‘40bn barrels reserve: No concrete plans by FG’

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Managing Director JOC &JOC Limited Sir Ossy Adubasim in this interview with the Publisher/Editor-in-Chief Nigerian NewsDirect Dr Samuel Ibiyemi speaks on poor planning challenges by the Federal Government to boost oil exploration and reserves target of 40 billion barrels by 2020. He also suggests that government should devalue the naira to avoid wasting of limited foreign exchange on defending the naira but focus on infrastructure  development to boost export of locally produced goods. Excerpts.

What can you say about Nigeria Oil& Gas with the downturn in the oil price?

We have been having conversations and I need to tell you that am still confused because nobody knows what will happen in the oil&gas industry, the oil price is so low that it affects  everything I don’t believe any company will award new contract because with the capital expenditures, where will they get the money, I can tell you the truth that it is a very dicey situation especially for Nigeria.

 

In 2014,  there was forecast that the oil price would come down, was it that there were no managers to tell the government?

In Nigeria, we have brilliant people managing our affairs but by the time we go to politics, it becomes twisted. We have heard several times that Nigeria would increase oil reserves to 40 million barrels by 2020.

 

(Cuts in) we have been saying that for a long time. It was 2010 initially.

Yes. Even all the papers presented in the same Nigeria Oil Gas Conference for instance by the government companies are still talking about this but there was no  concrete investment plan by the government for the attainment of  40billion  barrels actually. Nigeria’s reserves could be as low as 22 million barrels now based on steady production without new discovery.  So, we are far away from the projection. In other countries, when they say they want to achieve something, they put people on it, it doesn’t happen here because we only say it on paper and they become political tool for whoever is in government to sell the government. Comparing Nigeria with other countries will be a misnomer because there is no way of comparism. When you talk about Iran, they have other means of making money, they have industries, they empower a lot of people not only Oil&Gas. Recently, we heard about the whole world paying attention to Iran because of its sanction on Nuclear power but in Nigeria we are only a monolithic country depending on oil and  still we can’t get it right.

The previous government created awareness in agriculture, telecommunications thriving but at least there are some in-roads into that part of the economy but Oil& Gas if it continues to be the major source for our economy, we have not done enough, we are very far away.

 

We are talking of indigenous growth, How do you think they can fit into the situation now looking at the downturn?

Part of the good thing that has happened to the industry is the creation of the local content law which is one of the landmarks of the previous administration in the oil and gas sector because I call it audacious law by the government. It was audacious because a lot of the International Oil Companies (IOCs) kicked against it. A chicken-hearted government would have buckled under pressure but the administration of former President Goodluck Jonathan signed it and Nigerians including myself and my company are good beneficiaries of that law because it has created a lot of capabilities  which now exist in Nigerians. However,  we still have more than what the local content can provide to get to where we want to be. Making an offshore exploration is not a $10 or $1m activities, you need a lot of funds for it and the banking system in Nigeria cannot support such an investment  at the moment.  So, it requires foreigners to come in to do it and when they come in, we must create an enabling environment, show them that we are serious and create a government buffer that they have to lean on to come in and do it. Egina is ongoing and in the case of Bonga southwest, we don’t have Final Investment Decision (FID) on it. There are lots of other big portfolios or assets  that were supposed to steer the government towards where they are putting their heart.

 

With the challenges of funding and poor capacity of Nigeria banks. What is the future like for E&P in Nigeria?

You know that the government including successive past administrations in Nigeria had been relying on third party as  funds continued to dwindle. But now, they are now moving towards  Production Sharing Contract (PSC). They need to do more of that but what  frustrated the investors are the agreements because when you go into this type of contract you don’t  appear too greedy because if you are greedy, the investors will walk away with your funds.  So, part of what I would suggest is that we explore more in PSC and to be fair to the new minister of State for petroleum Dr Ibe Kachikwu, I learnt though I have not confirmed it , he is  negotiating with IOCs and get the banks to fund PSCs with our own counterpart funding share delayed a lot of projects in the past.

 

But, with the downturn in the price, do you think this can still work?

Well, oil production will continue, don’t look at it as if oil price downturn  will be a permanent thing. We have this cycle over and over again. It has to go down and it will still shoot up so, it is definitely not going to be a permanent cycle but when it changes, where will you be? When the turn changes. Which I know it will, where will Nigeria be at that point? Will you have cleared all political impediments in the country? Will you have created  an enabling environment for investors? Will you have created a transparent and organisational structure that will allow investors to come in. It may not be only the oil price alone because companies are ready to invest especially in our environment with our sweet crude.

