‘How Nigeria’s government is fixing oil sector’

Nigeria government is making good progress in its efforts to increase oil production. CNBC Africa’s Wole Famurewa spoke to Nigeria’s Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu at the Nigeria Oil & Gas Conference in Abuja the minister spoke about how the result of the efforts to curb attacks on oil facilities and the global oil market.

Well the confidence I have is that we will continue to engage. We will continue to do the things that we are doing to create stability it is a never ending race but clearly the things that we are doing are yielding some very positive results. We need to expand of them. At the end of the day the problems of disruption are problems of economics. If the individuals have things to do, have hopes in life, have a clear sense of direction, or a feeling of engagement from government, some of these things will die down. Obviously there are criminal elements who get involved in this and we need to be able to separate those and deal with them from a security perspective. But the 20 point agenda we just rolled out in terms of finding peace in this area, working through the oil companies, is probably one of the most ambitious engagement programs that we’ve seen and I am looking forward to working collaboratively with governors, stakeholders, youths, and everybody to try and find permanent peace in this location.

And this is probably positive for oil production in Nigeria, can you just give us an update on the numbers, what are we producing now and what are your targets as we continue to pursue this?
We are averaging close to about 2 million barrels right now. Inclusive of condenses. If you take away the condenses we are doing about 1.6 or 1.7 but that’s without Dorcados. Forcados is still a work in progress. We haven’t been able to repair the pipeline. We are working on it. With the peace we are seeing now we are probably closer to boosting our repair. If we do that then we will be close to 2.3 million barrels per day. Bear in mind that a good portion of this, about 430,000 barrels are local consumption barrels. Right now we are plying them to the DSDP program importing products, but we are now trying to put that internally into refineries. We are revamping the refineries. If we get them revamped over the next 12-18 months it should suck in a lot of these barrels without impacting on the standard 2.2.

All of this is good progress. It is even good for the economy as we have seen the naira has strengthened in the parallel market recently because of the increase in the supply of dollars locally, but I want to move on to another point. How confident are you in the global production cuts? How likely are the agreements to hold up in your view?
I am impressed with the work that OPEC has done, working through Dr Barkindo, the Secretary General. They have put together a very comprehensive engaging programme which has seen them stop at not just where we ended during the time of the cuts but continue to have further engagements. I am confident that the prices will hold. I think it will do even better. Obviously the gradual build up in America rising from the fact of improved pricing is something we need to address. Hopefully under the Trump Government we will be able to get America to understand that there is a need to have a conversation around it, because once we can do that, then a large bastion of these leakages in terms of explosion in numbers and reserves will go. So I am very confident. But what is important is that the OPEC of today is not the same as the OPEC of the last 3 to 6 years. Suddenly people are waiting to listen to OPEC talk to see where OPEC is going and to see what policies they are bringing. And the fact that we’ve had over 90 per cent compliance in terms of the cuts that we made recently all goes to show the eagerness with which member of OPEC have been invigorated by the Secretary General to move forward.

Over the last few years the production from Shale producers has been impacting OPEC producers significantly. As the oil price rises at what point do you think that shale production could come back up? At $60 a barrel you think?
I won’t put a forecast on numbers. Some shale is profitable even at $45. The bulk of them are profitable above $60. What I think the secretariat is trying to make us understand and we all work through that is we will have to focus less increasingly on shale. OPEC still remains the least cost producer, and what I say to colleagues is, if everyone focuses on cutting down on their costs of production why would anyone but expensive oil? If I can get Nigeria’s costs of production down from $27 to $15, down to 1$0, down to $9 down to $7 and therefore I have a lot of barometer to sell, then we are in the play. Then we can take advantage of our geographical closeness to certain supply markets. As important as Shale is, as important as the supply dynamics that are externalised out of OPEC is what is more fundamental is what OPEC countries are beginning to do for themselves in terms of cost and diversification of their production. It is not just about selling crude. We need to move on to refining and the producing of petrochemicals.

The final question will be around catalysing investment into Nigeria. One big enabler for that is legislation. Can you give us an update on some of the reforms. You spoke earlier about this when you revealed the seven big wins. You said that you may not necessarily wait for legislative reforms; that you would press on those reforms even without legislation.

And we have continued to do that. A lot of the things that we’re doing in downstream are backed up by new regulation rather than legislation. We brought out a petroleum policy. We brought about a gas policy. And we’re about to finish and bring out the fiscal policy. We have finished the executive version of the PIGB which we have given to the Federal Executive Council. Once the Federal Executive Council passes all this, we will unleash that. Some of these will begin to get implemented and some will have to wait for the assemble to finish their work but there is a lot more collaborative work between the Assembly and the Executive in trying to get to the destination point for local legislation in the oil industry which is very good.

It seems things are really looking up. I know I said final but I have one more question around the gas industry. Pricing is something that many operators in that area continue to talk about. Given the exchange rate they’re saying it’s inevitable. Would you agree that we need to move those prices?
We probably do, but we have to look at the political circumstances. The question is we have got to sell gas at a price that even Nigerians can benefit. So what I say is that for each of the gas producers, I’d like to see a template that gives me the export model and the local subsidised model, and take a period of years, say 3 or 4 years, in which we have a template of moving to full commercialisation of those prices. Within that time we will create government incentives to enable us to diversify consumption as much as possible. We can do this in phases. I have always said even with petroleum, refined petroleum products and gas that it is not impossible to find hamlets or communities where you have sophisticated less price sensitive Nigerians living. People who live in Ikoyi can pay the right power prices, they can pay the right gas prices and they can pay the right petrol prices. I think the time has come to look at some of those settlements. Then those individuals who require some level of subsidy in some localities will be able to get it over a specific period of time. It’s a lot of work but we need to do it, otherwise we’re going to tie down market prices so badly that we will not have the right investment.