…As shortfalls in JV funding lead to dwindling oil production
By Michael Eboh, Jackline Oshiokameh & Joseph Oso
COMMERCIAL crude oil exploration in Nigeria and the rest of the world would become unprofitable within the next 13 years, according to a report by the Centre for Social Justice, CSJ, a civil society organization.
This is as the Group Managing Director of Nigerian National Petroleum Corporation, NNPC, Dr. Maikanti Baru, stated that the shortfalls in JV Funding have also resulted in declining oil production.
Executive Secretary of the CSJ, Mr. Eze Onyekpere, in a presentation titled, ‘Budgeting for Development,’ also projected that within the next four to five years, the price of crude oil would further reduce to about half of its current value.
“By 2030, it may simply be unprofitable for companies to continue drilling oil in commercial quantities. It is imperative to start with a question that brings home the reality of the Nigerian nation; being a nation so dependent on the sale of crude hydrocarbons.” he argued.
Onyekpere disclosed that in the coming years, crude oil would have little or no value or at best a nuisance value and many oil based investments will be stranded.
He said, “Where shall we go with our oil and what shall we deploy it for? To drink the oil as the climate revolution roars full steam? Crude oil will soon have little or no value or at best a nuisance value and many oil based investments will be stranded. The climate change revolution is beyond oil, carbon and greenhouse gas based economic growth and industrialisation. It is about a new paradigm of economic growth, livelihoods, jobs, opportunities and development.”
Onyekpere lamented that Nigeria failed to exploit the oil and gas value chain, hence, losing the full benefits of the revenue accruing from the sector.
He said, “Good as leaving oil and its volatility, Nigerian plans ought to have fully utilised and harnessed the oil economy through expanding and expounding the frontiers of the oil and gas value chain which remains severely underexploited.
Nigeria has not explored and therefore needs to explore the revenue potentials of the full value chain of the oil and gas industry through local refining of crude and processing of petrochemicals; full utilisation of gas through pipelines for LNG, to power electricity generating plants, industries and homes as well as exporting gas to the West African and other easily connected parts of the African sub region.
“It is also imperative to state that our over-reliance on revenue from fossil fuels is no longer realistic in the short, medium and long terms. The statistics are frightening. India projects that by 2030, all cars sold in their country will be electric powered. India is a major buyer of our crude oil.
France will end sales of diesel and petrol powered cars by 2040 in a ‘veritable revolution’ which is part of France’s commitment to meet the Paris Climate Change Agreement and to make France carbon neutral by that year.” Furthermore, Onyekpere stated that with Nigeria’s present economic circumstances where the country is facing severe resource constraints, special measures needed to be taken to protect women, youth and vulnerable groups.
According to him, Nigeria is at a cross road and needs to take effective decisions on its next fiscal and economic steps. “The petro dollar boom is over as commodity prices have collapsed. Hard choices need to be made on how to expend the little available resources and new sources of generating revenue. These choices are between acceleration and stagnation, stability and fragility and the quest for social solidarity,” he added. Dr. Maikanti Baru, Group Managing Director, Nigerian National Petroleum Corporation, NNPC indicated at the just concluded Society of Petroleum Engineers conference that, “Nigeria just like most of its contemporaries in the industry has been adversely affected by the recent tumble in oil prices for obvious reasons. In dire economic situations, the first reaction is tightening control on expenditure.
“However, in a period of low oil prices, some NNPC JV Partners and Marginal Field Producers may opt to maintain and sustain their existing assets rather than commence new exploration activities especially in new frontiers based on high risks and uncertainties.
A clear case of differing perspectives. “As a Corporation, NNPC is committed to reserve growth and will take this opportunity to advocate to all industry players to seize this golden opportunity and invest in oil and gas exploration now, as this is the best time to undertake such activities.
“As the nation is beginning to pull out of recession, oil prices have dropped to around $50/bbl. Shortfalls in JV funding has also resulted in declining JV Oil production from about 1 Million barrels of oil per day 3-5 years ago to about 800,000 barrels of oil.
“Given that the sector represents 90 percent of the nation’s foreign exchange earnings, this reduction, coupled with vandalism of critical production infrastructure, had a devastating effect on revenue generation, the environment as well as the national economy.
“For the umpteenth time, we call on the perpetrators of these unpatriotic acts to stop in the interest of the nation. It is our belief that host communities stand to gain more from peaceful operations. On our part, we shall continue to step up our Community and Social Responsibility programs as a means of sustaining the recent peace experienced in operational areas. I’m delighted to say that the economic picture is changing now. The government has pronounced its exit from Cash Call arrangements with the commitment of settling all funding arrears.
Oil production based on Production Sharing Contracts (PSCs) Arrangements, has been witnessing steady increase in production volumes. “In fact, towards the end of 2016, Exxon Mobil Corporation announced a significant offshore discovery with potential oil recoverable reserves between 500 Million and 1 Billion Barrels in the Owowo field which spans across portions of OPL 223 and OML .This is very promising news indicating that some of our producers are still committed to exploration efforts.
“On the part of Government, the JV arrangement is more profitable than PSC arrangements because of equity lifting and JV partners’ royalty & tax payments, especially under a low crude oil price regime. Another case of differing perspectives. As I said, the situation in the oil and gas industry is improving. For some time now, we have been producing oil at a sustained level of 2 Million Barrels/Day. Vandalism of infrastructure has dropped to a new low.
“We have survived a very trying period and I can tell you that better days are yet to come. We may have varying perspectives but our common objective is one; growing and sustaining our individual and joint businesses. My hope is that by the end of this conference, we would have resolved to apply our different perspectives towards a common objective of nurturing a strong oil and gas industry that can ride the waves of a boom and weather the storm of a bust.”