Chairman International Energy Services Limited, Dr Diran Fawibe in this interview with the Publisher Nigerian NewsDirect Dr SAMUEL IBIYEMI and Energy Reporter FOLAKE OGUNLEYE speaks on the review of 2017 and expectation for 2018. Excerpts.
What can you say on oil/gas and energy sector in the year 2017?
The year 2017 was a turbulent year for the industry. It started on a shaky note in terms of investment for the companies which will permit and have impact on the entire industry. During the year, government came up with a policy, particularly for the upstream. The policy was put in place to exit the cash call which leaves the companies in the driving seat for procuring funds and executing their own upstream development of field programs. Of course with government policies that would be announced with good intention and when they get to execution, we tend to lag behind in speed at which these policies are implemented and in the process we don’t see the result very quickly.
The exit from cash call was a very good policy but you can lose the benefits if you drag it over and over for a very long period of time. In 2017, the price of oil gradually recovered and the trend of price movement followed few political problems in oil-producing countries. There was also slow-down in the production of oil and shale gas from the United States (US). There was an agreement between the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC to cut down production. Right now, Nigeria is producing 45m barrels per day and then the price rose to $68-$70 a few days ago.
At the beginning of 2017, if anybody predicted that the price of crude oil will be $70 by the end of the year, you could say the person doesn’t know what he/she is saying. But we know that the price movement tends to change with political unrest and challenges. Although, we didn’t witness militancy in the oil/gas sector like the previous years. So, if there was any problem it was within the industry. By and large, the upstream system in 2017 wasn’t bad at all. But it didn’t have a positive effect in the service sector. So, the service sector did not do well in 2017. Some of the big projects the industry was expecting didn’t come. Then, you have capital flight of some of the jobs outside the country and Nigeria’s economy wasn’t benefitting optimally. I, therefore encourage local companies to put their act together and maximize their benefits. Government should also encourage other companies like ExxonMobil, Shell and Chevron. If only we can show some level of seriousness and tenacity of purpose, the government should be able to sign the Petroleum Industry Bill (PIB) this year to pave way for investment into the economy.
What happened to gas development last year and the future of gas development?
There are quite a few projects that are being developed that utilize gas. Government is talking about monetization of gas and zero flare with gas being monetized. This will also incorporate stoppage of gas flaring and the ministry of petroleum has come up with a framework for oil and particularly gas development.
Do you see Nigeria moving at the right pace on the gas development project?
By now, that development ought to have taken place in that location and apparently, it seems to have been politicized. As you know, today, many people are blaming former President Goodluck Jonathan’s administration that it ought to have pursued with rigour and got the projects to irreversible level. The succeeding government would not have any choice but to continue to pursue the gas development but now the problem we have is that the people of the communities keep mangling. When you have this kind of problem in a locality, the tendency is for the government to slow down their efforts. In other words, the people of these communities are not helping themselves. The development for various projects clams for that scheme. If the schemes are pursued with tenacity, it will change the landscape of Niger Delta and it will tend to give the people confidence and sense of belonging. Though, nobody is talking about the gas scheme anymore and you can bet it with the politics of 2019 started coming up, you may not hear anything about it in the foreseeable future. This is very unfortunate.
In the past, each time we have increase in the prices of crude oil, the rate of militancy in oil community increases, to the policy of this administration, do you see Nigeria having a recurrence of militancy in the Niger Delta?
The present administration has been appealing to the people of Niger Delta that their problems will be resolved. Let’s take for instance, the issue of Ogoni clean up, it’s not that nothing is being done at all but the bureaucracy to get the cleanup started seems to be dragging and the people want to see clear evidence that the government is committed to that cleanup. The Vice President went there to launch the startup of that program with funfair and even the most critic of this administration said the administration is damn serious to address the problem of Niger Delta. The goodwill that started to develop when that exercise was created should have been allowed to continue and that will send positive signals to the people of Niger Delta that indeed a new era and a new dawn has come to tackle their problems. The most ardent critics of the present administration will be able to shut their mouths. That is a major development that will help this administration.
The administration has fulfilled its commitment to Nigerian Maritime University, Okerenkoko. The people of Niger Delta will take cognizance of this. Especially now that the election is coming soon, the administration should be able to point out to what it had done for which the APC should be able to canvass for the votes of the people based on the record of performance over the four years before the coming election. Well there is still time to do a lot and give the people some confidence. The launch of gas policy which will also involve monetizing the gas in Niger Delta and the monetization should set up quite a number of projects. Through these projects, the people of Niger Delta, especially the youths, will be able to find employment. Right now, the program was launched but it was supposed to attract some investments from local and foreign investors but not much has happened ever since the program was launched.
