By Amechi Ogbonna
Mr Sarki Auwalu, a chemical engineer sits atop Nigeria’s Department of Petroleum Resources as its substantive Director and Chief Executive. Since joining the department in 1998 as a Principal chemical engineer upon graduation from Ahmadu Bello University Zaria, and post graduate degrees from Bayero University, Kano and PETAD Norway, PetroSkill USA, he had left no one in doubt as to why government’s stake in the oil and gas industry should indeed be managed better to generate more revenue and help it execute development and infrastructure obligations. In this interview with Daily Sun in Lagos, the COREN registered Chemical Engineer spoke on a wide range of issues in the oil industry, stressing that Nigeria and indeed the African continent need brown energy to develop.
According to him, this was the route that all developed nations followed to get to where they are today. While assuring Nigeria was already in the race for cleaner and renewable energy, the DPR boss noted the fossil fuel will remain relevant to the world and Nigeria in the next 50 years.
Why Nigeria will continue investing in oil gas infrastructure
You know, this is energy politics they are all playing. The developed nations used brown energy to develop. They are the highest consumers of fossil fuel as we speak. But I can tell you confidently that oil would remain relevant for more than 50 years to come and everybody knows that.
Africa in particular needs fossil fuel to develop. There is no industrialised nation in the world today that developed with renewable energy because renewable energy will only be developed with non-renewable means. What that means is that we should work towards diversifying our energy mix. You have to diversify the energy, use more of gas, use the oil, that is crude oil, because we need to refine.
If you want to build electric car, you only get polyethylene, polypropylene, all the polymers from refinery, you can’t get it from gas.
What we’re doing on renewable, clean energy
That is why we have to get into the race of getting renewable energy now. Our own is to use this brown energy like China, like India, like Brazil all of them. No one is saying China or India, should stop hunting for crude oil because that is the ingredient for development and that should be the same thing for Nigeria.
So, we know from the world energy outlook that crude oil would remain very, very relevant for the next 50 years. And it is ingredient for developing economies to grow. The matured economies can afford to use uranium, but we that are growing, cannot. As at today, Nigeria’s energy security is just about 25 percent, and that shows that 75 percent of our population do not have access to energy, let alone uranium. So, what we are saying is responsible use of the energy, that is diversifying the energy sources.
What we ‘re doing about energy diversification
You see, we are saying we are migrating the economy, this is something that we are talking about urban mix and all these, just to make sure that yes, we use it, we can use it to create more. There is no big refinery today without petro-chemical attachment. Even the modular refinery, you see that they produce diesel, and they produce HFO, and they produced NAFTA.
NAFTA is the building block for petrochemical. So, we are engaging and pushing for hydrogen on one part because it is something that is gaining ground.
Our policy on un-utilised LTEs
You know our LTEs have two years lifeline. Once you are issued LTEs for two years and you don’t use it, it is null and void, you have to reapply to get a fresh license. So, when we bring in this policy, it really encouraged a lot of them to start preparing the outside battery limit, and preparing the site. They come for our LTEs and the LTEs are renewable but you have to pay. Because the LTE you have already committed money, you have started building. So that is the strategy we are using. So there is no LTE that is dormant now. After two years, you know, you lost the money, you lost everything, so you have to start afresh.
Efforts to reduce crude production cost compared to other economies
You know, no two fields are the same, so to benchmark and say oh my cost is X per barrel, cannot be right always. Every field has its attendant cost because you use different strategy to extract, so different costs must apply. But we want to lower the average cost from where it is now, to at least not to be more than optimal.
In some cases for instance, you can produce at $10, some at $15, some at even below $10, and some at maybe $18. But what we want is to take 10, 12, 15, 18, and work with the average of maybe 13 or 14.
But, we know cost of producing in deep water is different from cost of producing in inland basin. It is also different from the cost of producing in a swamp. So we don’t have a single feeder, that is why we have this NOGEC Centre. We have a software here that every LTE that comes, and we run that software to know what is the optimal cost per barrel for that particular field. We have started, we have it, it is there on the sixth floor.
