At 56, Nigeria is yet to optimise crude oil resources, says Omorodion
Nosa Omorodion, is the President of the Nigerian Association of Petroleum Explorationists (NAPE) and Director, National Independents at Schlumberger. He spoke with Roseline Okere on the need for the Federal Government to fully optimise the potential of the country’s oil sector. Excerpt.
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.
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. 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.
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.
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.
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.