|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.