So that we know this is the cost per barrel and get the aggregate cost for that particular company. And we charge that company based on the terrain. Because if I work off shore, it’s different from when we work onshore and so our costs are different.
In the offshore, maybe the security cost is less. Maybe in offshore the security cost is high. So many parameters. So that is why we said no, we need to optimise the cost. The cost of drilling needs to be benchmarked, and we already have benchmarks We have Orgap which I mentioned, which wasn’t there before. All the basic cost in the same terrain must be the same, but additional cost in terms of management and in terms of handling is different.
Why FG is expecting $500m from 57 marginal fields
When we started the marginal field, a lot of people expected that each marginal field should be the same as the previous ones. But we discovered that it is actually not the same. This time around, government really wants to maximise earnings from the assets.
So we expect nothing less than $500 million. I have said it before that $500 million dollars, which is half of a billion dollars is our target, because when you look at the assets and the income which the marginal fields are expected to bring within the next two years, you don’t expect that volume. Somebody will give you more than that as signature bonus. So if we have 57 fields and we are looking for just half a billion dollars, I think the government is being fair. It is fair on its own because, people don’t want government to make money even though they know that government needs to make money from its oil and gas which is Nigeria’s primary business. And a lot of people will now downplay it saying this is too expensive. How much do you pay for a field that is only 50 percent of our lowest field in North Sea? You pay a price of four times the value you pay in Nigeria. So what prevents us from taking the same advantage, for the same asset in the US. You pay taxes over 85 percent and yet you pay for other things, you have only maybe 2percent. Here you pay taxes of only 55 percent and you pay royalty for 2.5 percent. But most people are thinking that government should not earn anything.
In fact, some people are advocating that marginal fields should be given out free, saying that after all, our country is not conducive for investment.
Regrettably, its our own people that have continued to tell outsiders not to invest in Nigeria for one reason or the other.
But right now, with the successes we have recorded in marginal fields, I think the whole world agrees that you can come to Nigeria and invest and you will make money out of it.
Downside risks of increasing crude production by 600 barrels by 2024
Perhaps the only risk think we may have is for prices to crash. But to allay that risk is the reason we are pushing for refinery operations. The worst is to consume it in Nigeria because we are importing products and we need jobs to be created.
Increasing DPR human capital with its enormous responsibilities
If you look at all the works we are doing, we leverage a lot on technology, so that at least human interface is reduced, and we try to use Artificial Intelligence (AI), in a way that the more you can have crowd, while you may not have effective outcome of what they do.
However, where necessary we still will employ but as much as possible we take advantage of technology.
Just going back to marginal fields, I have said it in my presentation. Out of people that were given opportunity then in 2003, you see two companies they can’t come together because there is no SPV structure. But this one is special purpose vehicle. That is SPV where the operator of the asset and you have equity in that SPV. And that SPV is that particular asset that is awarded to you equity investors. And the award letter is so clear that this is what you have so that we can increase, and get more. Remember that by Nigerian law, if you want to assign equity to another company, the premium you to pay government is 10percent. So we can block that revenue. If it is SPV, you know, and you want to assign your own to somebody, government has 10 percent. So, this is the sense that we have put into it so that you and I as Nigerians, and the country can make maximum gain out of this project. Before now if you are given an SPV or you come together to form and appoint the operator, problems start from there. This is because as an operator some may want to strip the assets, others would want to dictate the contract, or even want to do everything.
Now you will know from the onset that the SPV will submit its work programme and there is a unit in DPR responsible for it. What they do is to oversee the implementation of FDP as it is. That is, that asset must make money for the investors. So technically, you are an investor. You invest in that asset and this is the equity you have in that investment. The owner of the asset is government and it gives you that award in lieu of royalty, taxes and other revenues? So if you have clash, you clash with your colleague investors on the asset. And that is exactly what is happening with every other asset in Nigeria, except marginal fields. But in order to avoid our having any external problem, the asset must remain unchanged. And those kinds of things are what will bring about some revocations as you said we experienced in Addax Petroleum.
