‘Government needs to adopt other means of JV cash calls obligation’

Mazi Bank Anthony Okoroafor is the President of Petroleum Technology Association of Nigeria (PETAN). He is also the Chief Executive Officer at CB Geophysical Solutions Limited. In this interview with ROSELINE OKERE, he emphasized the need for the Federal Government to convert cash call obligation to sovereign loans. Excerpts

Government have had issues with funding Joint Venture cash calls. What do you think should be the way out?
We should as a matter of urgency review our fiscal terms to maintain attractiveness and investment. Investment goes to friendly environments. We should honour our joint Venture (JV ) cash calls obligations or convert them to Sovereign Loans. Another possible scenario is to reduce government equity in these JVs to 10 per cent and focus more on royalties and taxes, which generate close to 80 per cent to the government. Investors’ confidence in oil and gas activity in Nigeria is eroding within all these frameworks of uncertainty. Investments are moving to countries with better terms.

There was news that the Nigerian National Petroleum Corporation (NNPC) is considering importing crude oil from Chad to Kaduna Refinery.  Do you think this is the right thing to do?
Failure to privatise our refineries was a big mistake. The refineries would have fared better under private hands. If Kaduna Refinery was privately owned, it can procure its crude oil from any source and refine and sell. But since it is still being owned by government, government should try and solve the root cause issues preventing the refinery from getting feedstock. Government should face the problems head-on and solve them instead of avoiding them. The continued price regulation of petrol even when the market price is naturally below the pump price will be a bigger opportunity missed for the sector to be fully de-regulated in order to attract private sector investments.

The Federal Government has been trying to tackle the issue of militancy for some years now without significant success.  What are your suggestions to the government on how to curb militancy in the Niger Delta?
We should find a creative approach of empowerment of the Niger delta host communities to have some form of single digit percentage control over the resources thus boosting the confidence and morale of the people as they become stakeholders and participate in the business. Increased sense of belonging will reduce costly conflicts. But on the short immediate term, We need a developmental marshall plan for the Niger Delta that will turn the society opinion in Niger Delta to support the Federal Government. We can start with creating an energy corridor in Niger Delta by setting up five modular refineries, convert flared gas to power the entire Niger delta; create many sustainable employments, entrepreneurs and 24 hours power supply.

By creating opportunities for many, business can strive and the security of live and property can improve. This will take time but the result will be sustainable and create a win – win formulae for both the Niger Delta and the government. It is not going to be easy but this will stabilise Niger Delta. Delivering sustainable benefits to the host communities will definitely address the ongoing conflicts. We should not shy away from this. The president can change the course of history with bold moves in this direction and address the issues of Niger delta once and for all. It is will require effective consistent communication to the entire people.

The government over the years had set targets to increase the crude oil reserve to 40 billion barrels and production to four million barrels per day. Do you think this target is achievable?
Our production has been reduced to about 1.527 mbopd in july 2016 mainly due to militancy, crude theft and vandalisations. Our proven reserve is about 37 billion barrels as at 2015. The target of increasing our crude oil reserves to 40 billion barrels and production to four million barrels per day can only be achieved when we invest in explorations and developments.  There are many factors that contribute to this. Oil & Gas projects tend to have medium – long term gestation periods particularly gas projects. The decisions we take today will shape the outcomes in seven to ten years’ time in future. We must explore to grow our reserves and drill several wells to increase our production. We have not added any reserve in the past 10 years. We need attractive fiscal terms. The failure in the pas-sage of the PIB when the price of crude was high and oil companies were willing and able to invest was a missed opportunity. Security challenges are becoming more complex; the inability to meet cash call obligations, pipeline vandalization and crude oil theft.

The objectives of the PIB were to enhance exploration and exploitation of petroleum resources, to significantly increase domestic gas supplies especially for power and industry, create competitive business environment for the exploitation of oil and gas, establish fiscal frame-work that is flexible, stable and competitively attractive. Also our inability to explore our inland basins is also a big issue. The inland basins of Nigeria include Anambra basin, the lower, middle and upper Benue, the southeastern sector of the chad basin, the mid Niger Bida basin and the Sokoto basin. Upper Benue was done 20 years ago, but not very intense, they drilled one or two wells. NNPC carried out exploratory seismic work in Anambra basin more than 20 years ago. No serious work has been done in Bida ba-sin. Geological survey was done in Sokoto basin. We do not have much data on Inland basins. Now with improvements in technology and seismic, it will do our country great in acquiring reliable data on the inland basin; re-launch a licencing rounds in our inland basins. 

