Realities, Possibilities, Emerging Frontiers in Nigeria’s oil, gas landscape

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By Afam Umeano and Kabir Mohammed

The prolonged lull in the global oil market, characterised by low price which held sway for a greater part of 2017 had compelled the International Oil Companies, IOCs and their indigenous counterparts to cut their budgets by over 40 per cent. These culminated in a significant drop in contracts awarded to oil and servicing companies, and drop in rig count, a major measurement of exploration and production globally.

For instance, Nigeria’s rig count dropped by two as the total rig count for the month of May, 2017 went down to 27 as against 29 recorded in April, according OPEC data. OPEC rig count, also decreased by three, as it recorded 567 in May, as against 570 in April. Besides, the lull also culminated in the idleness of workforce, retrenchment and stagnation of local content development. This had also greatly threatened the funding of the government annual budgets in exporting countries, including Nigeria.

But the bad situation seems to be improving as oil price has risen from over $40 to $67 per barrel, showing $22 in excess of this year’s $45 per barrel budget benchmark price. From all indications, Nigeria stands to generate much excess revenue as members of the Organisation of Petroleum Exporting Countries, OPEC and other oil exporting nations, have predicted much stability, following increased compliance of concerned countries to cut their outputs.

The OPEC/Non-OPEC Joint Ministerial Monitoring Committee (JMMC), disclosed that, based on the report of the Joint Technical Committee (JTC), for the month of December 2017, following continuous months of excellent performances, OPEC and participating non-OPEC countries have achieved a record-breaking conformity level of 129per cent with their voluntary production adjustments.

It declared that: ”the monthly average conformity level for the first year of the Declaration of Cooperation was a remarkable 107per cent. The JMMC was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 at which 11 (now 10) non-OPEC oil producing countries cooperated with the 13 (now 14) OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.

”The resulting Declaration, which came into effect on 1 January 2017, was for six months. The second joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 25 May 2017, decided to extend the voluntary production adjustments for another nine months commencing 1 July 2017. At the third joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 30 November 2017, it was agreed to amend the Declaration of Cooperation so that it will take effect for the entirety of 2018.

”Across a broad range of indicators, the first year of the Declaration of Cooperation has been a great success. In December 2017, OPEC and participating non-OPEC producing countries achieved an excellent conformity level of 129per cent, the highest since the start of the Declaration of Cooperation. This high conformity level has been validated by a diverse range of reporting agencies and media outlets. Conformity levels have increased on a monthly basis, from 87per cent.

”Once more, the unwavering resolve of participating countries to rebalance the market has been amply demonstrated. The JMMC expressed satisfaction with the overall results and urged all participating countries to continue and, to the extent possible, intensify their collective and individual efforts, in the interests of bringing stability to the oil market. The JMMC will strive to maintain or exceed full conformity by all participating countries, throughout 2018.

”The JMMC noted with satisfaction that the market had responded positively to the concerted actions of participating countries, to the benefit of producers, consumers and the global economy alike. Recent data confirmed that global oil demand growth will continue on a positive trajectory in 2018, buoyed by the strong performance of the global economy. This stellar performance by participating countries in 2017 launches the New Year on an extremely positive footing, preparing the path for further successes in 2018.”

 

Oil price, domestic impact

Incidentally, the relatively high and stable oil market is not only for good, but also evil. As it has become evident in recent times, the leap in price has increased the operational burden of refiners, who have to source their crude oil at higher cost. The high cost has been passed on to net petroleum products nations, including Nigeria who now imports the products at higher price than before.

Consequently, many downstream operators, especially the major and independent marketers have not been able to import petrol anymore, especially as the landing cost has hit the roofs at N170 per litre. In other words, the NNPC remains the only importer, with the financial muscle to bear the subsidy burden for the government.

