Adewale Sanyaolu
Poor financing of oil and gas projects by banks may continue to impair Nigeria’s desire to attain 40 billion barrels oil reserve target and investment. Despite setting different timelines for the target, the country had on each occasion failed to meet the its target, with the latest being 2020.
The Federal Government had in 2010 set a 10-year (2020) target to meet the 40 billion barrels target and four million barrels per day, with both projects missed.
The Department of Petroleum Resources (DPR) had indicated that the reserves declined by a whopping 961.47 million barrels between 2012 and 2016 alone.
According to a new report by the Organisation of Petroleum Exporting Countries (OPEC), the nation’s crude oil reserves dropped by 481 million barrels to 36.972 billion barrels in 2018.
OPEC, in its 2019 Annual Statistical Bulletin, said Nigeria’s crude oil reserves stood at 37.453 billion barrels in 2017 and 2016; 37.062 billion barrels in 2015 and 37.448 billion barrels in 2014.
The report said the number of active oil rigs in the country rose to 32 last year from 13 in 2017 and nine in 2016.
This was as industry stakeholders have expressed concern that poor funding for the oil and gas industry remains a major setback in the government’s plan to stock 40billion barrels of crude oil.
They have therefore warned that unless funding to the sector was improved through the establishment of a specialised Oil and Gas Bank, to cater for the unique financial demands of the industry, the desire to attain a robust oil industry may be elusive.
Indeed, they argued that several oil and gas projects have been cancelled due to low revenue occasioned by the coronavirus pandemic ravaging the world.
Oil and gas experts have contended that establishingthe bank would help retool the industry, instill confidence in investors and boost activities in the industry currently witnessing one of the major setbacks in history.
Industry financing gap widens
Giving a breakdown of the infrastructure financial needs of the country over the next years, pioneer Director General of the National Pension Commission, Mr. Muhammed Ahmad, said the country would require about $100 billion to bridge the wide gap.
Of this figure, the oil and gas industry gulped the lion share of $60 billion, power $18-20 billion, rail tracks $8-17 billion and roads $14 billion.
For his part, a former Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, put the infrastructure need of the oil industry at $30 billion.
There are strong indications that independent oil companies and several service companies in the sector as well as their projects may suffer further delays as international oil companies’ financials took a $27.8 billion dive in the second quarter of this year.
A lot of these companies, especially those in the service sector depend on jobs assigned by IOCs, and Nigerian companies operating marginal filed to remain afloat.
The absence of an Oil and Gas Banks appears to have further compounded their woes as the regular Deposit Money Banks have drastically cut funding to the oil and gas sector due to their huge exposure.
For instance, Royal Dutch Shell recently posted a loss of $18.4billion in the second quarter of this year, compared to a profit of $3.5billion in the same period last year. The company warned that the outlook for oil demand continued to be uncertain, saying it had cut its exploration drilling plans for this year from 77 wells to just 22. Shell had cut its capital spending budget for this year in March from around $25billion to $20billion.
ExxonMobil equally reported its biggest-ever quarterly loss of $1.1billion and confirmed plans to make deeper spending cuts.
The oil giant, which suffered a loss of $610million in Q1 2020, slashed capital spending by 30 per cent this year to around $23billion.
Chevron Corporation posted its worst quarterly loss of $8.3billion in Q2 in at least three decades and warned that the pandemic wreaking havoc upon energy markets might continue to drag on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
Meanwhile, the Managing Director of AMNI Nigeria Limited, Mr. Tunde Afolabi, has advocated the setting up of an oil and gas bank as a way to mitigating the funding constraints of the oil and gas sector. Afolabi, who spoke during the First Akomeno Oteri Annual Lecture organised by the Nigerian Association of Petroleum Explorationist, (NAPE) in commemoration of its 45th anniversary said a solely oil and gas bank was needed because it would better understand the dynamics of the sector as against the current reliance on conventional commercial banks for their financial services needs
According to him, banks funding to the country’s oil and gas sector dropped by $3 billion in 2019, and may further dwindle in the years ahead if drastic solutions to their financing challenges were not found. He noted that indigenous oil companies operating marginal fields were the worst hit in current funding constraints.
According to him, prior to 2019, Nigeria’s oil and gas industry had enjoyed a robust funding of around $12.5 billion in 2014.
Afolabi said capital spend of the oil industry between 2010 to 2019, was influenced by high oil prices, adding that the drop in prices had affected oil exploration, production and investment.
He revealed that the yearly capital spending of the sector when oil prices averaged $100 per barrel was around $18 billion, but this has since crashed to $7.5 billion per annum between 2016-2019 when oil price averaged $60 per barrel.
Meanwhile former President of NAPE and Managing Consultant of Decognek Nigeria Limited, Abiodun Adesanya, in his reaction said it would be impossible for Nigeria to meet such a target in the next two years.
Adesanya was not convinced that the level of investment and exploration activities made in the country in the past few years could translate into any meaningful increase in the reserves and daily production.
Also speaking, the National President, Nigerian Association for Energy Economics (NAEE), Prof. Wumi Iledare, said the nation’s oil sector was witnessing investment drought because of unclear governance structure. “We cannot meet the target because the governance structure is not clear, the price of oil has been dropping over the past five years and the fiscal system remains dormant, archaic. It has to be revamped.
“Unfortunately, there are so many other countries competing with those investment opportunities and Nigeria has not woken up to the need to find a way to make the country attractive again. In 1975, there were only five countries producing oil and gas in Africa, today we are 25, nearly every country along the coast of Africa has discovered oil,” the professor of Petroleum Economics and Policy Research said.
He canvassed some fiscal incentives to make investors return to Nigeria.
According to him, there must be incentives if government will get people to explore and expand reserve base, but obviously Nigeria doesn’t have the money unless it woos international investors who will only come when the business environment is made conducive.
To the Managing Consultant, Degeconek Nigeria Limited, who is also the immediate past president of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, it would be impossible for Nigeria to meet such a target in the next two years.
Adesanya was not convinced that the level of investment and exploration activities made in the country in the past few years could translate into any meaningful increase in the reserves and daily production.