Energy

Shortfall in JV funding responsible for stagnation in oil industry —NAPE President

Mr. Abiodun Adesanya is the Managing Director of Degeconek Nigeria Limited as well as the President of the National Association of Petroleum Explorationists, NAPE. In this media chat with journalists at the Offshore Technology Conference, OTC, in Houston, Texas, he examines the challenges facing the oil industry, especially, the issues of marginal fields, frontier basins and oil price.

WHAT is the level of your engagement with the National Assembly members to ensure that all aspects of the Petroleum Industry Bill (PIB) are passed into law?

It hasn’t been much. You know the PIB has been around for a while. At the very beginning we were engaged when they had their public hearing during the 7th assembly. Since then, we were equally frustrated like everyone else when there were delays. With those delays, we were also anxious and worried. Early last year, I had a discussion with some of the staff of Honorable Minister of State for Petroleum Resources to understand what the strategy is, going forward.  What they told me which is what is being implemented now was that the PIB is going to be split into three major parts and the first part will be the one that will focus on regulatory activities and expansion.

Regulatory activities and expansion

Those ones that are not political, if you remember, the PIB was going through a smooth conversation until they got into political areas and things got to a halt. So they said let us take out the political issues and focus on regulatory aspect and that’s what they have been doing. Now, we haven’t really interacted with this new National Assembly. We were invited in December 2015 when they were having a retreat and at that meeting, we did mention to them our intention to further engage with them. They haven’t formed the committees at that time, but now that the committees are in place, we need to quickly reach out to them. When we were planning our conference last year, we reached out to them but a number of them said the timing wasn’t convenient for them but we are planning to make that visit to them and engage them.

Why have Nigeria’s oil reserves been static at 37 billion barrels for many years?

No, it hasn’t been static. It is a plus and minus thing all the time. As you produce, you deplete. As you promote certain contingents into reserves, you increase. So, what has happened is that it is better to be flat than going down. I guess the strategy is to keep it flat if we cannot make it to go up. That is why you are seeing 37 billion barrels when production is ongoing. Depletion is going on and replenishment is going on simultaneously. And when you have that kind of scenario, the figure could go up or down. What we are saying is that we set a target of 40 billion barrels of reserves by 2020 for ourselves because we believe it is achievable. We think we know where the resources to produce that number are. What has happened is that because we have over a period of not less than 10 years, we have had a short fall in joint venture, JV, funding. Typically, when there is a shortfall in JV counterpart funding form government, the area that takes the hit first is the exploration. So the amount of money earmarked for exploration has dwindled over the years and that is directly proportional to discoveries. If you don’t spend money, you don’t get anything back. It is risky quite alright which is why when the issues of budget cut come up, the most hit is exploration because of the associated risks but once the present administration comes up with a formula to work on JV funding, we are beginning to see interest. Don’t forget also that compounded with that is the issue of security in the Niger Delta which again in the last 15 years has been a major challenge. A formula has been found also to address that challenge and it seems to be working. We have had a reduction in the vandalism of production infrastructure and that again has increased the confidence of the operators to step out. Exploration has to take place outside your exploration areas but within the block you have and the process of swapping blocks and licensing rounds and so on is yet to take place. There are quite a number of fields that have been discovered but not certified enough into being called reserves. So even if you work on that alone, we can enter 40 billion barrels by year 2020.

Can you comment of investors currently showing interest in the nation’s oil basins and what the government should do to attract more investors?

The investors are many, including Tullow, Cosmos Energy and Anardeko. If you look at the traditional history of how they move about, they only go to places where companies like Shell does not go first. Developmental deficit

If you look at the scenario in Mozambique 10 years ago, when the discoveries were initially made, there were few companies but after discoveries, there was surge in interest by the International Oil Companies and they buy major stake in the company that made the discoveries. The government must provide incentives. There is something that takes these companies to such basins in the first instance. We have to do a study because we can’t brag about Benue Trough to anybody. You can brag with the Niger Delta. You can say if you come in and make one billion barrels field, this is the incentive. We shouldn’t inhibit them at the beginning but make them as attractive as possible. For instance, in Ghana, the field was given free. They tell you to commit to a minimum size work of certain seismic data and certain numbers of well. Unlike ours that we typically attach a signature bonus to licensing rounds, they don’t do that. Signature bonus can be applied to the Niger Delta which has already prolific and matured basins, but if you want to get somebody to go to Chad basin, or Benue trough to do something where no discovery has been made, you have to incentivize them properly. For instance, Niger Republic gives blocks freely and attaches work programmes to it. When we attach signature bonus, remember they are to pay that first, they will pay for seismic and drilled wells and after these efforts, they could still work dry. That risk is quite significant and government must ensure any incentive to attract them to stay.

What do you envisage to be the place of oil in the world’s future energy mix and implication on Nigeria’s economy?

Research and development never stops. Don’t forget that hydrocarbon is a combination of hydrogen and carbon. Water is hydrogen and oxygen. Now hydrogen is common to both of them. There is a research going on to begin to use water to power generators and cars. If that research hits the market with a breakthrough, that will be the end of reliance and needs for hydrocarbon. What we are saying essentially is that Nigeria has an infrastructural and developmental deficit. Let the country generate enough revenues and develop this entire infrastructure. Let’s us become a developed country and let quality of lives increase. Let’s use our money to diversify the economy from over reliance on oil and gas. This is because if oil becomes suddenly unattractive, something else should be attractive and Nigeria has enough of all those opportunities. All we need to do is to use what we need right now to get what we need, for our future and development.

What does low crude oil price portend for exploration having in mind that we need to replenish what we must have produced?

 The issue is not about low oil price, but low profit margin. If the issue is that your profit margin is eroding, it’s a bad business to be in. Rather than over-concentrate on the oil price, work on your profit margin. Call your contractors and bargain on reducing costs of producing oil so that there will enough margins between cost of production and sales cost.

What is NAPE doing in terms of engaging the government regarding idle fields?

It doesn’t worry us, but what worries us is what government is doing or intends to do. There was marginal field licensing rounds programmes initiated sometime ago under former President Goodluck Jonathan administration. People, however set motion in place and activities were wobbling in relation to that, and then it was stopped. The idle fields are normal. Don’t forget also that asset transfers need to be frequent. If an operator drills a well and not ready or not ranking high to be developed, there could be an opportunity for somebody who is interested to come and partner with me. The whole thing is wrapped around government policies and programmes and these have to be shaped to make what I just described to happen. There are rumors again that there will be a licensing round. We have to wait and see when that happens. As a matter of fact, I have gotten information that they have been asked to do certain works in preparatory for that. The issue of idle fields is exactly what the marginal fields programme was meant to address. International Oil Companies, IOCs, made these discoveries. Later they did not meet the threshold of their corporate size and therefore they keep them idle. But that might turn somebody else’s life around and so opportunity should be given to such person.

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