Guest of the week

Oil price will not go beyond $60 — Ex-NNPC GED/(E&P)

Former Group Executive Director, Exploration and Production (E&P) Nigerian National Petroleum Corporation (NNPC) Mr Philip Chukwu was also a former Group Executive Director Refining and Petrochemicals, former Managing Director National Engineering and Technical Company (NETCO) and former Group General Manager National Petroleum and Investment Management Services (NAPIMS) among others. Chukwu retired in 2012 from NNPC and became a consultant, a farmer and mentoring of youths in local communities in collaboration with Non-Governmental Organisations on purposeful leadership. An experienced and transparent professional Engineer who rarely grants interview was cornered by the Publisher/Editor-in-Chief Nigerian NewsDirect Dr SAMUEL IBIYEMI   at Abuja International Airport to  speak on the current lull in Nigeria’s oil and gas industry. In this interview, he recommends incentives and sanctity of contract as the solution to rejig exploration and development activities needed to boost hydrocarbon reserves. Besides, he suggests solutions needed to bring down  that production cost per barrel of crude oil which in Nigeria  currently at $28 per barrel is one of the highest globally. Excerpts.

What do you see about the Oil and Gas industry today?

Well, there is a lull in the Oil industry and I believe this was caused by the sudden drop in the price of oil. There was no incentive to invest and government did not react in time to give the operators incentive to be able to move ahead. If you recall in the past about 1985-1986, we had a similar situation. Government came up with a series of incentives, and so they were able to continue with their activities in exploration, development  and investments among others. That was very good but it has not happened this time. It did not happen in time, and it has implication for the future of the Nigerian oil  and gas Industry. This is because if you don’t explore to find replacement for the oil you are producing, then in a few years’ time, you  will begin having difficulties with production of oil. The volume of oil the firm will begin having difficulties with production to the level expected to produce. If you recall also in 1999 when former President Olusegun Obasanjo came to power, he had this strategic plan whereby we were looking at 40bn barrels of oil reserve and 4mbpd of Oil. We put in programmes to achieve that. However, everything died off because it was not continued because subsequent governments did not have the same vision. As at 2017, we are still struggling with 22mbpd because our reserves are down. These are difficulties and the situation now is going to worsen.

Why?

This is because we are not replacing reserves. We now have to be investing more in the places where we are producing which means we have to spend more to maintain the wells. The cost of producing is rising and very high in Nigeria. It was about $7 in 2004 in the extreme cases but now we are talking about $28 per barrel. So, if a firm is investing $28 to produce one barrel, then the investor must have very high price to compensate for the high cost of production.

How can we reduce cost?

The cost has to be brought down because there are so many things impacting on our cost. If you check security issues, we have the Joint Task Force (JTF) in the Niger Delta, they are sponsored by government. Where does the money come from? The Oil Industry. The communities are making more demands and blocking operation in a number of cases. For example, if you have a rig to drill a well for 50 days, because the oil communities block operation, you will spend 100 days. So, you might end up paying double. The industry is such that people operate and engage expertise and equipment from service providers. The oil firm has to pay  for the rig since it was supplied from abroad and they are delayed. The contract says you have to pay despite the communities that block and stopped the operation.. Those are the things that have increased cost in the Niger Delta. We must look for a way to bring down the cost.

Who will drive the reduction in cost, is it the operator or government?

These are social and security issues, it rests on government to do. The government must do something about it. I don’t think the companies and operators can do that effectively. You can do some little things like hire people from the community but at the end of the day, it is the government who can do that.

You talked about incentives, what kind of incentives?

The most critical is that we must respect the agreements we go into with these companies. That is one area that if addressed will give companies the confidence to operate in our environment. Everyday government agencies are reneging on agreements. There are issues coming up every day and you don’t know how they can be addressed but government has to begin to do that.

Looking forward, one of the factors that caused the drop in oil prices is one, the United States (USA) and other places started producing the shale oil. They have invested so much in shale oil. All they need is to form the operations. What will happen is that they will start producing and they will come into the market again and dampen the price.

In one word, what do you see about OPEC’s decision to cut down on production?

It is good but I don’t think it will help our oil price at a higher price. Oil prices will not go beyond $60. I would not advise for it to get to that kind of level. It should be moderated so that people who are producing from very high cost areas can’t come into the market. Once you allow them, what happened about three years ago will happen again. The issue today is that the Organisation of Petroleum Exporting Countries (OPEC) must be very careful and maintain its market so that the space is not occupied by shale oil producers because of high oil price.

So how do we fit in with the biofuels development?

We have done that before, we have the expertise, how do we do it is yet to be seen. But if you do it, what is the cost of producing Biofuels?

It has to be matched against the current cost.

What of the aspect of farming?

But in farming, most of our farms in the remote areas have transportation problem  in bringing farm products to the market. So, all those have to be addressed. But I don’t know if it can be funded and how it will be funded. Farmers have to be encouraged. Farmers who go into commercial farming today, it is not a very attractive business. Something has to be done to encourage people to go into that business.

How do you see our exploration in the inland basins?

I think we should spend our resources in the area where we are sure of. We can’t afford the luxury of going to these places now? We should concentrate on areas where we are sure of prospect. Those other areas can be explored probably in the future. We have been in the Chad basin since 1977. Why are the IOCs not there? If they are not there, I don’t think we should be wasting resources. It is likely that there are resources there, I am not sure. Why don’t we concentrate on the Niger Delta and offshore Niger Delta so that when we have extra resources, we can go to these other places. But then we should encourage others. If there are some incentives for them to go there, they will go there.

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