Why Nigeria’s oil output may slide by 20 per cent’ Wednesday, 19 March 2014 #GuardianNews Written by Collins Olayinka, Abuja THE prevailing inadequate funding of oil exploration projects in Nigeria may lead to 20 per cent fall in the output of the commodity in the country, the Vice President, Nigeria and Gabon Shell Upstream, Markus Droll has said. Speaking in Abuja at the ongoing Nigeria Oil and Gas (NOG) conference and exhibition, Droll stated that more funding is needed for the country to fulfill its oil and gas potentials. He said: “Our belief is that for Nigeria to fulfill its oil and gas potential, more funding is required by the industry than we have seen in recent years. We are in a high cost environment, and in order to collectively climb towards significant higher production levels, we do need to find better ways to fund development. “Decline rates in the country can be as high as 15 to 20 per cent and you will appreciate that to simply replace natural production decline rates requires much of the funding that is currently available. I would therefore urge all players in the industry to keep looking for innovative ways to inject additional capital.” The regional Shell chief also solicited close collaboration among industry players to engender fair fiscal environment. He added: “As the world around us changes, especially with regards to oil prices and industry costs, it is natural that fiscal environments are reviewed to maintain a fair investment climate for all stakeholders in the industry. The oil industry requires large bets to be placed, and often over a period measured in decades, not just years. “Fiscal stability and predictability are absolutely key in ensuring investors of all sizes can commit confidently, government revenues can be forecast reliably, and a capable service industry is maintained with steady workload. If we can’t succeed on this, my fear is that we will not attract as much capital to Nigeria as we need.” The Chairman of Shell Companies in Nigeria, Mutiu Sunmonu, pointed out that the bureaucratic bottlenecks associated with doing business in the country is another formidable obstacle to the growth of Nigeria’s oil and gas sector. This was not different from the submissions of other key operators in the industry who lamented the harsh business environment even as Sunmonu hinted that investors could start sourcing alternatives if the situation remains unchanged. His words: “Frankly speaking, as I speak here today, if I just look at the Shell hassle of moving project through in this environment, it’s overwhelming. And when you have to go through some of these hassles, every investor will start to think about alternatives.” He noted that the idea of having parallel evaluation and parallel negotiation of the same contract is a waste of time insisting that there must be a common approach where all the processes are done on once and for all basis. He added: “If we are not cost efficient, this industry will die because there will not be enough money to do as much projects that will enable the government of this country to realize the aspiration it has set. The very first thing for me is practicality. We are running this business with out sufficient sense of practicality. Operators, contractors, regulators need to have a much more practical approach to the way we do business here.” While also lamenting the lack of proper funding models for the industry, he warned that failure to conclude one this year would mean no project will be executed leading to low revenue for the government and huge loses to operators. “There have been different discussions and models being put forward to enable easier funding we need to bring this to closure. We can’t continue to discuss the same thing yearly. We have to take the view that you either fund projects or there will be no project”, he stated. In his contribution, the Managing Director of ExxonMobil Companies in Nigeria, Mark Ward said the sector is still being governed by laws and regulation made in the 1960’s at the inception of oil production in the country. “Most of us on this stage have been in Nigeria for many years and we have not seen things getting better. And so you wonder why that is the case, because many of the things in place dates back to 1960 when N500, 000 used to be a lot of money,” he said. Mark explained that the inefficiency in the industry is occasioned by the outdated process of contract award, which results in delay of contact execution. He explained: “Every single contract has to go through the process that worked in the 1960’s, it’s very difficult and takes a long time and its overwhelming the system, so clearly there is a need for reform. Reform is needed to solve some of the fundamental issues associated with the inefficiency we see in the system that dates back to the origin of the industry.”
Posted on: Thu, 20 Mar 2014 21:09:06 +0000
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