In a recent statement, the NNPC stated that: ”In a bid to keep the country wet with petrol and eradicate the fuel queues that have resurfaced in some cities, the Nigerian National Petroleum Corporation (NNPC) has programmed to bring in two cargoes of petrol per day for the rest of February 2018 to boost supply. Each of the two cargoes is 50 million litres making a total of 100 million litres that will be brought in per day for the rest of February to increase supply and replenish strategic reserves.

”Also, to enhance supply, 45 million litres of petrol was discharged from ships into jetties across the country yesterday. Prior to the fresh 45 million litres discharge, there were 324 million litres of petrol on land and 432 million litres in marine storage making a total of 756 million litres, enough to last for 22 days at 35 million daily consumption rate.

”The jetties that received the 45 million litres shipments include Nacj, Apapa; Bop, Apapa; Techo Jetty, Lagos; Dutchess, Oghara; Vine Jetty, Calabar; Chipet Jetty, Lagos; and ECM Jetty, Calabar. To ensure efficient distribution of the product to depots in the hinterland, the Nigerian Pipeline and Storage Company (NPSC), a midstream subsidiary of the NNPC, has been mandated to fix relevant pipelines to facilitate seamless pumping, in addition to massive trucking arrangement that is in place. The corporation assures that with the measures in place, the fuel queues being experienced in some cities would soon be a thing of the past.”

The Corporation also disclosed that: ”As part of efforts to sanitize the fuel supply and distribution system to eliminate the queues, the Nigerian National Petroleum Corporation (NNPC) has stepped up the arrest and prosecution of erring marketers and fuel hawkers across the country. The NNPC Special Task Force on Filling Stations Monitoring has made a series of arrests including two filling station managers who diverted 66,000 litres of petrol and six illegal hawkers of petrol in Abuja.

”The two managers of Azman filling stations in Nyanya and Kuje, two suburbs of Abuja, were arrested after close monitoring by the team for diverting trucks of petrol meant for their stations to unknown destinations. They have been handed over to the Nigeria Security and Civil Defence Corps for prosecution. In addition to prosecution, the filling stations would pay a N250 fine for each litre of petrol diverted.

”The Task Force has also arrested six persons in the Central Business District, Abuja, for hawking petrol in jerry-cans. Three of the arrested persons – Samila Umar, Atlahim Abdullahi and Bashir Sani – were charged and prosecuted at the Area Court, Gudu, where Justice Sidi Bello sentenced them to two-month imprisonment or a N2, 000 fine which they promptly paid. The other three who were arrested yesterday are expected to be charged today.”

New Petroleum Policy, investment

However, the situation may change for good in the medium and long term as the nation’s new petroleum policy has given priority to increasing investment in the upstream, involving exploration and production of petroleum, targeted at realising 40 billion barrels oil reserves by 2020 mainly through frontier exploration.

In his recent presentation, Mr. Roland Ewubare, Group General Manager, National Petroleum Investment Management Services, NAPIMS said, ”We are not in the business of wasting taxpayers’ money. The reason we believe there is significant hydrocarbon signature of commercial quantity in those basins is because we have done the background testing we need to do. 40 to 50 years ago, technology was not as sophisticated as it is today.

”Now we are at a point where we can go to Alkaleri, scoop soil sample from the ground, take it to a laboratory in France and come out with some initial valuation and prognosis to indicate to us if there is stuff underground or not. Before even we begin, we drill holes and shoot seismic.

“The game has changed a lot in terms of technology. We have a lot more tools available to us now. In areas where 20, 30 years ago, you probably did not think there was commercial type availability of deposits, with the level of technology we have now, we are able to make those evaluations better and proceed with commercial decision to explore or not. This is not just in Nigeria. It is the same all over the world.

“For instance, 20 to 30 years ago, the United States depended on other parts of the world for supplies to meet its energy needs, but today, the US is a net exporter of oil and gas primarily because of a new technology around the extraction of hydrocarbon from shale. That is the nature of this business. Every day we stay in this game, we have better options, better chances of the kind of success we want to achieve.