So, once the asset is not technically being operated, we’ve taken it and given it out to other serious investors because government cannot afford to continue losing revenue from such critical assets.
Gas to power initiatives
Yes of course there are lot of GenCos and we know we have problems of infrastructure for transmission. The transmission company cannot really take the entire power generated. And the distribution capacity is also inadequate. We expect that more investors would come in to invest in distribution as well as transmission.
Unfortunately, that investment is not coming for two reasons: We generate power, we use gas and there is the issue of gas pricing. Gas pricing affects also generation of power, even the payment for gas. This is because the business of gas pricing is done in dollars, but gas purchase is in naira. And the explorer of gas, uses dollars to explore and bring out the gas. But when he gives the off-taker, he wants to pay in naira especially the GenCos. So, that really creates a huge gap, with the regular currency disparity.
And I think, we are trying to work out something in a way that will no longer lead to this currency disparity. We are working that out. But remember every power that is sold to a customer that is not paid for, means that government has paid for it. But Nigerians don’t realise that. Every power generated, transmitted, marketed, which the consumer did not pay for, is being paid by the government. Because it’s a business that is paid upfront. So now the gas owners are struggling to get their money back because their transaction is in dollar but they are selling it in naira. That also explains why most of them prefer to export gas to get needed forex so that they can continue to produce. Their argument is that with this intermittent gap, we have to sell some portion of the gas to earn dollars so that we can be able to pay for drilling since I will give you the gas, you pay me in naira, I can’t get dollar. But we are trying to solve that problem and once solved, that case closes.
Today, if naira becomes one of the International trade currencies, I can tell you so many things will change.
But unfortunately not only for us, a lot of other economies rely on dollars to transact internationally. But that is the key to determining success of gas to power, gas to industry.
Interactions with other companies in the group
First, there is no company that we do not have constant interaction with. DPR is the lifeline of each and every company in Nigeria. We assess their performance, we give them through visibility, when they produce, we give them extra parley, we manage their reserves. That shows that there is regular interaction with all our stakeholders. In fact, it is the interaction that brought about all these issues that I have mentioned earlier. Such responsibilities as maintaining the reserves, getting to utilise the gas, making sure that the reservoirs discovered are utilised, because we need investment. Anytime we observe that we have evidences relating to our usual interaction, it makes it necessary for us to know that A and B are not doing well because there is a process we follow which is the Petroleum Act.
And I can guarantee you that those processes were adequately followed and all our interactions did not really confirm to us whether the company is fully in compliance with the provisions of the Petroleum Act.
Why Addax Petroleum assets were rewarded to Kaztec/Salvic consortium
With the withdrawal of 123, 124, 126 and 127, the consortium of Kaztec/ Salvic Consortium was given the mandate run the assets and it is going to be on the same terms and condition. The condition needs to be met, because if they fail to meet the conditions, the consequences are still there. That is why Nigerian petroleum law is in such a way that when you implement, you can see the result.
Why fuel smuggling remains headache for Nigeria
Smuggling actually gave us figures, because we know where the volume is coming from and where it is going. It gives the indications that the borders are very vulnerable and we are working with relevant government agencies and giving them that information. Because that information was not available before now what used to happen was that you just get up and followed tankers from Lagos or Calabar or Port Harcourt and the products just varnished.
But right now, we will know the volume, we will know the movement, we will know where that volume is. So you just advice the relevant authorities and agencies and we have been doing that and there are successes on that. That is why I was so confident we will address that challenge. And as for the other irregularities, a lot of marketers are complaining. You see a marketer with 10 or 20 stations, but always when they come for our annual marketers meeting, they are complaining that they made this investment and there is no profit. Sometimes they sell at a loss because most of the time, you see that they under-dispense. When you catch and charge them, and ask why are they under-dispensing, they will tell you that well, any time they buy from depots, there are always shrinkages, so with the drills now, what happen is that, you will know who is really shrinking you. That project is working well and that is why they are very happy. Because right now, that complain has really gone down, and that marketer that has 10 stations in 10 states, is looking at the operations daily. So he knows how much volume he receives, how much volume he sells, and if he underreports or he did not report and goes to lift products again from depot, he will not be allowed to do that. So the loop is so compact and that is why we are so confident in what we have seen. And that is why we said we have seen so many marketers reduced complaints, and we know the vulnerable borders in the country. All the smuggling areas where you don’t even expect, even on our own when we see it, where you don’t expect from that angle that is where smugglers are taking. I am sure all the information we have passed to the relevant agencies will be used appropriately.
