‘Current industry laws not supporting deep offshore investments’
The Nigerian Association of Petroleum Explorationists (NAPE) says current legislations governing operations in the country’s oil and gas industry do not encourage investments in deep offshore projects.
The association noted that with the degree of risks, pressure, temperature and costing associated with deep offshore projects, the provisions of current laws like the Petroleum Act and other, were grossly inadequate to address the concerns of would-be investors.
For investors to see deep offshore ventures as attractive and subsequently commit resources to them, NAPE maintained that the fiscal regime must factor in the peculiarities of the business.
The President of NAPE, Dr. Andrew Ejayeriese, said owing to non-replacement of oil reserves as a result of poor exploration activities, the claims by the federal government to achieve 40 billion barrels in reserves by the year 2020 are not feasible.
The Federal Government, through the Nigeria National Petroleum Corporation (NNPC), announced an outlook for 2018 to increase crude oil reserve by one billion barrels year on year, from its current 37 billion barrels to 40 billion barrels by 2020.
Ejayeriese said paucity of funds was never a challenge for the oil and gas industry in Nigeria, as “there are funds everywhere open for access. But the problem we have is our wrong laws. Investments cannot be attracted with such laws; rather, potential investors will migrate with their funds to climes where the right laws exist.”
In terms of hydrocarbon exploration and production, the NAPE boss noted that the current funding approach by the government was short term, adding that there was the need to think long term, as that remained the only way the industry can grow and stay competitive.
According to him, the current gas figure quoted for Nigeria by operators, is conservative as most gas discoveries came about in the course of oil drilling. “When we start drilling solely for gas, the figures will further rise significantly.
He claimed that for every 100 per cent revenue realized from crude sale, only 10 per cent goes to international oil companies (IOCs), while 90 per cent enters the coffers of government in shares, royalties and taxes.
Ejayeriese said: “So, a large chunk of our oil revenue is not ploughed back into the industry, which leaves the country at risk of being non-competitive compared to other countries (even in Africa) that are currently recording major milestones in their oil industries.
“As it is now, Nigeria may choose not to do anything about its deplorable condition, but ironically, the world will continue to move on, and investors with ready funds ultimately know where to go.”
The NAPE President explained that: “With the current realities on ground in terms of our laws and actions, the projected 40 billion barrels reserves for 2020 is not achievable.
NAPE’s President-Elect, Ajibola Oyebamiji, therefore, decried the level of inactivity in the oil industry, saying that a lot of deposits in the inland basins were largely underexplored.
“We can see what our neighbouring countries like Niger, Chad, among others, are doing on the basin. We need to take a cue from them and do the needful,” he stressed.
NAPE, therefore, said oil and gas would continue to be a commodity characterised by peaks and troughs, stressing that the cyclicality of the industry is not a new phenomenon.
It said: “Stability in oil prices is critical in order to achieve high economic growth. The global energy market is getting increasingly more complex; with the low oil price regime, hydrocarbon exploration and exploitation are no longer as profitable it was prior to the price decline in 2015.
“While global demand for reliable and affordable energy will continue to rise in the foreseeable future, the world is moving toward a low carbon era. Consequently, oil and gas companies will find it expedient to review long term strategies and innovate, recognising the possibility that oil is on the brink of suffering a fate similar to coal.
“Although the global economy continues to recover, growth has been slower than anticipated. Oil price fluctuations are strong determinants of inflation rate and unemployment levels which in turn impact the growth rate of a nation’s economy.”
In a bid to addressing some of the challenges facing the industry, Oyebamiji said the association’s 36th Annual International Conference & Exhibition themed, “Evolving Strategies for a Sustainable Business in a Fluctuating Oil Price Regime’’, would be addressing a spectrum of the problems.
He added: “In emerging economies, the challenges are similar: uncertainty in regulatory frameworks, poor physical infrastructure, lack of skilled resources, corruption and poor ethics. For Nigeria, there is no better time than the present to begin to envision an era beyond oil.
“It has been said that Africa is the new frontier for energy in many ways. Now is the opportunity for oil and gas companies to reinvent themselves. Against the backdrop of low oil price, dwindling oil revenue, there have been strident calls for the nation to diversify her economy from the monolithic economy and absolute dependence on oil into other areas to sustain the nation in terms of revenue generation.”
According to the NAPE boss, successive administrations have enunciated economic policies and strategies on how to diversify the nation’s economy from oil to other sectors like agriculture, mining and tourism. The Nigerian economy has not diversified at the anticipated rate.
“Although significant achievements have been recorded in the management of Nigeria’s oil and gas resources compared to recent past, NAPE believes that to build a more diversified and more resilient economy, government’s plan must include finding and enhancing new opportunities and prudently allocating its revenue which comes mainly from oil and gas to the development of other key sectors of the economy. Government must offer oil and gas investors an attractive environment by reforming the regulatory, fiscal and licensing systems,” Ejayeriese noted.
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