Nosa
Omorodion is the President of the Nigerian Association of Petroleum
Explorationists (NAPE) and Director, National Independents at Schlumberger. He spoke with journalists
on the need for the Federal Government to fully optimise the potential of the
country’s oil sector. Sit back and enjoy it.
Nigeria
has just celebrated its independence. Do you think the country has been able to
achieve its oil and gas potential since gaining freedom from her colonial
masters?
I would rather like to rephrase the question to whether we have optimised the God given resources we have been endowed with as a nation. My answer is a capital NO. Nigeria’s search for petroleum dates back to 1908, and the first exploratory well was drilled in Owerri in 1955 with traces of oil of non–commercial significance. This partial success however encouraged the efforts to strike for more significant success at Oloibiri in 1956. And this has led to phrases such as ‘Killing the goose that lays the golden egg’’ ‘Is discovery of oil a blessing or a curse’ etc. Department of Petroleum Resources (DPR) needs to be enabled and allowed to perform its role as the regulator and chief police officer of the industry.
I would rather like to rephrase the question to whether we have optimised the God given resources we have been endowed with as a nation. My answer is a capital NO. Nigeria’s search for petroleum dates back to 1908, and the first exploratory well was drilled in Owerri in 1955 with traces of oil of non–commercial significance. This partial success however encouraged the efforts to strike for more significant success at Oloibiri in 1956. And this has led to phrases such as ‘Killing the goose that lays the golden egg’’ ‘Is discovery of oil a blessing or a curse’ etc. Department of Petroleum Resources (DPR) needs to be enabled and allowed to perform its role as the regulator and chief police officer of the industry.
Like I have
said several times in the past, and I believe it’s an industry held agreement,
DPR needs to become a commission. Neighboring countries that joined the league
of oil finders/producers have long seen the wisdom in this and have empowered
their DPRs. For reasons begging for justifiable national interest, I can’t
understand why this should even be a struggle.
The Government has enunciated a number of initiatives, which have been good for the industry. I can mention a few. The Marginal Fields and Deepwater Acts were initiatives conceived by Nigerian Association of Petroleum Explorationists (NAPE) to increase reserves in the industry. The restructuring of Nigerian National Petroleum Corporation (NNPC) to make it nimble and more profitable is another good initiative. Government’s decision to explore for oil in frontier basins is also commendable.
The Local
Content development act also comes to mind in helping meet the human capacity
building and local content utilization needs of indigenous players in the
industry.
However the
industry needs to evolve new strategies and tactics to better fund Joint
Ventures (JVs). Sanctity of contracts needs to be respected. Contacting circle
needs to be realistic. It is time to review and re-negotiate contracts;
re-evaluate portfolios to understand why a portfolio is dormant or
underperforming and take steps to guarantee reasonable return.
There is no
better time than the present to develop a robust down-stream industry and
improve refining capacity to generate revenue by giving green field refineries
some form of take-off tax breaks.
Nigeria
is officially in recession right now. How will the current situation affect the
country’s new exploration plans?
This reality has elicited various positions and schools of thought on the fate of our economy and undoubtedly we are reaping the reward of our unpreparedness during the times of boom. Recession is a cyclical phenomenon. All hands must be on deck if the end of this cycle of gloom is not to find us unprepared for the next phase of boom. Long before it was officially acknowledged we are in a recession, low oil prices had led to slowdown in projects as well as the hindering of exploration activities with many companies rather reactively focusing on short-term production.
This reality has elicited various positions and schools of thought on the fate of our economy and undoubtedly we are reaping the reward of our unpreparedness during the times of boom. Recession is a cyclical phenomenon. All hands must be on deck if the end of this cycle of gloom is not to find us unprepared for the next phase of boom. Long before it was officially acknowledged we are in a recession, low oil prices had led to slowdown in projects as well as the hindering of exploration activities with many companies rather reactively focusing on short-term production.
Understandably,
it was a quest for survival as they got banks and lenders to deal with.
For years we
have decried the decline in exploration activities and have shouted loud on the
need to focus attention on exploration. For close to two decades or thereabout
we have not had major exploration finds and yet our production rate has
averagely been consistent.
If at the
times of boom we didn’t have a focus on exploration, then your guess is good as
mine as to how the current recession will impact exploration plans.
