‘How to tackle challenges of falling oil prices’

13 December 2015, Lagos –  To cushion the pangs of plummeting crude oil prices on the economy, the Nigerian Association of Petroleum Explorationists (NAPE), has called for the development of a robust down-stream industry, with focus on refining capacity to generate more revenue, by giving green field refineries some form of take-off tax breaks.

Oil prices drop

Oil prices drop

The association, in a communiqué issued at the end its pre-conference shop tagged: “Survival Strategies for Petroleum Exploration and Exploitation in a Challenging Environment”, said that there is a need to encourage facility sharing and tie-back to existing infrastructure in the oil and gas sector.

The communiqué, signed by the President, Chikwendu Edoziem and President-elect, Nosa Omorodion, noted that low oil prices have resulted in significant slow-down in projects and sometimes stoppage of exploration and exploitation activities.

According to NAPE, there has been a sharp cut-back in upstream investment, with companies focusing on short-term production.

It noted that Exploration and Production (E&P) companies are skeptical of government’s willingness to honour Joint Venture (JV) cash-call obligations with the consequence of low exploration activities.

The association stated: “Upstream companies are subjected to over-taxation. Militancy, oil theft, infrastructure vandalization, and overall poor security have impacted on the investment climate. The unprecedented increase in security cost however has not yielded desired results. Reduced exploration activities have resulted in a declining oil and gas reserve base. There is only a limited role for marginal field operators within the context of the current Act. Increased competition from emerging African frontier plays is impacting on Nigeria’s position in the industry.”

Proffering solutions to these challenges, NAPE said that fiscal terms of PSCs and concessions should be reviewed for the mutual benefit of both the government and the operators.

It added that the industry needs to evolve new strategies and tactics to improve funding of JVs, particularly the creation of independent International Joint Ventures.

The group called for review and re-negotiation of contracts; re-evaluation portfolio to understand why a portfolio is dormant or underperforming and initiation of steps to guarantee reasonable return.

 Industry to focus on operational optimization to drive efficiency. OPEX reduction drive; re-engineering of business models. The Marginal Field Act should be modified and incentivised to enable exploration and not just production. Fiscal regimes should be structured to encourage exploration in the frontier basins in order to replace reserves. There is a need to encourage facility sharing and tie-back to existing infrastructure”, it added.

The communiqué said that no new upstream development project should be sanctioned without it being an integrated oil and gas-focused project.

It noted that serious and meaningful engagement of members of host communities to foster security and sense of belonging as stated in GMOUs “The Nigerian oil industry database repositories need to be strengthened in order to benefit E&P activities. Create incentives that are similar to ‘Reserve Addition Bonus’ concept to become applicable strictly for reserves addition derived only from wild cat exploration wells and not field extension appraisals and field review / reservoir engineering studies”.

  • The Guardian
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