Mr Abiodun Adesanya is the National President of Nigerian Association of Petroleum Explorationists (NAPE) and the Managing Director, Degeconek Nigeria Limited. In this interview with journalists at the 10th Annual Sub-Saharan Africa Oil & Gas Conference in Houston, Texas, United States, he expressed stakeholders and his members’ expectations regarding the challenges confronting Nigeria’s oil and gas sector and suggested the way forward on moving the sector to the next level. OLATUNDE DODONDAWA who was present brings the excerpts.
What is the level of your engagement with the National Assembly members to ensure that Petroleum Industry Bill (PIB) is passed because its passage will not only bring investment to Nigeria, but will also bring jobs for your members?
It hasn’t been much. You know the PIB has been around for a while. At the very beginning we were engaged when they had their public hearing during the 7th National Assembly. Since then, we were equally frustrated like everyone else when there were delays. With those delays, we were also anxious and worried. Early last year, I had a discussion with some of the staff of the Honourable Minister of State for Petroleum Resources, Dr Ibe Kachikwu, to understand what is the strategy for going forward.
So, what they told me which is what is being implemented now was that the PIB is going to be split into three major parts and the first part will be the one that will focus on regulatory activities and expansion. So those ones that are not political, if you remember, the PIB was going through a smooth conversation until they got into political areas and things got to a halt.
So they said let’s take out the political issues and focus on regulatory aspect and that’s what they have been doing. Now, we haven’t really interacted with this new National Assembly, we were invited in December 2015 when they were having a retreat and at that meeting, we did mention to them our intention in further engaging with them. They haven’t formed the committees at that time, but now that the committees are in place, we need to quickly reach out to them. When we were planning our conference last year, we reached out to them but a number of them said the timing wasn’t convenient for them, but we are planning to visit and engage them.
We have also given them the information that if they have any area of doubt or any aspect they want us to comment or enlighten them on, they should feel free to invite us. I’m hoping to engage them during the Offshore Technology Conference (OTC).
What is NAPE doing in terms of engaging the government regarding escalating levels of idle fields. Does it worry you as an association that we are having huge numbers of idle fields?
It doesn’t worry us, but what worries us is what government is doing or intends to do. There was marginal field licensing rounds programmes initiated sometimes ago under Goodluck Jonathan’s administration. People, however, set motion in place and activities were bubbling in relations to that, then it was stopped.
The idle fields are normal, don’t forget also that asset transfers need to be frequent. If an operator drills a well and not ready or not ranking high to be developed, there could be an opportunity for somebody who is interested to come and partner with him. The whole thing is wrapped around government policies and programmes and these have to be shaped to make what I just described happen.
There are rumours again that there will be a licensing rounds, so we have to wait and see when that happens. As a matter of fact, I have gotten information that they have been asked to commence works in preparatory for that. So the issue of idle fields is exactly what the marginal field programmes was meant to address. IOCs made these discoveries, later it doesn’t meet the threshold of their corporate size and therefore they keep it idle. But that might change somebody else’s life around and so opportunity should be given to such person.
Some of the idle fields are also idle because the funding is not in place to develop them, especially government’s part of the funding. Even though, the government has come up with a plan to let each project go out to the capital market to raise fund for itself. It is a good idea, but we have a backlog from the higher valued ones.
We have been hearing that Nigeria’s crude oil reserves have been 37 billion barrels for ages. Today, representatives of Department of Petroleum Resources (DPR) at this forum also re-echoed this. Why has it been static all these years?
No, it hasn’t been static. It is a plus and minus thing all the time. As you produce, you deplete. As you promote certain contingents into reserves, you increase. So, what has happened is that it is better to be flat than going down. I guess the strategy is to keep it flat if we cannot make it to go up. That’s why you are seeing 37 billion barrels when production is ongoing. Depletion is going on and replenishment is going on simultaneously. And when you have that kind of scenario, the figure could go up or down.
What we are saying is that we set a target of 40 billion barrels of reserves by 2020 for ourselves because we believe it is achievable; we think we know where the resources to produce that numbers 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 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’s directly proportional to discoveries.
If you don’t spend money, you don’t get anything back. It is risky quite alright, which is why when the issues of budget cut comes up, the most hit is exploration because of the associated risks. But once the present administration comes up with a formula to work on JV funding, we are beginning to see interest. Don’t forget also that compounded with that is the issue of security in the Niger Delta region which again in the last 15 years has been a major challenge.
A formula has been found also to address that challenge (JV funding) and it seems to be working. We have had a reduction in the vandalisation of production infrastructure and that again has increased the confidence of the operators to step up.
Exploration has to take place outside your exploitation areas, but within the block you have and the process of swapping blocks, licensing rounds and so on is yet to take place. There are quite a number of fields that have been discovered but not certified by DPR into being called reserves. So even if you work on that alone, we can enter 40billion barrels by year 2020.
You mentioned that two types of investors take interest in basins, kindly throw more light on these investors and what do you think the government can do to attract them?
Examples of these investors are Tullow, Cosmos Energy and Anardeko. They are frontier basin types of companies. If you look at the traditional history of how they move about, they only go to places where companies like Shell does not go first. If you look at scenario in Mozambique 10 years ago when the discoveries were initially made, there were few companies but after discoveries, there were surge in interest by the International Oil Companies and they bought out major stake in the company that made the discoveries.
The government must provide incentives. There is something that takes these companies to such basins in the first instance. We have to do a study because we can’t brag about Benue Trough to anybody. You can brag with the Niger Delta. You can say if you come in and make one billion barrels field, this is the incentive. We shouldn’t inhibit them at the beginning but make them as attractive as possible. For instance, in Ghana, the field was given freely; they tell you to commit to a minimum size work of certain seismic data and certain numbers of well. Unlike ours that we typically attach a signature bonus to licensing rounds, they don’t do that.
Signature bonus can be applied to the Niger Delta which already is prolific and matured basins, but if you want to get somebody to go to Chad basin, or Benue trough to do something where no discovery has been made, you have to give a lot of incentive. For instance, Niger Republic gives blocks freely and attach work programmes to it.
When we attach signature bonus, remember they are to pay that first, they will pay for seismic and drilled wells, and after these efforts, they could still work dry. That risk is quite significant and government must ensure any incentive to attract them to stay.
It was recently said that Nigeria is losing out in terms of taking advantage of its hydrocarbon. What is your opinion on this?
That’s true. Research and development never stop. Don’t forget that hydrocarbon is a combination of Hydrogen and Carbon. And water is Hydrogen and Oxygen. Now Hydrogen is common to both of them. There is a research going on on how to begin to use water to power generators and cars. If that research hits the market with a breakthrough, that will be the end of reliance and needs for hydrocarbon. What we are saying essentially is that Nigeria has an infrastructural and developmental deficit.
Let the country generate enough revenues and develop all these infrastructures. Let’s become a developed country and let quality of lives increase. Let’s use our money to diversify the economy from over reliance on oil and gas. This is because if oil becomes suddenly unattractive, something else should be attractive and Nigeria has enough of all those opportunities. All we need to do is to use what we have right now to get what we need for future development.
So, what does low crude oil price portends to exploration because we need to replenish what we must have explored if we need to pump more oil for more revenue. Because right now, there is low funding for exploration?
The issue is not about low oil price, but low profit margin. If the issue is that your profit margin is eroding, it’s a bad business to be in. So, rather than over-concentrate on the oil price, work on your profit margin. Call your contractors and bargain on reducing costs of producing oil so that there will be enough margin between cost of production and sales cost.
and then