IOCs’ divestments, non-passage of PIB threaten Nigeria’s oil reserves

DIVESTMENT by International Oil Companies (IOCs), non-passage of the Petroleum Industry Bill (PIB) and lack of investment in deep water petroleum exploration are threatening its reserves. The indications are coming from the industry.

While government has continuously allayed fears and cited such divestments as an opportunity for the indigenous oil firms to thrive, The Guardian learnt that the cost of finance coupled with lack of direction as represented by the non-passage of PIB and difficult operating environment are the real reasons IOCs are divesting from the country.

Painting the picture, the Vice Chairman and Chief Executive Officer of Emerald Energy Resources, Dr. Jude Amaefule, said the situation in the country is very dire as costs of doing business is higher than most oil producing countries in Africa hence IOCs are moving their businesses elsewhere.

He said: “The cost of borrowing to do oil exploration in Nigeria is very prohibitive. If the cost of borrowing to do oil exploration in Gabon is about 2 per cent, the cost of borrowing the same amount will hit about 6 or 7 per cent if the same operation were to take place in Nigeria. Again, what comes out of the mouths of politicians also fuels the cost of borrowing.”

While calling for the fragmentation of the PIB into units for easy implementation, Amaefule submitted that non-passage has put Nigeria in a ‘no man’s land’ as uncertainty surrounds the sector, which discourages long-term investments.

Experts are also worried about the inability of Nigeria to grow its Sovereign Wealth Fund (SWF), which is the lowest among oil nations with paltry $1.4 billion as against United Arab Emirates’ $1.085 trillion.

At an energy forum held at the Emerald Energy Institute (EEI) of the University of Port Harcourt, the Director of the Institute, Prof. Wumi Iledare, argued that government must offer lucrative incentives to major oil companies to halt their divestments from Nigeria even in the midst of low oil price.

His argument: “There is no doubt that government has a shortfall in revenue because the price of oil is low and production is also low. The irony now is that this is the right time for government to give incentives to the oil majors. If government is concerned by the need to provide for the future and sees that investment into the future is jeopardised because government is not growing its oil reserve, government must take a pragmatic strategy to grow the reserve. One of the easiest ways to grow reserve is to create incentives for the oil majors. Incentives were given to oil majors in the Gulf of Mexico by the United States to halt the exodus of the oil majors in 1992. If the government of the United States did not surrender royalty to attract major oil companies back, what would have happened to the U.S. in the late 1990s when the shallow offshore and onshore were depleted?

‘‘In times like this, governments create incentives to grow their reserves. This is not new at all; Nigeria did it in 1986 when the price of oil collapsed and government provided ‘motional margin’ to the Memorandum of Understandings (MoUs) that we had. Assuming that was not done, what will our reserve margin be today?’’

Iledare also submitted that failure to shore up reserve today will lead to chaos for future generations.