Insecurity, breaches on pipelines worsening oil firms’ challenges
Are indigenous players doing enough in the exploration and production of crude oil?
Indigenous producers have contributed significantly towards exploration and production in Nigeria. We used to contribute about 10 percent of Nigeria’s total oil production, today that contribution has moved to about 22 percent.
The aspiration at a time by the Nigerian National Petroleum Corporation (NNPC) was for indigenous producers to contribute 30 percent of the total daily production; we are not there yet, but we are consistently growing our production and I am sure within the near future, we can attain that target, which has been more or less requested for by NNPC.
It is also important to note that most of the operations that we the indigenous players have, were from the divested assets of international oil companies (IOCs) that are on land and swamp locations where they had security challenges.
However, we have been able to work closely with the host communities regarding the issues of security, though, we still face significant security challenges and breaches on the pipelines which traverse our acreages en route to the export terminal. These breaches lead to about 20-30% loss of our production output and other producers on the line.
Despite these challenges, we have ramped up production significantly and our aspiration is to continue to grow with a view of surpassing the 30 percent contribution aspirations of the Federal Government through the NNPC.
Apart from security issues, what are the major challenges confronting indigenous operators?
Security is a great challenge for all indigenous operators. Anybody within the swamp or land region is susceptible to security challenges. You have vandalization of flow lines and the export line because it is easily accessible.
At a time, we experienced losses in excess of 30 percent, but such losses now range between 20 and 30 percent of our daily production. In value terms, we were losing about 20,000 barrels of crude a day. Some operators produce as much as 20,000 barrels per day and that is a viable business for them. If you are losing 20,000 barrels of crude per day, it severely impacts your cash flow and the return on your investment. So, if the Government is able to fix the security along the export lines, we will be able to realize our full production potential and that will bring significant returns to the business and Nation.
In the area of gas, the government needs to create the infrastructure to transport the gas that we produce to the areas of utilization so we can have bankable opportunities where we are able to sell our gas and make returns on our gas investment. At the moment, we are restricted in terms of ability to sell our gas due to limited infrastructure and that is across the board.
Again, security poses another challenge, as there are frequent shutdowns of the export line which occur because of the oil spills that come as a result of the intrusions on the line by vandals. Sometimes, when the line is down, we are not able to produce neither oil nor associated gas. This year, we have lost about 24/25 days of production because of sabotage on the export line.
In addition, we have the attendant environmental challenges that come as a result of the pollution caused by the acts of sabotage and vandalization on the pipelines. Statistics show that most of the leakages and spills are a result of vandalism and or illegal bunkering. This could naturally invoke a sense of aggrievement amongst the host communities who are unfortunately saddled with the negative effects of the pollution caused by vandals which could create a difficult environment for us as businesses to operate in. We have however worked closely with our communities to ensure that issues like this remain contained as we continue to enjoy a good working relationship with them
Given the security challenges and the shortage, have you considered alternative evacuation of crude oil?
Yes, we are working on the possibility of an alternative crude evacuation line due to the current challenges faced, which we are hopeful would significantly reduce crude theft and improve production uptime from our Asset.
Do you have a plan to set up a refinery facility?
Not in the immediate time. But there exists a possibility of us looking at the opportunities within the refinery space but not in the short to medium term.
Are you in support of the government selling its assets?
While government participation is good, sometimes for business, working outside the confines of normal government bureaucracy could also be beneficial, as there would be the opportunity to progress at a faster pace with a higher level of efficiency. We expect that with the proposed divestment of government equity, there could be a resurgence in investment and hopefully maximization of returns on investment for all stakeholders. The NLNG model serves to buttress this expectation which to date remains a reference point for balanced public-private participation in business.
What is the best way to approach this?
I believe existing equity holders should be given the right of first refusal, this naturally makes sense as there always exists the risk of stakeholder misalignments and or conflicts if too many equity holders exist on one particular asset. In the event that the operator and or other equity holders (excluding government) are not interested in acquiring additional equity, it should then be opened to the public by way of a competitive bidding exercise.
As mentioned earlier, the NLNG model is always a good reference point. The government should retain a minority stake in its oil and gas assets and rather focus more on regulation and fiscal compliance. I am of the firm belief that if executed, the Government would realize more revenue and also debottleneck the investment pipeline thereby spurring private investors to dedicate more funds towards the development and production of more hydrocarbons.
This approach refers primarily to the oil element of the business, in the gas space, I believe the government would still need to play a critical role by way of providing the necessary infrastructure to evacuate and deliver gas from the producers to the respective potential consumers across the Nation.