 

As a service provider, do you think investors are still willing to invest in Nigeria’s environment?

Yes, investors are still willing to invest if the appropriate  infrastructure is provided.

 

Even without new laws?

They are willing but they are hanging on the wings waiting for Nigeria. They have to see where the policy statement of Nigeria will take them to and as I mentioned  earlier, for them to come now and seek funds to execute the jobs, there  is a whole lot of bottlenecks  that must be removed to attract investors. For instance,  when they go through NAPIMS to justify this and that.  And now being made to wait for government’s long period of bureaucracy  to  provide counterpart funds to invest in exploration, will be very frustrating.

 

What role will your company play in this scenario?

It is a difficult ýone, it was only divine grace that saw us through last year. This year, we don’t have a budget yet and we don’t know what the budget will say. We have seen snippets of it and not the final one. We don’t know what this year will bring but we are very optimistic. We have a strategic investment which is more of service and maintenance with operators and magical field. We follow big projects when they are available but most of the time, we are there to increase and optimise the existing asset. It is maintenance base and we ensure that the assets that are available now are running.  Unfortunately because of the downturn it is not easy because companies are adopting strategy of run-down maintenance. It is such in a way  that  assets that will give them trouble, they run it down and replace.  So, it is still dicey but we are optimistic that a lot of assets will require our activities to keep them running.

 

How do you plan for the future so that when the price of crude oil is back?

I just mentioned something when I was talking about the IOCs and Nigeria being ready, it is part of our own strategy. We have invested aggressively in all the tools that can optimize production and give maximum uptime to facilities. We are not stopping there, we are looking at how we can bring dead facilities to life. A lot of facilities are producing too much waters instead of crude, how can we optimize production of such asset?  So, we are not just standing for time to come but we are carrying out much researches to keep abreast of events around the world using Nigeria as a benchmark.

 

So, what advice do you have against steady fall in value of Naira and downturn in oil price for Nigeria to remain relevant in local oil industry?

It is not debatable whether Nigeria is the largest economy in Africa or not, we do have and if I have to be an African again, I will be a Nigerian. If you go out of Africa and say you are a Nigerian, there is certain respect that comes with it but we need to get our act together. We have to continue the current strategy with the oil majors to source for fund  because that funding plan will take a lot of weight off the shoulder of Nigerian government.  We should not forget that  they are international oil companies, they have cheaper funds than we can get. So, it is a wonderful strategy to for us  going forward. I also would advise that they look at unbundling of the NNPC because a lot of oil portfolios are going to Nigeria Petroleum Development Company (NPDC) currently. They don’t have the capacities to manage those portfolios and the government needs to empower NPDC.

I heard as well that the minister of State for Petroleum Resources mentioned that the government would strengthen NPDC. This is  a welcome development but they are now going to bring in expatriates and they will remove it away from bureaucracy of government that will make it stronger and employ more workers within  Nigeria.

Also, looking at the downstream sector, it is amusing that Nigeria cannot boast of a refinery it is really amusing and I don’t think Nigeria should continue to waste  time with the old refineries. This is because if the government should invest $10bn in those refineries, they won’t give Nigeria 100 percent capacity. Most of the equipment are obsolete and the money that would have been invested in total turn around maintenance would have built a brand new refinery. Dangote has taken the bull by the horns by kick starting his own refinery to come on stream in 2018 which is good. Government should encourage other individuals in Nigeria to build and operate refineries.  That is what is happening all over the world, you don’t see government putting their hands in operating refinery because government has bureaucracy. Refineries cannot run on government’s bureaucracy. By the time we are doing all this and there is a structured economy in terms of fiscal policy that will support all the investment probably we will see naira beginning to appreciate but currently no fiscal policy  on ground. So, that is why we are having the naira/dollar inequality continuously increasing. If we are exchanging  N300 to a dollar today before we can crash it down to N200, it will take forever. So, probably we will look at reassessing the value of the naira. If you are pumping oil and sell at N199 to a dollar when you cannot buy the same dollar at the same price, I don’t know whether it is the wisest thing for the government.  So, they may look at reassessing those goods we export.

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