It means that we are very good at rhetoric but when it comes to implementation we lag behind. The downstream sector has not performed optimally. We have the problem of the refineries not working and it is a stop point in the industry for Nigerians. How do we solve this problem? The manifestation of the problem is the recent scarcity of fuel during the Christmas season. It appears as if we have given up to fixing the refineries or we are just paying lip service. Efforts are now concentrated on the importation of fuel till when Dangote refinery comes on stage. People are looking at modular refinery, as a sort of panacea to the issue of supply of fuel to end scarcity. We have conflicting reports about the number of modular refineries, some say ten, and some say three would the level of production be able to solve Nigeria’s problems. We still have the issue of illegal refinery going on there. We see lot of mineral resources being destroyed by militants. The downstream sector is not good in this area. So, for the refining sector, we cannot say we have achieved the desired results.
Do you see the oil price getting to $100 this year?
As we said at the beginning of 2017, there was no chance for the price of oil reaching $70. Most analysts were proved wrong and it goes to show that you don’t have clear barometer to look into or crystal ball to tell you how far the price of oil can go but we are talking about $70 now. We still query whether it is sustainable in the long time. Baring any major upheaval in oil-producing or oil consuming countries, I don’t see the price of oil getting to $100 but we are in a strange world where things totally unexpected happen. There are some major oil-producing countries that when you have crisis, the price of oil can skyrocket and we cannot pray for this kind of upheaval to happen. It would be good if the price can go beyond $70 but going to $100 will be at a major crisis.
What many have not addressed their minds to is the fact that whenever the price of oil is being upped in the world market, it tends to affect the price of Imported fuel to Nigeria. As long as we continue to import fuel, we will face challenges. The National Assembly was criticizing the NNPC for not getting the cost of subsidy appropriated but I don’t think anybody can justifiably query NNPC for why it has to import at more than the selling price which they then have to pay the difference in form of subsidy. NNPC needs to follow due process by getting National Assembly to appropriate money for subsidy because the oil being imported does not belong to NNPC and they have to pay for it. It is not a question of being unpatriotic. NNPC in order to help itself must do what is needful and should not allow the corporation be put on the spot as they were in trying to solve very difficult and intractable problem. Government may need to put its act together to ensure that Nigerians get what they deserve and encourage them to pay for it. The same goes for power too.
Based on the review of contract price, what would happen to the contract price this year?
This is a very strategic question, I hope there would be a survey of the service companies in terms of the job they are doing for the oil companies and what they are making out of it. Today, I can tell you from my experience that the service companies are suffering, they have reduced the prices of the services they are providing and at the end of the day they cannot cope.
From time to time the Honourable Minister of state for petroleum used to tell Service sectors that cost will be the driving force of making project in the industry. NNPC is also saying the same thing but today there are so many contracts entered into with the service companies. The job that you have been doing with 18 per cent mark up today you are doing with single digit. And then the cost the service companies are incurring to do the job keeps increasing, and it’s an anomaly and some of our service companies are suffering in silence, but shouldn’t the service companies approach government, approach NNPC and the issue revisited because if the trend continues a lot of service companies will fold up because they cannot because they cannot cover their cost.
And in addition to that, the service that should be for partly in naira and partly in dollar today is only paid for in naira before it used to be paid 60% dollar 40% naira because you have to import certain things, and when you look at it today before you can get some fraction in dollar you must have hard negotiations and because of the foreign exchange policy of the government you can hardly go to the bank to queue for dollar to meet up. So, given the fact that prices are going up, I think it’s only reasonable in the spirit of equity and justice that the cost of services should correspondingly be adjusted to reflect the reality of the market price.
Now that we have the crude oil price going up, what’s your suggestion for the government on bid round on marginal field?
Am not too sure whether the price of oil was the driver for oil bidding round or even marginal field. The issue majorly has been on account of PIB that will establish the framework for the bid round determining how to make the process transparent also the fiscal arrangement that will govern the business.
For example a question has been raised quite a number of times that government is not satisfied with the current fiscal regime in the industry and the draft of PIB envisages adjusting a sister regime. So if you do oil bidding round which fiscal regime are you going to apply, is it the one contained in the PIB which the oil company are kicking against or the old which government wants to adjust or do you now get a bloc and obviously you will want to run the economies of the bloc you are going to get, and there are certain parameters you consider not just the signatures bonus you are going to pay you also have to consider the statutory payment you are going to make and that way, you are going to use this to determine the profitability of the bloc you want to develop.
Now, if you use the current rate to determine that, and then six months or one year after government comes up with another regime based on the approval of PIB what is going to happen to part of the problems and objections of the oil companies to date was the fact that the adjustment government wanted to meet was to have retroactive reset which will not take cognizance of the economies of the asset.
So, if you want to apply a new fiscal regime it should be on the one that you want to give out newly so the one you give out so why don’t you determine the regime that you are going to apply, so that is basically the arrangement.