A Review of the Nigerian Energy Industry

IOCs seek fresh negotiations with govt on Oil & Gas projects funding

18 March 2015, Abuja – In a bid to address the shortfall in funding arising from the drop in the price of crude oil, the joint venture partners of the Nigerian National Petroleum Corporation (NNPC) have called for fresh negotiations with the federal government on the implementation of projects in the sector.

Diezani-Alison-MaduekeThe international oil companies (IOCs) have also cautioned against down-sizing, saying if oil workers are laid off because of the drop in oil prices, the industry will experience dearth of manpower when oil prices stabilise.

Speaking at a session on operational challenges in Nigeria’s oil sector vis-à-vis, the falling price of crude oil in international market, the chief executives of multinational oil companies at the 2015 edition of the Nigeria Oil and Gas (NOG) conference and exhibition in Abuja, said the slump in oil prices had fuelled the need for the operators to engage the government in talks on ways to resolve the issue of funding existing projects.

The new Managing Director of Shell Petroleum Development Company (SPDC) and Country Chair for Shell companies in Nigeria, Mr. Osagie Okunbor, said there was need for the operators and government to negotiate as most of the projects for 2015 had been agreed on before the drop in oil prices.

“With oil prices where they are and with all the uncertainties around, this is hardly the time for parties on the government and industry sides to be doing their individual things. We really need to come together and agree on priorities we have. We all have a programme that we have agreed for 2015; most of that essentially started before this radical drop in prices. So, both sides need to sit together and say what is the impact of this or what do we sensibly do going forward such that we don’t get into the business of stopping projects half-way and we end up incurring more cost.

We have looked at a bit of that inside Shell to say sensibly, if the funding is not available and we need to hold back or delay some projects, what is the sensible way to do it? And also because we are in joint venture with the government, we need to have collaborative shared vision on ways of going about this. That will ensure that we achieve the best we can under the difficult circumstances without panicking or taking irrational decisions,” he  added.

Okunbor also stated that other critical areas that require urgent action in Nigeria are the lead time in renewal of expired licences to oil leases and proliferation of regulatory agencies.

“If the basic issue of tenure of oil licences and renewals is not resolved, no shareholder will agree to commit investment, especially at this period of lower oil prices,” he said.

The Managing Director of Total Upstream Companies in Nigeria, Mrs. Elizabeth Proust, told the delegates at the conference that the industry was facing a difficult time that required the government and the operators to engage in talks on the way forward.

“One important point is to know how dialogue with the government and institutions; how to be on board of what they prepare or would like to modify, how to let them understand out situation and we know that the government has seen less revenues coming from oil and gas. We have brought so many good things to the country and millions of people depend on oil and gas industry.
Despite the price we can adapt and we are ready to discuss with the government. I think the Oil Producers Trade Section (OPTS) is the right platform to propose dialogue with the government and this is what we intend to do and we are ready to do it. We have identified areas we can improve, for example the gas sector. We all know that if we want to extend the gas reserves,  we need infrastructure and a deregulated gas price,” Proust explained.

She added that: “It is a difficult time that we face together. There is fear. There is fear in our staff in all the companies. There is fear in the staff of the service contractors  and communities. But we have reasons to be optimistic. We operate in an industry which can adapt and adapt very quickly. We need to be prepared to face maybe a long period with this level of price. It is not short term impact, it is a long term impact that we need to be prepared. In the oil industry we have to first preserve predictions, this is important because we need to preserve most of our work programmes. We look at the future and all the companies are reviewing their business plan. We need more business for our new projects and be sure that we have the funding, the financing. And that we have also optimised these projects. And that they can survive the long period of high level of expenditure.

Proust also stated that the oil companies have to be sure of the fiscal environment to be able to take the risk, adding that they also need to discuss with the government because exploration is the backbone of Nigeria.

The CEOs also listed other areas that require government’s urgent attention to include regulations, tendering processes and fiscal terms in oil and gas production.

“We need improvement in regulations, efficiency in the tendering process and favourable fiscal terms that will make new investments attractive not only to existing operators but for new investors also.

“For instance, the tendering process in Nigeria is longer than usual which not only delays exploration activities but increases project costs. Exploration activities are on the decline in Nigeria and the government needs to address this,” Proust added.

Also, the Managing Director of ExxonMobil companies in Nigeria, Mr. Nolan O’Neal, noted that the tendering process is long in Nigeria compared to other places, adding that this implies that payback time is longer.

Shell, along with ExxonMobil and Chevron engaged in negotiations with the Nigerian government for more than eight years for the renewal of their expired oil leases, some of which contain fields with huge output and potentials for additional production.

Exxon had its expired leases renewed in 2012 and Chevron’s late last year, Shell however is still in talks with the government to renew its leases.

Both Okunbor and the Senior Vice-President and Managing Director of Addax Petroleum, Mr. Cornelius Zegelaar, also called on the IOCs to be cautious in downsizing so that the industry would not experience dearth of core technical staff in the future.

Okunbor said if the core technical staff were laid off it would cost the industry more to bring them back in the future.

– This Day

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