Many oil-servicing companies have to idle for the past six month due to low activities in the sector due to decline in crude oil prices.  What do you think the government can do to reduce the effects on companies?
Government should as a matter of urgency utilize the NCF to stabilize the Oil & Gas service industries, provide more credit guarantees, short term loans and venture capitals to local suppliers and contractors . Oil & Gas service industry is dying. Activity level is at the lowest. Projects have been deferred or cancelled. Service industries that have built capacities and capabilities are laying-off well trained personnel. Banks are no longer lending, there is tightened access to capital with decreasing cash flows, highly leveraged companies will struggle as lenders and investors tighten access to capital, limiting their ability to continue exploration and developmental activities.

Rig count is at the lowest; well intervention and well completion activities are down to zero level. We should as a matter of urgency review our fiscal terms to maintain attractiveness and investment. Investment goes to friendly environments. We should honour our joint Venture cash calls obligations or convert them to sovereign loans. Another possible scenario is to reduce government equity in these JVs to ten percent and focus more on royalties and taxes, which generate close to 80% to the government. Investors’ confidence in oil and gas activity in Nigeria is eroding within all these frameworks of uncertainty. 

Would you say that the local content policy is being fully implemented in Nigeria since inception? How has the policy assisted indigenous oil firms?
Government must force IOC’s to build FPSO in Nigeria from deliberate policies. These will create more than 100,000 jobs and developed lots of skills, capacities and capabilities. There are many yards in Nigeria that can partner with great shipping yards like Keppel to create great shipping yards in Nigeria. (Examples are LADOL, AVEON, Energy Works, Dorman Long, Cakasa, Nigerdocks, Oilserve). Government should create the incentive and insist that FPSO’s must be built in Nigeria. We must resist the excuses of the Laissez fair attitude on the part of the IOCs and ineffective regulation from the authorities.

Ineffective and inefficient government institutional framework in many instances has hindered optimal resource diversification in Nigeria. We have made progress in creating more Nigerian service companies, vessel ownership, fabrications, rig ownership, pipe coating, logging companies, pipe laying companies, waste handling companies, well testing, well head, seismic companies, gyro companies, training companies, exploration and production companies, but more needs to be done. We need to have strong Nigerian EPC leaders; we need to have Nigerian owned vessels transporting Nigerian crude. We need to scale up to bigger projects.

In projects like Egina, where zero of the umbilical assembled in Nigeria, less than 50 per cent of the Xmas tree assembled in Nigeria, 100% of the pipe imported from Antwerp, less than 50 per cent of the FPSO integration to be done in Nigeria, 0% of reels fabricated in Nigeria. We need to scale-up. A lot of progress has been made but we are not yet there. We need more great Nigerian E & P companies, shipyards and service company champions in all sec-tors of the entire crude oil and Gas value chain. There must be a deliberate policy to achieve this. The minister and government should try within the time of this administration to create at least five strong Nigerian exploration and production companies and five strong service champions. 

What is the role of PETAN in the Nigeria’s oil sector?
Our role is to ensure the full implementation and enforcement of The NOGIC ACT 2010 to ensure job creation, local empowerment, creation of more Nigerian entrepreneurs, and capacity building, promote the domestication of petroleum technology by striving for fair and extensive patronage of the efficient and competitive indigenous Nigeria oilfield service companies, act as advocacy group for upstream, midstream, downstream and power sectors, to educate and advice government Ensure that capacity building in -country is not compromised.

The NOGIC Act 2010 is robust and comprehensive, running into 107 sections with a schedule of 17 categories and 284 sub-items, goods, services to be carried out in the industry. Each sub-activity prescribes a minimum threshold ranging from zero to 100 per cent of spend, man-hour, tonnage that must be done in country by local contractors.

Corruption is said to be affecting the country’s oil and gas sector.  What is the impact of this menace on the Nigeria oil and gas sector?
Stunted economic growth, mass poverty, poor infrastructure and services, underdevelopment. Corruption has made it impossible for us to see any development for many years of oil exploitation. It is a disease that has eaten deep into the fabrics of political, cultural and economic facets of our country and has destroyed the functioning of the various arms of government. Both from inflation of contracts, delays in permits and approvals, lack of policy clarity, opaque and incomplete fiscal frameworks.