The bright
side however is if the funds are available, it’s a great time for companies to
have a shot at exploration wells, as one major resultant effect of the crash in
oil prices has been the crash in the cost of services. I worry though as this
may in the long run also come at a premium. The cheap services we are all
taking advantage of today can only have one long-term repercussion. Today price
is king and for the companies with deep pockets or companies with a long-term
survival goal, they just have to find the right balance between ramping up
production and replacing the reserves they are depleting.
One of the
reasons the nation’s economy has gone into recession is the dwindling revenue
from the sale of crude due to disruptions in the Niger delta. It is quite
instructive that the escalation of militancy in the Niger Delta has had very
remarkable impact on production costs. Production costs have at least two
components, the technical component and the non-technical component. While the
cost of the technical component has reduced, the non-technical cost, which
includes pipeline vandalization, host community and allied issues, has
increased to much unanticipated highs. This is however not the time to cry over
spilled milk.
The negative
impact on Nigeria’s oil receipts from the activities of the sector calls for a
sustainable strategy to mitigate the situation. It is heartwarming thus to hear
that the Nigerian National Petroleum Corporation (NNPC) through Frontier
Exploration Services has renewed its efforts for exploration drive across the
Frontier basins in Nigeria. The new exploration plans are lofty. To compliment
government efforts in boasting exploration across this sector, Nigerian
Association of Petroleum Explorationists (NAPE) will on November 14, 2016 host a Pre-Conference Workshop with the theme ‘Stimulating Investment Opportunities in
Nigeria Frontier Basins’ and one of the key lead sessions will be
discussing commercial exploration efforts within the Benue trough and frontier
section of the Niger Delta.
It promises
to be one of the most thought provoking, incisive and thorough sessions. It
will feature an assemblage of the best commercial and technical minds on
frontier exploration. The workshop is supported by NNPC. Much has been written
and said on funding but let’s just also add that it is crucial for government
to assure E &P companies that they will be more upfront in honoring JV
cash- call obligations. Times like these calls for creativity and out of the
box thinking. National interest should take precedence over emotive and
non-commercially economic interest that will be of no benefit to the Nigerian
people. It is time to consider partial divestment and let’s do what is best for
the nation and its people. There is no reason why the Marginal Field Act should
not be modified and incentivized to enable exploration activities and not just
production.
Government
has intensified oil search in the Chad Basins. As an explorationist, what are
the potentials of hydrocarbon in the Chad Basin?
Our business as explorationists is to find oil and gas. In that regard we are elated that government has stepped up its endeavors in the search for oil in any region where prospective finds exist. As you are aware the search is not limited to the Chad basin alone, but covers extensive inquest in the Nigerian Frontier Sedimentary Basins which include Bida Dahomey, Anambra, Gongola/and the Sokoto Basins along the Middle/ Lower Benue Trough, Yola.
Our business as explorationists is to find oil and gas. In that regard we are elated that government has stepped up its endeavors in the search for oil in any region where prospective finds exist. As you are aware the search is not limited to the Chad basin alone, but covers extensive inquest in the Nigerian Frontier Sedimentary Basins which include Bida Dahomey, Anambra, Gongola/and the Sokoto Basins along the Middle/ Lower Benue Trough, Yola.
NAPE has
always advocated for Fiscal regimes to be structured to encourage exploration
in the frontier basins in order to replace reserves. As for the potential of
crude oil exploration, I would say that discoveries made in neighbouring
countries in basins with similar structural settings such as Doba, Doseo and
Bongor all in Chad amounts to over 2 billion barrels (bbbls). NNPC through FES
has over the years embarked on intense studies.
Hydrocarbons
were encountered in previous campaigns but were not of enough commercial
interest. The drive, focus and technical preparedness to resume exploration is
commendable and they have not been shy in engaging the brightest minds and best
available technology to minimize the risk and increase the chances of success.
It can also be said of the Benue trough, which incidentally recorded some gas
success in the previous campaign.
What
are the chances of other states in Nigeria becoming oil-producing states as we
see in Lagos?
You can only explore and maximize nature’s gift where it is bequeathed. Beyond oil, Nigeria is blessed with natural resources that will make other countries green with envy. Balfor effectively summed up the importance of Oil in today’s world when he declared many years ago that “………..the kingdom of this world is run on oil…….Oil is the reason the world is truly globalized today.”
You can only explore and maximize nature’s gift where it is bequeathed. Beyond oil, Nigeria is blessed with natural resources that will make other countries green with envy. Balfor effectively summed up the importance of Oil in today’s world when he declared many years ago that “………..the kingdom of this world is run on oil…….Oil is the reason the world is truly globalized today.”