Are you also looking beyond oil and gas, with emphasis on renewables?
For now, we are primarily focused on the oil and gas space. We need to increase our current oil production. We recently commenced a drilling campaign to grow our production and also develop our remaining reserves.
To date, we have drilled two wells and are preparing to spud the third this month. We also need to grow our gas side of the business. We are working very closely with a view to expand our gas Customer base and also pursue expansion of our current supply obligation, working closely with NNPC on the 7 critical gas project We are looking at growing our gas production from 100mmscf a day to 270mmscf in the short to medium term and then continue to increase gas production once bankable opportunities exist.
How are you dealing with the challenge of infrastructure deficiency in the gas space?
We have been working closely with the government in identifying the gaps that are hindering our gas development and commercialization. There exists the possibility of self-funding by the business if there is a viable business opportunity, but it entails working very closely with the government. We see a lot of promise and opportunities in the future as we are currently involved in the 7 Critical Gas Development Project (7CGDP), spearheaded by the NNPC which is tasked with delivering 3 bcf per day to the domestic market by 2023.
Are you worried that the government has not awarded oil block or conducted a bid round for some time now?
I think it should be a priority for the government. It is a huge opportunity that the government could leverage. The opportunity to award blocks and marginal fields by an open competitive process is something I think the government should embark upon as a matter of urgency as these assets have remained fallow for a long time and have thus deprived the Nation of much-needed revenue and employment opportunities. It would appear that the opportunity for a bidding round on marginal fields has been in the works for some time, but I am not certain progress has been made in this direction. I am of the opinion that if done openly and transparently, which would be the route to go, I believe it would be received with great enthusiasm and participation by industry players.
We witnessed the transparency in the award of GSM licenses back in the days. No one has complained about the process regarding the award of GSM license. If in the oil and gas space as well, we work towards opening up competition and getting realistic competitive bids for these assets, it would generate revenue to the government for which they can use to further infrastructure development and also bring additional crude into production. The government also stands to gain from the uplift in taxes and royalties.
What are your recommendations to the Federal Government?
First and foremost, there needs to be a landing and passing of the Petroleum Industry Bill (PIB). Uncertainty can be a disincentive for investors as it limits one from predicting and projecting their returns, the passing of the bill would ultimately improve the ease of doing business in the Oil & gas space in Nigeria. In addition, I believe key social indices need to be addressed.
The lack of adequate infrastructure and social amenities in some of our host communities and environs is one of the primary causes of the state of insecurity in the region. Unemployment also remains a thing of concern. Due to the scarcity of viable employment opportunities, people are driven to take their perceived share of the “National Cake” by means that are illegal. The social dimension needs to be tackled while providing security for those operators within the zone so they do not lose the crude oil or the investment they have made.
Are you still burdened by the issues of multiple taxations, fines, and levies in the sector?
The whole industry faces this challenge. Inconsistency and duplication of relevant policies and levies could be a problem.
Typically, any business needs to be able to plan within a known regulatory and compliance framework which would then form the basis for your companies cost of operations and attendant revenue profile. Planning becomes difficult if the business is burdened with multiple levies from different agencies and uncertainty in policies. The government should work towards streamlining the process and roll out clear policies and harmonize roles and responsibilities of government agencies so as to create an enabling environment for business to grow.
We are in the age of Artificial intelligence and technology. How much of this have you introduced into your business?
We are not doing as much as we should in the technology space, but I will tell you that as we go along, we will continue to invest in technology. We have plans to deploy smart technologies to aid and improve on our operational efficiencies, plans exist to deploy SCADA monitors on our infrastructure, downhole gauges to adequately monitor well performance and a host of other novel technologies that promise to generate increases in production, asset reliability, and exploration successes.
The goal is to eventually operate “Smart Fields” which is a term used to define a scenario where all our oil and gas facilities and assets are operated remotely with real-time data feeds from the fields to our control rooms. Big data is also an area where we see a lot of potentials and as thus have put in place plans to leverage on this in order to improve performance.
What are the new frontiers and targets for Eroton?
We will continue to progress our maturation and acquisition activities by identifying new prospects and leads within and around our current acreage. Like I mentioned earlier, we have since commenced our infill drilling campaign and are actively maturing exploration prospects. We intend to expand our gas customer base as we continue to supply and meet existing customer’s demand. The aforementioned activities are areas where we at Eroton are looking to create value and grow the business in order to meet our corporate target of being the number one indigenous producer in the Country.
We also intend to improve and develop the communities where we operate especially in terms of health, education, and empowerment. We will work closely with the Federal and State Governments to see how best we can positively impact the social infrastructure within our area of operation.