Dr. Diran Fawibe |
The Chairman/Chief Executive Officer, International Energy
Services Limited, Dr. Diran Fawibe, speaks with ‘FEMI ASU about the low
exploration activities, security challenge and regulatory uncertainty in the
oil industry, among other key issues
What in your view are the factors responsible for the low
exploration activities in the Nigerian oil and gas industry?
In 2014, the slide in the oil price started and the price
fell from an average of $110 per barrel to below $30 at a point. When the oil
price is low, it doesn’t encourage investment in exploration. As a matter of
fact, even in terms of production development, many companies will start to
assess which fields they should develop. Exploration will then have to take the
back stage, and that is precisely what happened; it is not only in Nigeria. You
don’t want to touch exploration because you don’t see the way forward. That has
been a major factor. Even in the United States, the shale oil producers started
cancelling orders for rigs and drilling. So, it is a general phenomenon in the
industry. Even the Nigerian companies
that had ventured into exploration, many of them had to slow down. But to make
matters worse, this period also witnessed militancy in the Niger Delta. If the
companies were able to sustain production to a reasonable level, they may have
put some funds into some exploration, especially in fields that are attractive.
But that could not happen under the prevailing environment; so, the companies
were barely surviving and for that reason, quite a number of the companies were
losing money.
When you look at most of the major companies, their profit
levels plummeted, especially last year, and Nigeria was one of those countries
where the international major suffered severe losses. There are so many
problems in Nigeria.
Nigeria that used to pride itself as a low-cost producer has
today become a high-cost producer because it is not just the technical cost of
production that is incurred. We are spending heavily on security; money that ordinarily
we should not be spending is being spent on assets that have been destroyed or
for prevention of vandalism in the fields. A lot of money is now being spent on
maintaining security; security for the facilities has become another industry
and this type of thing was absent in the past. Government is spending heavily;
the oil companies are spending heavily and it all comes to a situation where
they have not done enough. So, there is generally unrest in those places. Some
people tend to wonder that if they were the major oil companies, they would
probably divest and leave the country because they are not having peace of
mind. So, this tends to have overall adverse effects on the activities of the
companies, and unfortunately, Nigerians do not have the money. Even, the
government is living from hand to mouth; whatever money comes, we spend. We are
not even putting enough aside for the rainy days in terms of sovereign funds
and so on. While some countries are boasting of over $700bn in their sovereign
wealth funds, Nigeria cannot boast of $2bn. These are some of the challenges
that we face in the industry.
Prior to the fall in oil prices, industry players had
complained about the regulatory uncertainty occasioned by the non-passage of
the Petroleum Industry Bill. Do you think the PIB also affected the industry in
any way?
Absolutely! The major investments being undertaken in the
industry are being done by international oil companies. When you are a company
operating in a foreign land, the government of the country can decide one day
and take some fiscal, legislative or regulatory measures that will affect the
business. Let’s face it: the companies are here to make profits; to have decent
returns on their investments. They are taking risks and have to be certain of
what is in the business they are doing. But when they face any kind of
uncertainty, it doesn’t help. Let’s look at it this way: A serious-minded
country should not spend upwards of eight years to 10 years to enact a law that
will govern the industry. We have Petroleum Law enacted in 1969 in form of a
decree. But anybody knows that when you have this kind of legislation, it may
be out of tune with the realities on the ground. In the wisdom of the
government, you want to amend this, introduce some new provisions, especially
on the issue of transparency and accountability but it has taken us almost a
decade to do this. So, the companies cannot make investment in an environment
of uncertainty and we should put ourselves in the shoes of these IOCs.
Even if you are going to come up with some harsh provisions,
do whatever you want to do and let everybody know where you are going. But the
state of uncertainty that has prevailed in the industry over time is not good
for us and this has been analysed, emphasised and overemphasised over time.
There is absolutely no doubt about it that the non-passage of the PIB has
dampened the enthusiasm of companies in doing major investments.