“I can tell you that there have been major discoveries over the past few years in Nigeria and now that oil prices are beginning to stabilise at the range of $45 to $55 per barrel, people can now go back and plan and make decisions on exploration and production work. That in itself can lead to more exploration and more exploration is what leads you to finding more reserves to meet that target.

“I will give you an example. Right now, we are working with one of our IOC clients to drill deeper in terms of seismic. We are doing 45 meters now on an experimental basis to see if at that level of depth, we can see more reserves than we have now. Hopefully, we will finish that engagement by the end of the year or next year. The expectation is that the result of the work could lead to a transformation of the entire E and P space in Nigeria, the thinking being that if at a depth of 10 to 15 meters you were able to get X in terms of reserve. 40 billion barrels of reserve should be achievable, more so with the kind of management we have now in the NNPC.”

Mr. Abiodun Adesanya, Managing Director of Degeconek, also stated that: “We set a target of 40 billion barrels of reserves by 2020 for ourselves because we believe it is achievable. I am happy to let you know that discussion has yielded or is yielding some positive result in the sense that prior to this time, a bit couple of years ago, exploration work technically stopped. In this effort we achieved 23 wells in the Chad basin and three wells in the Benue trough.

“We think we know where the resources to produce that number are. What has happened is that because we have over a period of not less than 10 years, we have had a short fall in joint venture, JV, funding. Typically, when there is a shortfall in JV counterpart funding from government, the area that takes the hit first is the exploration. So the amount of money earmarked for exploration has dwindled over the years and that is directly proportional to discoveries. If you don’t spend money, you don’t get anything back. There are quite a number of fields that have been discovered but not certified enough into being called reserves. So even if you work on that alone, we can enter 40 billion barrels by year 2020.”

 

Place of PIGB

Meanwhile, the nation has not been able to pass its Petroleum Industry Bill, PIB into law, mainly as a result of disagreement in some areas that have to do with the Niger Delta communities. But the Petroleum Industry Governance Bill, PIGB seems to have thrown up positive and negative issues.

Victoria Ibezim-Ohaeri, executive director, Spaces for Change, who dissected the PIGB, as passed by the Senate and House of Representatives, indicated that: ”the version of the PIGB recently passed by the HOR is the remarkable improvement made to the earlier version passed by the Senate (SB237). Particularly remarkable is the recommendation to transfer the Minister’s power to grant, amend, renew, extend or revoke any license or lease required for petroleum exploration to the Nigerian Petroleum Regulatory Commission (NPRC).

”This review addresses concerns about arrogating excessive powers to the person of the minister rather than to independent institutions which can easily give room to abuse of power, patronage and political interference. Notably too, HB477’s recommendation further clarifies with specificity, who the minister can delegate powers to.

”Should the President be Minister of Petroleum Resources? Transferring power to the Commission is laudable, but a likely problem that will emerge from this arrangement is where the President still retains the position of the substantive petroleum Minister as has been witnessed under Obasanjo and Buhari administrations. Remember that the President is to appoint the members of the Governing Board of the Commission (NPRC). (See HB 477: S 13 (5)). Domiciling the power to issue and revoke licenses in the Commission is meaningless in a situation where the President doubles as the petroleum minister and the appointing authority for members of the governing board of the same Commission.

”In this situation, no real transfer of power from the Minister to the Commission has occurred since President/Minister will retain the power to hire and fire those mandated to grant and revoke licenses. This sort of arrangement obfuscates accountability because it elevates the President to the status of both the judge and the jury in the same case. One way to enhance the integrity of the licensing process as well as the independence of the NPRC is through an express legislative prohibition requiring that the president should no longer have the power to become the petroleum minister under any circumstance.”

These and other issues need to be properly addressed in order to put in place a legislation, capable of driving sustainable development in Nigeria’s oil and gas industry.

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