By Adewale Sanyaolu
For lack of a robust extractive industry roadmap, Nigeria’s hope of growing its crude and gas reserves to over 40 billion barrels in near future is fast turning into a day dream. Worried by this looming danger, petroleum industry stakeholders are now calling on President Muhammadu Buhari to put in place policies that can stimulate the oil and gas industry growth and subsequently increase the reserves.
There have been concerns that Nigeria’s plan to increase crude oil reserves from 37 billion barrels to 40 billion barrels by 2020 would be a wishful thinkung unless vibrant policy framework to drive more investment in the extractive industry are implemented.
Already, the development has pitted operators and commentators against each other. While some believe the target is achievable, others have described it as a tall order that may not see the light of day.
More importantly, the pragmatic group believes that should government implement the recommended policies, including matching its thoughts with action rather than its policy summersaults, the industry could thrive the 40 billion reserve target is possible.
However, discussions on the possibility of increasing the country’s crude oil reserves was the focal point at the just concluded 10th Annual Sub-Saharan Africa Oil and Gas Conference 2017 in Houston, Texas, USA.
President, Nigerian Association of Petroleum Explorationists (NAPE), Mr. Abiodun Adesanya, lamented that low exploration activities were a major obstacle to achieving the 40 billion barrels oil reserves by 2020 with the inability of the Federal Government to clear the backlog of the close to 10 years arrears of $5.1 billion cash call.
Adesanya, who was equally optimistic that the recent strategy deployed by the Minister of Petroleum Resources, Mr. Ibe Kachikwu, which has led to the payment of the first tranche of about $400 million, would encourage the International Oil Companies (IOCs) to begin exploration work and possibly discover new fields.
Recall that the country’s crude oil reserves declined from the 37.2 billion barrels attained in 2011 to 31.81 billion barrels as at December 2014. The nation’s oil reserves slumped from 38.5 billion barrels in 2008 to 37.5 billion barrels in 2010.
A former President of NAPE, Mr. Chikwendu Edoziem, explained that investment uncertainties surrounding the long-delayed Petroleum Industry Bill (PIB) and absence of incentives to encourage exploration activities, may have curtailed oil exploration projects and impeded the country from advancing towards its target to grow reserve base and production. He advised government to grant fresh incentives to oil firms to encourage exploration and find new oil.
According to him, each company has reserves growth target. “Finding as much reserves as you produce is very important. You have a target that encourages you to exceed it. Deepwater exploration well could cost you $100 million and these are investments you don’t make anyhow,’’ Edoziem had said.
In his end of the year message to staff of the Nigerian National Petroleum Corporation (NNPC), the Group Managing Director, Dr. Maikanti Baru, disclosed that Nigeria has recorded some addition to its oil and gas reserves.
Baru said the country’s oil and gas reserves had increased to 37 billion barrels and 192 trillion cubic feet respectively. He ascribed the growth to the relative peace in the Niger Delta following repeated disruption of crude oil production activities by militants in the region.
Nigeria’s oil production had largely experienced severe disruptions from the activities of militants in the Delta. Starting from February 2016, output from the country’s oil fields diminished to all-time lows. Coupled with low oil prices, this impacted heavily on the country’s oil sector.
Though with no details on the reserve growth, Baru said the NNPC would continue to find sustainable solution to the challenges posed by insurgency in the Niger Delta to keep this up.
He explained that the corporation had created security management platforms that would enable it identify and evaluate risks, develop and superintend implementation of investigations, as well as aggregate and deploy necessary resources to guarantee a peaceful business environment in the region.
Meanwhile in order to boost exploration activities in a bid to increase reserves, the Federal Government in November last year, reached an “outline settlement” worth $5 billion with five IOCs to cover outstanding payments for joint exploration and production cash call arrears.
A Joint Venture (JV) operation is a standard practice in the ownership of assets in Nigeria. It usually takes the form of an agreement between the national oil company, the NNPC, IOCs and sometimes, indigenous oil companies.
Under the arrangement, all parties contribute to funding oil exploration and production operations in the proportion of their JV equity holdings and receive crude oil produced earnings in the same ratio.
Kachikwu said Royal Dutch Shell, Exxon Mobil, Italy’s ENI, Chevron and France’s Total had “accepted” the $5 billion deal. He disclosed that the payments would be made in the form of new oil production, adding that there would also be a one-off cash payment.
The delay in payments has hindered oil and gas investment and worsened a budget crisis as the government seeks to increase spending to get the economy out of recession.
Despite having several joint venture agreements with IOCs, NNPC has consistently been challenged meeting its funding obligation. Prior to the oil glut, payment of cash calls and requests for payment for anticipated future capital projects sent by JV operators to the government as non-operating partners had always been a challenge, with payments either being partially made or not at all. As at January 2015, NNPC was indebted to about $5 billion in cash calls to its JV partners.
Last week, the Federal Government said it had released $400 million to settle outstanding JV cash call debts owed IOCs.
Kachikwu stated this in Houston, US, last week Tuesday, while speaking to reporters on the sidelines of ongoing 2017 Offshore Technology Conference. He said that the balance would be defrayed within a year.
For his part, Adesanya disclosed further that the over 10 years shortfall in JV funding remained responsible for the stagnation of oil reserves at its current level of 37 billion barrels.
He explained that when there is a shortfall in JV counterpart funding from the Federal Government, the area that takes the first hit is exploration. Adesanya regretted that the budget earmarked for exploration activities as a result of the shortfall in JV funding has dwindled over the years leading to low discoveries in exploration activities.
‘‘If you don’t spend money, you don’t get anything back. It is risky quite alright, which is why when the issue of budget cut comes up, the most hit is exploration because of the associated risks. But since the present administration came up with a formula to work on JV funding, we are beginning to see interest.
“Don’t forget also that compounded with that is the issue of security in the Niger Delta, which again in the last 15 years has been a major challenge,’’ said.
The NAPE boss who is also the CEO of Degeconek Nigeria Limited, maintained that reserves have not been static, but rather, a plus and minus issue.
Adesanya assured that the 40 billion barrels of reserves target by 2020 is achievable because the country has been able to identify where the resources to achieve the target are, adding that there are quite a number of fields that have been discovered but not yet certified by the Department of Petroleum Resources (DPR) into being called reserves.
He hinted that a formula has been found to address that challenge and it seems to be working because the country has witnessed a reduction in the vandalism of production infrastructure and that again has increased the confidence of the operators to step out.
The NAPE boss equally advised the Federal Government to make provisions for incentives for prospective investors willing to explore the hydrocarbon potential in frontier basins to increase the depleting reserves in the country.
He listed Nigeria’s frontier basins to include Chad, Anambra, Bida, Dahomey, Gongola/Yola and the Sokoto basins, as well as the Middle/Lower Benue Trough.
According to him, government must provide incentives to investors that are willing to explore in the frontier basins because there is something that takes these companies to such basins.