A Review of the Nigerian Energy Industry

NNPC, IOCs decry rising cost of oil and gas projects

nnpc20 March 2014, Abuja – The Nigerian National Petroleum Corporation (NNPC) and the International Oil Companies (IOCs) have decried the high cost of projects in Nigeria’s oil and gas sector, saying the development will “kill” the industry unless the players become efficient about costs of projects.

Speaking separately at a special section of the Nigerian Oil and Gas (NOG) conference in Abuja yesterday, top executives of NNPC, Shell, ExxonMobil, Chevron and Addax Petroleum, said besides oil theft and pipeline vandalism, the next major challenge facing the country’s oil and gas industry was the issue of high cost of projects, which they blamed on long contracting cycle and bureaucracy.

Country Chair of Shell Companies and Managing Director of Shell Petroleum Development Company (SPDC), Mr. Mutiu Sunmonu, said Nigeria’s oil and gas industry was a mixture of threats and opportunities.

He said the hurdles in pushing projects through in Nigeria was overwhelming and blamed the situation on excessive bureaucracy on the part of operators, contractors and the government.

Sunmonu said Nigeria’s policy makers had clear aspirations, clear goals and good framework but lacked practicality.
“I think where we missed the gap is at the working level. Bureaucracy is a major hurdle both for the operators, contractors and government. When you have to go through this hurdle, every investor will have to think about the alternative,” he said.

Sunmonu said all key players in Nigeria’s oil and gas industry lacked sufficient sense of practicality,

According to him, investors, contractors and regulators need to have a much more practical approach to the way they do business in Nigeria.

“There is absolutely no point where every party in the value chain is sticking to his guns. The business will be the loser; investors will lose and our country will lose,” he added.
He decried what he called some checks and balances into the contracting processes, adding that he never believed that there was need for the industry to be having parallel evaluation and parallel negotiation of contracts.

“A situation whereby three different arms in the company, in government and in the regulatory agencies are dealing with the same contract can only be a waste of time. If I am a contractor and I know that the contract I am bidding for today is not going to mature until 2017, I am going to jack up my cost by almost 50 or 100 per cent,” he said.

NNPC’s Group Executive Director (GED) in charge of Exploration and Production, Mr. Abiye Membere said the players should build synergies and ensure portfolio optimisation to reduce costs of projects.

“If company A is doing a field development here and Company B has an asset here, Company A should try and ensure that his assets will accommodate Company B even though Company B is not yet ready to produce so that the day it will produce, it will have access to facilities,” he said.

Abiye said no contract had ever been executed in Nigeria on schedule and on cost.
Also speaking, the Chairman of ExxonMobil Companies Nigeria, Mr. Mark Ward said it was very difficult to find anywhere in the world where operators had the magnitude of problems they faced in Nigeria.

“We have got a very frustrating situation on how to grow our business because the resources are dead. You are dealing with infrastructure that is very old,” he said.
He said the industry had environmental, budgetary and funding challenges at the same time with other complex challenges.
On the issue of oil theft and pipeline vandalism, the Senior Vice President and Managing Director of Addax Petroleum Nigeria, Mr. Cornelis Zegelaar said no amount of security would solve the problem.

“I know from hands on experience that there is no amount of security you can throw at this problem that will provide a sustainable solution. I think it is a social problem; I think it should be resolved that way; I think all the stakeholders should make sure that all the interests are aligned,” he said.

The Chairman and Managing Director of Chevron Nigeria Limited, Mr. Andrew Fawthrop, also aligned his views with his counterparts in his keynote address titled: “Moving the Nigerian Gas Sector to the Next Level.”


– Ejiofor Alike, This Day

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