companies outside of Nigeria.

The NAPE communique further read: “A significant portion of the operating costs in Nigeria are composed of human, crude handling and logistics, which are a direct fallout to the various challenges thrown up by operating in the physical environment of Nigeria.

“Examples of these challenges are the need for increased security due to kidnapping and the vandalisation of crude pipelines; ageing infrastructure due to low level of investment; and the low level of standardisation across the industry since most of the companies started with a go-it-alone approach in the earlier days of their production history.

“There is also significant increase of costs due to regulatory oversight, overlapping and duplication.

“The reduced pace of exploration will also have a long-term effect on cost, as the effect of resource depletion and its impact on the reserve replacement ratio will eventually outweigh the effects of technological advancements during the production stage.”

They equally noted that the impact of local content participation, as envisioned in the Local Content Development Act, wss yet to be realised to its full extent, due to a dearth of an infrastructural base to support it.

Such infrastructural inadequacy, according to them, was the lack of an in-country iron and steel industry, which is vital to indigenous participation in projects development.