IOCs, marginal fields’ operators fingered in oil industry woes

*Offshore oil exploration.

*Personnel working on an offshore oil rig.

09 August 2016, Lagos — Stakeholders in the Nigerian petroleum industry have blamed the woes currently befalling the industry on the lack of transparency displayed in the activities of International Oil Companies, IOC, and marginal fields’ operators.

This view, among others, was expressed by the stakeholders at the just concluded Nigeria Annual International Conference and Exhibition, NAICE, 2016, in Lagos.

They claimed that these sharp practices have deprived the country of proceeds that would have helped cushion the impact of the low crude oil price on the Nigerian economy.

Specifically, Chairman, Energy Institute, and former Director of the Department of Petroleum Resources, DPR, Mr. Osten Olorunsola, maintained that ethics and transparency gaps, supply security and others are major hindrances robbing the country of potential benefits in the petroleum industry.

He stated that despite the development experienced in the industry, more is needed to be done in order to reap good returns in the pain of dwindling crude oil price.

He lamented that the guidelines and rules for operators are too flexible and confusing, while he identified other shortcomings to include low entry requirements; the industry being seen as an all-comers game and no yellow or red cards; weak disqualification provisions, among others.

He identified insufficient due diligence, predominantly manual (Many toll gates), suboptimal evaluation of bids, skewed evaluation of bids, self-interests, political pressures, injections (forced marriages) and approval delays, as hindrances to processes and tools contracts.

He also faulted the system as well as the individuals involved in the process, saying their actions encourage padding, winning the race from the end, bribery and corruption and partiality of referees. According to him, the implication of these unethical practices had brought about mistakes, disputes, court cases and other related issues.

He, however, called for collaboration among all players commitment to tackling the problems. “We must tighten the rules, ensure level playing field Simplify and automate processes, minimize human intervention work on the character and refine attitude of players,” he added.

In his own presentation, Chairman, Society of Petroleum Engineering, Nigeria Council, Mr. George Kalu, argued that transparency in policy formulation and business operating in the country, would bring about an increase in Joint Ventures, JVs, and also restore investor confidence even in a low oil price environment.

He said, “Transparency in the oil and gas sector remains the panacea to improve the investment climate based on the similar rate of returns in all other regions. It will help attract financing, improve structure and operation, straighten challenges in regulation and reduce contracting cycle time and operational risks.” Kalu, however, lamented the increase in gas flaring as well as inadequate infrastructure, identifying them as major hindrances robbing the country of potential benefits from gas sales.

He explained that the challenges confronting the industry include, funding (rising from cash call arrears), exchange rate differential in a cyclical oil price regime. Others, according to him, involve high operational costs due to long contracting period and several delayed payments to vendors, as well as high cost of borrowing.

He further attributed the belated passage of the Petroleum Industry Bill, PIB, as a major setback to investment in the sector, adding that such challenge had brought activities down to their lowest point.

He argued that the level of crude oil and gas reserve discoveries do not match the rate between 2013 and 2016, and this has resulted in minimal exploration and a reduction of new development activities when compared to other oil and gas producing countries.

He added that “The country’s petroleum industry had experienced massive capital flights due to bureaucratic bottlenecks in releasing information on prospects, fiscal regime, extant laws and feedback on the performance of contractors. This resulted in significant delays in permits approval while providing a breeding /enabling environment for sharp practices.

“However, with all the challenges enunciated above, an average Upstream Technical Cost, UTC, (below US$20 per barrel) is required for global competitiveness for the industry.”

Moreover, Chairman of Chevron Nigeria and Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry, Clay Neff, stated that key challenges confronting the oil and gas business in the country are security (with militant activities in the Niger Delta), efficiency of cash call funding and low oil price environment.

He explained that if upstream technical cost is kept lower than $20 per barrel, the country can still remain viable and globally competitive. Speaking in the same vein, Managing Director/Chief Executive Officer, First E&P, Ademola Adeyemi-
Bero, added that major underinvestment, especially in exploration and appraisal activity has been the main cause of reserves decline.

Others, he identified as insecurity across the Niger Delta hindered key activities, adding that at three million barrels per day, reserves will only last 30 years, and there is a need to find more oil. Moreover, for Marginal fields, he highlighted asset acquisition and management, operating environment, government policies, funding and personnel, capacity and technology, as other challenges and huddle confronting its success.

*Ediri Ejoh, Prince Okafor & Iloaze Blessed-Odidi – Vanguard

About the Author