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Indigenous firms lament suspension of IOC’s $150 billion projects

By Roseline Okere, Houston, Texas
07 May 2015   |   12:19 am
NIGERIA’S oil and gas producers are scaling back capital spending plans for 2015, due to the uncertainty in the prices of crude oil over the past six months.

gas pantNIGERIA’S oil and gas producers are scaling back capital spending plans for 2015, due to the uncertainty in the prices of crude oil over the past six months.

Specifically, The Guardian gathered that oil and gas exploration projects worth more than $150 billion are likely to be put on hold this year as plunging prices render them uneconomical.

Meanwhile, earnings from natural gas resources in the Federation Account have dropped by $10 billion (N2 trillion), Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Joseph Dawha, has said.
Before now, Nigeria earned an average of N5.2 trillion monthly from Liquefied Natural Gas.

The decision by International Oil Companies (IOCs) to scale back capital spending is also affecting the country’s indigenous servicing companies, which have either faced delay in takeoff of some projects or outright cancellation.

In fact, the IOCs are now calling for re-negotiation of existing contracts and are going for the lowest bidder to execute new projects.

Global crude oil prices have fallen by about 40 per cent since June last year due to over supply and Organisation of Petroleum Exporting Countries (OPEC)’s refusal to cut its outputs ceiling.

Brent oil, benchmark for more than half of the world’s crude, tumbled from mid-June to a six-year low in January as U.S. output climbed to the highest level in more than four decades and OPEC members pumped more barrels. Brent for June delivery traded 0.2 per cent lower at $66.35 a barrel on the London-based ICE Futures Europe.

Prices have rebounded from the low of $45.19 in January. The premium that speculators add to oil prices ranges from $10 to $30 a barrel, OPEC said.

Already, Shell and the French oil firm, Total are said to have suspended drilling operations in some of their fields off the coast of West Africa.

Shell has delayed its decision on whether or not to invest in an oil drilling operation of about $12 billion in spending off the coast of Nigeria.

The Guardian gathered that Shell is planning to negotiate costs with the in coming administration in Nigerian.

Lamenting this latest development to The Guardian on the sidelines of the on-going Offshore Technology Conference in Houston, Texas, the Managing Director of Emval Nigeria and Publicity Secretary of Petroleum Technology Association of Nigeria (PETAN), Valentine Obidi said many companies are skeptical about making new investments in the oil and gas sector due to the uncertainty in crude oil prices.

According to him, the drop in oil prices has reduced the level of activities going on the country’s oil and gas sector.

He stated: “In terms of making new investments, everybody is conscious and anyone who want to make any capital investments will first of all watch the trend in oil prices whether there is going to be stability or not.

“For example, all our clients are now engaged in a watch and see situation. Many of them have slowed down in their activities and trying to watch the trend in the global oil market.

“One of the ways we have been able to manage the situation is because many of our clients are bent on sustaining production. Even if they are not going to re-enter or drill a new well, they want to ensure that the ones they have are producing up to maximum capacity. So, maintaining production is one of the key drives to some of our clients.”

He described the renegotiation of existing contracts as one of the major challenge created by the current uncertainty in the prices of crude oil at the international market.

He said many of the companies are now asking for reasonable discounts. “Now the ways contracts are awarded are now for the lowest bidder. You cannot mark up your prices and expects to get the job. Now, we are being forced to take a big risk.”

Speaking on the way out, Obidi stressed the need for the government to pass the Petroleum Industry Bill (PIB) as soon as possible to mitigate the effects of the declining crude oil prices.

He said that the passage of the PIB will give a measure of confidence to International Oil Companies to invest in projects, which they believe are still profitable.

“It will give them confidence to make new investments, which will give indigenous service companies opportunities of getting new jobs. The PIB needs to be passed as it will help protect companies from uncertainty of crude oil prices,” he added.

Also, the Managing Director of Tilone Subsea Nigeria, Standford Tassie, said the fall in crude oil prices has affected the company directly and indirectly. “Directly, in the sense that the IOCs are calling for re-negotiation of the contracts that are running. Some of them are asking for up to 30 per cent reductions from existing contracts, which is not feasible with our kind of service.
It is also affecting us in respect to getting new projects because most of the IOCs are kind of putting on hold projects, which are yet to get the final investment decision. If they put these projects on hold, it is going to affect our company because we will no longer be able get the contracts that come out of field development. The only projects that are running now are production operations. Before now, every year in Nigeria, you tend to hear about new projects coming up, now it is no longer so.

The IOCs are now very careful about embarking on new projects. They want to be sure of what they are doing.”

He noted that many of the servicing companies are now laying-off staff due to their inability to manage the challenges of oil price fall.