Passage of fiscal PIB will clear uncertainty in oil industry, says Saka Matemilola
Saka Matemilola is the Chairman of Society of Petroleum Engineers (SPE), Nigeria Council. In this interview with Roseline Okere, he emphasized the need to pass the oil and gas fiscal policy bill.
What do you think of the National Oil Policy newly approved by the Federal Executive Council?
The passage of Petroleum Industry Governance Bill (PIGB) is a step in the right direction. The industry is also eagerly awaiting the passage of the fiscal policy bill. That is what will ultimately quell the lingering uncertainty that has stalled decisions on new investments and major capital expenditures by most of the major International Oil Companies (IOCs). The PIGB is by no means, a magic wand that will solve the many issues affecting the petroleum industry. Also, it would be unrealistic to expect the bill as passed, to satisfy all stakeholders. However, starting with the passage of the governance bill was a good decision, and hopefully, the momentum will be sustained to ensure the other bills are similarly passed quite soon. Beyond the passage of the PIGB, it is important that the proposed re-structuring is carried out in the true spirit of the bill, ensuring that personal interests are not allowed to determine or derail the implementation. This is the only way that the country can derive the desired benefits.
One of the Federal Government’s aspirations is to make Nigeria an attractive gas-based industrial nation. Do you see the newly approved National Gas Policy achieving that?
The approved national gas policy is a step in the right direction. However, the much desired gas-based industrial take-off will not happen unless there is marked improvement in the major issues besetting the domestic gas industry. To fully exploit its gas reserves, it has been estimated that Nigeria requires capital investments of between $1billion and $2 billion annually in gas pipelines and processing plants. However, the history of poor commercial performance in the domestic gas sector makes gas production unattractive and discourages investments. The regulation of gas prices particularly gas supplied to the domestic power sector, under the Gas Pricing Policy is perceived as a disincentive to investment in the upstream sub-sector. The power generation companies remain the largest off-taker of gas and the most critical part of downstream gas utilisation. As such, liquidity issues plaguing the power sector has a direct negative impact on the gas sector, as non-fulfillment of power sector financial obligations directly affects the Generating companies’ ability to pay their gas suppliers.
The inability of the government as a joint venture (JV) Partner to fund its portion of production costs in the upstream sector poses a major challenge to the development of gas facilities. This is because the operators are forced to source for alternative financing (sometimes at significant costs) to defray government defaults. There is a regulatory deficiency attributable to the absence of a gas specific regulation and the multiplicity of regulatory policies. The continuous participation of the government in the sector in different capacities such as policymaker, planner, investor and regulator of the sector creates a conflict of interests, and inhibits steps to achieve the full privatisation of the sector. The recurrent crisis and militant activities in Nigeria’s foremost base of reserves, the Niger Delta, cause frequent disruptions of supply. For instance, within a three months’ period (January-March, 2015), Nigeria lost more than $48.8 million to pipeline vandalism that affected gas supply.
There is a need for investments in gas gathering, processing, storage and distribution facilities as the existing facilities are insufficient to cater for the domestic gas demand from the electricity industry, commercial and industrial customers.
By your own assessment, has there been any improvement in the ease of doing business in Nigeria especially in the oil industry?
There is a general perception that Nigeria is a difficult clime for investment, especially in the petroleum industry, which requires heavy capital investments. Most of the risks that investors cite relate to government policies, contracting process for government JV operations, sanctity of contract in the gas sector, to name a few. The perception around most of these issues will not go away until there is clear evidence of improvement resulting from the new policies.
OPEC seems to be losing its relevance. What is Nigeria still doing as a member of the oil cartel?
Since the start of the current oil glut, OPEC in cooperation with some of the major oil producing non-OPEC countries has been doing a lot to create some stability in the global oil market. Without the effort that OPEC has made, a lot of countries who depend largely on oil revenue for foreign exchange earnings would have been in much worse economic situation now. As such, for as long as our national budget and spending is largely dependent on oil revenues, it is prudent that Nigeria remains a member of this body.
We are still talking of growing our oil reserves but some European countries have set a date for phasing out fuel cars.
Being an oil-dependent country, are we prepared for this era?
No doubt, transportation fuel is one of the major products from Petroleum. With rapid advancement in the development of other energy sources, especially the sustainable sources, they would serve to complement energy from petroleum. Clearly, the need for energy would continue to grow in tandem with development across the world and especially as the middle class expands in those countries. As such, the global demand would continue to grow for fuel oils for heating and electricity generation, asphalt and road oil, petroleum feedstock for making chemicals, plastics, and synthetic materials that are in nearly everything we use. However, Nigeria must necessarily and urgently begin to use petroleum as a source to grow our industries and economy, rather than as a primary source of foreign exchange earner. This is our best opportunity for us to grow our economy, and provide a viable means to address many of the issues that currently beset us as a nation.
By 2035, looking into your crystal ball, what do you see about Nigeria’s oil sector?
My projection is that some three to five Nigerian independent companies would have emerged that would be strong players in the exploration and production (E&P) sector, and would produce up to 20 – 25 per cent of total oil production. I see these Nigerian companies as the dominant players in the onshore and shallow offshore terrain, while the major IOCs will focus their operations mostly in the deep offshore.
The theme of the 2017 NAICE conference is: “Riding the waves of boom and bust: common objectives, diverse perspectives.” What informed the choice of the theme?
Low oil prices may have bottomed out. But the challenge of keeping production costs competitive will remain. The theme for NAICE 2017 was developed to provide a platform for addressing some of the key areas that contribute directly to production costs, from the perspectives of the government, operators and service companies. Key issues would include: prevailing fiscal arrangement; contracting process, especially for JVs; innovative solutions both in project delivery and operations; talent management; security challenges; regulatory policies.
What are the Nigerian independents and marginal field operators doing differently to weather the storm amidst the increasingly challenging operating environment?
The various companies have adopted different strategies, based on their specific situations – shelving of new capital projects, restructuring of their finances, cutback on staff emoluments, down-sizing of operations, etc.
What are the programmes lined up for this year’s NAICE to encourage women participation in the oil and gas industry?
All of the programmes and activities for this year’s conference are designed to motivate both male and female professionals. However, SPE recognises the need to especially focus on women and address issues that relate specifically to them. We have therefore, dedicated a workshop session as part of NAICE and this year, the discussion theme is “Women in Leadership: Aspire, Invest, Achieve”. Over the years, this event has been one of the major highlights of our conference. It has featured some of the most successful female leaders across various industries and has served as a major source of inspiration for our womenfolk.