Vaccines for oil and gas sector
We don’t want the oil and gas industry to shut down because it is a critical sector for the government and jobs for the people. So we saw window through which we can get vaccines for the workers in the sector.
At the same time, you know it is a window, after the politics of Astrazeneca, when it is clear for Europe, the demand for Astrazeneca, went up . Then initially when we stated there was a window for Nigeria oil and gas to really get vaccinated. We have 2 million vaccine, then we lost it, so what we now pushing for is for any window. We encouraged the companies to work directly with the HMOs that is responsible and good enough. It is the same HMO working with Nigeria primary healthcare agency. We try to make it seamless in a way that the industry will have their own vaccine because they are the engine room of the economy. And we are getting support from all the agencies. So whenever there is window, the industry can pay or the company that is there can pay so that we get this thing easily.
In nearly 80 percent of the cases, the residents met some of these depots there, because people started to build houses, and occupy those facilities, without getting a good understanding of what the approving authority did. And now people are occupying that area and they are now pushing back at what attracted them. But it needs be said that no approval was issued by DPR to any depot without the approval from the planning authority of the respective states. Because what the state government is having is the ground, since that ground rent belongs to the state. And DPR seldom gives approval of any infrastructure without having a no objection from the state.
So when you put these two together, you find out that the complaints are largely coming from depots that are kind of occupied by residence, it is somehow when you look at it. You know the residence in the first instance may not have totally come to that place. There was a committee set up to really look into this and I think when they come we give them this information especially with respect to how these facilities were licensed before the residence came. It is interesting to know that some realised that it is actually the other way round. Because most of those residents you see can hardly see certificate of occupancy on the land they occupy. And we even experience that not only for residents but even for pipelines right of way. You will see that even for pipeline right of way, schools are even built on top of pipelines which is very unfortunate. I know it is hard, but this is the hard truth. The only thing we are seeing is that state governments are looking for revenue, so they seldom want to push this, because when they push them, it reduces revenue for them and from safety point of view, we now compel each and every facility to develop what we call safety case. And that safety case , is a case for safety why that facility should remain in operation. And you the owner of the facility , you make case that whatever happens, you are 100 percent liable for it and that case is reviewed and renewed every two years because things change rapidly in the industry. So from DPR that is what we hold on based on the history and the condition that we find ourselves.
We said okay make a case for safety, identify all the risks, do a study to reduce it as low as reasonably practicable in a way that your operation, your emergency, your interaction are taken care of and if something happens, you are 100 percent liable. So that is it, we are working with all the stakeholders to see how we can relocate some if possible.
In fact, when the National Assembly set up that committee, for us it was a good one. The reason we loved it was because we helped them with a lot of data and they are in politics and would also know how to manage that very well.
Tanker explosion incidents
Recently, we said every tanker must have a safety valve because anytime there is a tanker incidence, and the fuel content spills, it usually ends up in an explosion. Therefore, it is now compulsory for every tanker to have a safety valve. It is a no return valve, when the tank is filled up, the product cannot really open, in fact you cannot even syphon the tank. And the discharge point also has no return valve. You can only use lock of the valve to open it. Since we rolled out that directive over three years ago, all the major marketers have fitted their tankers with safety valve. I can say that 95 percent of the major marketers have their tankers fitted with safety valves.
Now, the big issue we are is with the independent marketers. We give them a final notice of February 28, 2021, but when we start implementing you will see queues everywhere. It is because we want to implement that safety valve.