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Published On: Tue, May 6th, 2014

The NPDC and Nigeria’s dwindling crude oil reserves

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Offshore oil rigBy Chinedu Gregory

There were two breaking news recently in Nigeria. One was cheering Seplat’s successful listings on the Nigeria Stock Exchange (NSE) and London Stock Exchange (LSE).

The other was a disturbing news that Nigeria’s crude oil reserves had dropped to 35 billion barrels from the 37 billion barrels it stood in the last two years, and the reasons were linked to the lull in hydrocarbon exploration activities to replace depleted ones.

This sorry situation was further confirmed with the recent rebasing of Nigeria’s Gross Domestic Product (GDP), showing that the share of crude oil and natural gas to the nominal GDP has declined to 17.52 percent, 15.89 percent and 14.40 percent for 2011, 2012 and 2013 respectively, indicating an obvious decline in the contribution of the oil and gas industry to the country’s economy.

Sadly, this piece of critical news which emanated from the Department of Petroleum Resources (DPR), Nigerians regulatory agency for the oil and gas industry, went largely un-discussed, the reasons understandably being that the country, is at present, immersed in several wars which takes the front burner of national discourse, among them, a war of words by delegates at the ongoing national conference, and from that conference also comes the never ending war between the

South and the North, and dissenting voices between Christians and Muslims.

But I doubt, as it concerns dwindling oil reserves, if there is any Nigerian who would not pause to think twice and reflect more on that news considering the harm that depleting reserves could do to Nigeria’s economy even in the immediate future, given that sales of crude oil accounts for more than 90 per cent of the nation’s source of revenue.

Even the sustenance of the ongoing conference, and the quest to win the various fights earlier listed, depends directly or indirectly on the availability of crude oil in such commercial volumes for the

international market. The question and this is very natural, that most people have demanded an answer to this subject is, ‘what really is responsible for the dearth in the exploration and production

of crude oil in Nigeria’? In attempting to answer this question, as someone who for the past two decades has been a major stakeholder in the industry, I will say that majorly; it is the inability to pass the proposed Petroleum Industry Bill (PIB) into law, an action that has created a lull in both existing and prospective investors in Nigeria’s hydrocarbon exploration.

Who really wants to invest in a climate of uncertain fiscal regime, the very contentious issue, in which the PIB is premised upon? Certainly no one! So, until the PIB becomes law, Nigeria should

continue to expect this investment lull. But again, there is another issue, which must be speedily addressed. And that has to do with the challenges that serious exploration and production firms partnering with state-owned firms like the Nigerian National Petroleum Corporation (NNPC) and the Nigerian Petroleum Development Company (NPDC) are facing in the quest to jointly bring on-stream, projects that would boost both Nigeria’s crude oil reserves and production capacity.

And that brings me to the latter story, which bothers on Seplat Petroleum Development Company Plc, listing its shares on the Nigerian Stock Exchange (NSE) on 14 April 2014. By listing its shares on the NSE, Seplat has, according to Future View MD, Elizabeth Ebi, ‘opened a new vista of opportunity – dividend earnings, as well as capital appreciation opportunities – that was formally unavailable to local investors in the Nigeria capital market’.

Seplat’s success can be traced back to the period between 2010 and 2012, when Shell Petroleum Development Company (SPDC) in the bid to divest some of its onshore assets, sold about 8 Oil Mining Licenses to the following indigenous companies: Heritage Oil Plc. (OML 30);

Neconde Energy (OML 420; Afren Plc. (OML 26); ND Western (OML 34); Eland Oil & Gas Plc. (OML 40) and Seplat Petroleum Development Company (OMLs 4, 38 and 41).

Of the lot, only Seplat (OMLs 4, 38 and 41) has been in full production since it acquired these assets from Shell – an average gross operated oil production of 60, 000 bpd, having grown from

13,900bpd in August 2010. The Company’s average gross gas production in 2013 was 99 million standard cubic feet per day (“MMscfd”). SEPLAT is targeting gross operated oil production from its existing assets of 85 Mbpd by the end of 2016. This success is owed largely to NNPC, who

for some unexplainable reason did not only waive its preemptive rights in the blocks, but also transferred operatorship to Seplat.

Three years after it acquired OML 42, Neconde Energy, with a production capacity of 30,000 bpd has dropped to a dismal 13,000bpd.

Heritage Oil (OML 30) and Afren Plc. (OML 26) are yet to commence full production.

ND Western (OML 34) is producing at a much lower level than when the assets were transferred from Shell.

While Elcrest Exploration and Production Nigeria Limited, owners of OML 40 have only produced oil for a few days in the past eighteen months.

With the exception of Seplat, all the other indigenous firms have had to at some point (and will continue to) swallow the bitter pill call NPDC if the situation is not reversed quickly.

Like the PIB, which has stalled further investments in crude oil exploration, the situation is not different to what happens when oil firms engaged in crude oil exploration activities are unable to bring their work programmes into reality. In fact, all forms of delays due to government bureaucracy on oil and gas projects are not suited to the dynamics of the oil and gas industry whose end products is usually sold in the international market. It is one factor that has dampened indigenous companies’ ability to fund and develop the oil and gas sector, and to build a promising indigenous upstream industry. And I must add that one of the reasons why local banks are refusing to fund any project where NPDC is the operator is because of the inconsistency in government policy and bureaucratic delays and undue government interferences.

Seplat has enjoyed an astronomical growth and success since it began operations because, unlike other companies who do not have the operatorship, is not bogged down by procedural constraints (which is one of the major challenges of a state owned company like NPDC). These constraints do cause unnecessary delays. They do not add value nor do they increase production that the country desperately desires.

Delays stifle investments; its inimical to efforts to create jobs and curb rising unemployment; it diminishes the opportunity for humanb capital development and training opportunities for Nigerians; provides less or fewer contracts opportunities for local contractors, and thus

contributing to militancy in the oil communities. In fact by more than 90 per cent, it is the crisis created by the government in keeping to its own terms on any Joint Venture oil project that had resulted in the failure of the partnering oil firms to meet the demands of its host communities in time, thus resulting in community backlash against joint venture partners, and sometimes the

attendant delayed oil spill cleanup rate. So to nip the impending danger to the economy on Nigeria’s falling reserves and production demands, both the government and oil firms must act fast acknowledging the inherent danger posed by the delay in the passage of the PIB as well as the government bureaucracy which stalls technical and fiscal provisions of oil and gas projects.

Indeed, if Nigeria’s onshore and offshore oil development should befast; it will be in everyone’s interest.


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