Last year, there was a resurgence of militant attacks on oil
facilities in the Niger Delta. Not a few people have wondered why the IOCs are
not leaving the country despite growing challenges. What’s your view on this?
The companies have invested heavily in this country. Shell
has been operating effectively since 1957; they discovered oil in 1956, started
development in 1957 and started export in 1958. Chevron used to be Gulf; it
started production, I think, in 1967. So, it is not the kind of asset
development you can just walk away from. The only thing you can do is to
maintain the existing assets but put less into new activities. But we cannot
even say that they are not making some efforts because they are concentrating
now on deepwater where they expect militancy not to be able to affect. But then
they have the uncertainty of the PIB because it dwells substantially on the
deepwater.
You don’t expect the oil companies to walk away just like
that; they will still maintain their presence. Even their home government will
not even want them to leave. The state of energy security is tied to availability
of oil. Yes, today, we may say that Nigerian oil is not going to the US as it
used to in the past, but even the US cannot write off any particular country
that can supply oil to them. Now, China and India that we did not supply oil to
in the past have seen their economies develop to a point where they are
consuming a lot of oil and that is why our oil is now going there. So, energy
security is important to the economy of the world.
The Federal Government, in its Economic Recovery and Growth
Plan, said it would reduce its stake in the refineries. What do you think about
this?
If the government wants to do this, I will wholeheartedly
support it. What have we really gained from the refineries over the past
decades? Government has not made a success of its involvement in the refining
business. A dynamic country like Nigeria should make its refineries
operationally efficient and build additional ones because we have a dynamic
economy where demand for refined petroleum products and derivatives keep increasing.
We have not been able to manage the refineries because the government took over
the first Port Harcourt refinery in 1977, and that was part of the fallouts of
uniform pricing system introduced in October 1973. That is the era of
government having the commanding heights of the economy. We had money, which we
could easily have used to build infrastructure for sustainable development.
Over the past decades, the refineries’ operation has
continued to go down. Today, the refineries are more of an embarrassment to the
country. We are a major oil producer, producing over two million barrels per
day, but we cannot refine about half a million for local consumption and we are
now heavily importing, and getting into arguments over subsidy. To a large
extent, this is against our national interest because it undermines the energy
security and the national interest of the country. If the government has
decided to divest its interest in the refineries, any right thinking person
should support this. I have been one of the advocates of this for many years.
The only thing is that they should not sell them as scrap. You need to do the
rehabilitation and then do the valuation for the purpose of selling part of
your interest because if you are selling them as scrap, the value will go down
considerably and what you are going to get when you divest will be relatively
low.
Government has shown over time that it cannot manage the
refineries and make them efficient. The years that the refineries have been
inefficient are more than the years of optimal performance. So, from this, it
is clear that the government does not have the capacity and tenacity to operate
this business. Instead of allowing it to continue to be a national
embarrassment, it is better to divest substantially and put the management in
the hands of the private sector, and allow foreign investors to come in and
inject funds because refinery management involves continuous operation and
maintenance. The labour unions and the civil society organisations that have
sentimental attachment to these refineries should relax, relent and let the
government manage this affair for the good of the country.
You see the contradiction in our system. We are a producer
of crude oil; we sell the crude oil, which is like raw material; what stops us
from refining it and selling the products? First of all, we will satisfy local
demand and then sell to other countries. The multiplier effect of refining
locally will be huge and you will be able to provide employment for the people,
and the other business that will spin off from this will be tremendous. Now, we
are providing employment and economic activities for importers of our crude
oil. That is not to say that we won’t sell crude oil, but the quantity we are
going to sell will be much reduced; the cargos will not be lagging on the high
sea looking for buyers. Today, we may be sending oil to China, India and so on;
can we totally guarantee that the market will be there for all times? We should
have foresight and then think ahead. Let us satisfy our local demand first; the
population of Nigeria very soon will hit 200 million. The oil consumption of a
200-million population is huge.
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