The demand
is still growing. It is the source of fuel. Vehicles on our streets run on oil.
Many homes are powered with generators run on oil. Oil and Gas light up the
world and is the basis for industrialization. So, I can understand the
infectious desire to proclaim that every state can become oil producing states.
To answer your question bluntly more states certainly have the chances to join
the league. I did mention that prospects for successful hydrocarbon campaign in
other sedimentary basins like are high. Dahomey and Anambra basins have proven
to be successful. Benue and Chad have potentials.
There are
mini-frontiers within the Niger Delta yet to be explored. We have the 6th
largest bitumen deposits in the world and yet this remains highly under
explored. What more can we ask for as a nation? It is about time we stepped up
to exploit and maximize the potentials we have been bequeathed by God. Many
will crave to be so blessed. Non-hydrocarbon resources and the agricultural
sector are begging to be exploited. The kingdom of this world may be run on
oil, it remains only an enabler, only those that are able to maximize their God
endowed resources will stand the test of minimizing the impact of recessions at
times like these.
What are the implications of the decline in hydrocarbon exploration to the Nigerian economy?
Quite obvious and you don’t need to be an economist or expert to understand that implications will include less money, dwindling reserves, more burden on foreign reserves, pressure on infrastructure and social services, inability to meet commitments to lenders, I can go on and on. Reduction in hydrocarbon exploration and exploitation has dire consequences for a country like Nigeria with a mono-economy hinged on crude oil. Reduction in hydrocarbon exploration has resulted in declining oil and gas reserve base. It is not rocket science to draw the conclusion that Nigeria’s aspiration of 40 million barrels reserve base and 2.2 million barrels a day production quota is at best elusive.
To make
matters worse, increased competition from emerging African frontier plays is
impacting on Nigeria’s position in the industry. Government must seek for more
innovative and cost effective ways to increase reserves. Review and
re-negotiate contracts; re-evaluate portfolio to understand why a portfolio is
dormant or underperforming and take steps to guarantee reasonable return. The oil
and gas industry must also focus on operational optimization to drive
efficiency as well as embark on re-engineering of business models.
On the
upside, it can be a blessing in disguise as it allows focus on other sectors.
It can be the wake-up call we need to look inward and innovate to maximize
other resources and potentials. The manufacturing sector is yet to pick up. The
agro allied and non- oil sectors can become major revenue contributors. I read
recently that we have witnessed unprecedented success in our Internal Generated
Revenue drive. I hope we can sustain this while at the same time we do not take
our feet off the pedals in our drive to truly grow the economy.
The
country’s oil reserves is said to be depleting. What is responsible for this
and how do we increase our reserves base?
It is due to lack of exploration activities. It is simple as A.B.C. If you do not replenish what you use you will run out eventually someday. It is a major concern. We have struggled to keep our place as number one producer in Africa despite the perchance for production without exploration.
It is due to lack of exploration activities. It is simple as A.B.C. If you do not replenish what you use you will run out eventually someday. It is a major concern. We have struggled to keep our place as number one producer in Africa despite the perchance for production without exploration.
Any oil finder will tell you this is a major worry. It is like depleting your savings without income. Our reserves replenishment does not match our production. Licensing rounds were jettisoned and for a long time you needed to be a crony or ally to get awarded an oil block. Work programs could not be adhered to. We have seen the results. Many of the recipients of the blocks had no clue about what to do and how to go about it. Enforcement for non-performance existed only on the pages of papers.
To increase
our reserves we need to go back to the basics. Conduct credible licensing
rounds. Incentivize exploration. We did this in the past with MoU and K factor.
Those were the glory years that led to assertions such ‘as scratch ground small
and you will find oil’. The renewed exploration drive for frontier basin is
commendable. It is however important to ensure that serious and meaningful
engagement of members of host communities to foster security and sense of
belonging exists.
The Nigerian
Oil industry database repositories need to be strengthened in order to benefit
Exploration and Production activities. Data should be readily available for
prospective investors and of course the fiscal regimes should be a win-win for
both government and investors. Like I said we need to create incentives that
are similar to the ‘Reserve Addition Bonus’ concept and for them to be
applicable strictly for reserves addition derived only from wild cat
exploration wells and not field extension appraisals and field review /
reservoir engineering studies. (Guardian)
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