Govt earmarks $1bn to fight oil theft, pipeline vandalism

Drums-used-for-oil-theft24 March 2014, Abuja – President Goodluck Jonathan has announced that the federal government has set aside $1 billion for the implementation of a comprehensive programme to curb crude oil theft, vandalism of oil and gas infrastructure and the apprehension and prosecution of crude oil thieves.

This came as the Vice-President of Shell Upstream International, Mr. Markus Droll, has disclosed that the declining rate of crude oil production of Nigeria’s hydrocarbon resources may be as high as 15 to 20 per cent.

Jonathan spoke at The Hague at separate meetings with the Prime Minister of Netherlands, Mr. Mark Rutte, and the Chief Executive Officer of Shell International, Mr. Ben van Beurden.

He disclosed that a technical committee had already been set up to look into all aspects of the implementation of the programme.

According to the president, it would include further action to enhance the security of pipelines and other oil industry infrastructure, resolve community-related issues, boost youth empowerment in oil-producing areas and enhance the commitment of oil companies in the discharge of their corporate social responsibilities.

Jonathan stressed that the fresh onslaught against oil theft planned by his administration would require maximum cooperation of the international community, especially countries like the Netherlands which are major stakeholders in the global oil industry.

“Oil theft is an aspect of global terrorism, which has become a big industry on its own. It has become a major threat to the Nigerian economy and we need to work with all stakeholders to curb it. The thieves must be traced, apprehended and prosecuted,” Jonathan said.
The Dutch Prime Minister, Rutte, assured Jonathan of the commitment of the Netherlands to the concerted action against crude oil theft and global terrorism.

Rutte noted that Jonathan’s visit affirmed the strong ties between Nigeria and the Netherlands, assuring the president of the willingness of the European country to collaborate more with Nigeria on environmental and security issues, particularly in the Niger Delta.

He commended Nigeria’s leadership role in promoting regional security in West Africa, and welcomed the signing of an agreement on immigration between both countries as well as the strong trade relations between Nigeria and the Netherlands.

“The president’s visit is an open testimony of the strong ties between Nigeria and Netherlands. Nigeria is Netherlands’ main trading partner in Africa and the Netherlands is the second biggest European investor in Nigeria,” the prime minister said.

In his comments on Nigeria’s hydrocarbon resources, Droll said replacing such natural production decline rates in the industry require more funds than are currently available but that the peculiar high cost operational environment of Nigeria had compounded the situation.

But the Nigerian National Petroleum Corporation (NNPC) blamed the high cost of oil and gas projects and the shortfalls in funds needed to complete ongoing projects in the sector on the international oil companies (IOCs) operating in the country.

While speaking on the growth strategy for Nigeria’s oil and gas industry vis-à-vis driving exploration and boosting reserves at the just concluded Nigeria Oil and Gas conference and exhibition in Abuja, Droll explained that oil and gas companies in Nigeria would have to look for innovative ways to inject additional capital to replenish declining production.

He said: “As I have touched on the issue of funding, let me continue on that theme. Our belief is that for Nigeria to fulfill its oil and gas potential, more funding is required by the industry than we have seen in recent years.

“We are in a high cost environment and in order to collectively climb towards significantly higher production levels, we do need to find better ways to fund development. Decline rates in the industry can be as high as 15-20 per cent, and you will appreciate that to simply replace natural production decline rates require much of the funding than is currently available.”
Droll in his call for creative funding mechanisms stated: “I would therefore urge all players in the industry to keep looking for innovative ways to inject additional capital. And as important as delivering higher funding levels, is the ability to ensure predictable multi-year funding.”

NNPC however blamed the high cost of oil and gas projects packaged by the foreign firms for being responsible for the funding shortfalls that had stalled many of the projects initiated in the sector.

The corporation also said that it had set in motion measures to sanction new projects in the sector, including two major deepwater oil field developments owned by Shell and Total.

It noted that both projects might be reviewed if they incurred cost overruns.
“Apart from oil theft and pipeline vandalism, another major challenge for the Nigerian oil industry is the high cost of production. Costs are unnecessarily built up for projects and this is what is referred to as the funding gap,” the immediate past Group Executive Director, Exploration and Production of NNPC, Abiye Membere, said at the conference.

He further stated: “No single project in this country has been awarded by the IOCs and completed on scheduled and on cost.”

Membere said in the bid to rein in cost, the topside for the Shell-operated Bonga Southwest deep water project and Total’s Egina deep offshore field must be done in-country or the companies risk sanctions.

Apart from the funding challenges, the multinational oil firms also blamed the mounting insecurity, bureaucratic bottlenecks and the continued uncertainty in Nigeria’s oil industry, as being responsible for the high cost of projects in the country.

“The sheer hassle of moving projects through in this environment is overwhelming. The contracting process is too cumbersome and does not make for efficient project costs,” the Chairman of Shell companies in Nigeria, Mr. Mutiu Sunmonu, said, adding that “security issues are also driving up costs”.

The Managing Director of Mobil Producing Nigeria Unlimited (MPNU), Mark Ward, also said: “There is a need for reforms to solve the fundamental issues of the inefficiency in the system. We are looking up to NNPC our senior partner to help solve the issue of how to provide low cost projects.”

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