In this interview, Emeka Okwuosa, Chairman/Chief Executive Officer, Oilserv Limited, an indigenous oil services group spoke to journalists at the recent Offshore Technology Conference, OTC, in Houston Texas, on different issues, especially with regard to industry expectations from the government of Muhammadu Buhari. Gladys Johnson was there. Excerpts:
What is your expectation from the incoming government with regard to the oil and gas industry?
The oil and gas industry is a continuous industry that is a great portion of our economy. We know that a new government is coming, but government is still a government for Nigerians made up by Nigerians. This is a government that will come and have a level of continuity in the management of oil and gas activities.
We are entirely optimistic that they are coming with innovations; they will come with a positive and better way of doing things. But this is also a natural tendency, where a government is sensitive in any process. How would you rate capacity and transfer of technology to the indigenous operators in the last few years?
Don’t forget that companies like Oilserv and a few of the companies that are the pioneer members of PETAN are the companies that fought for local content to be established. We paid the price, so to say, by using our own resources, going all the way to ensure that local content is established.
The essence of the Local Content law is to help build capacity continuously to the extent that the best practice in technology will apply and will continue to apply. It’s a growing target, but as we build, we expand and we consolidate, we create more opportunities.
But one thing I have to say, there is an issue that has to be looked at; it is absolutely wrong and unacceptable for us to practice local content and capacity building in a way that allows brief case companies to be coming in the name of local content development and create a complete distortion of local content. I see that creeping in and I believe that this is time enough for the authorities and those that manage the NCDMB to look into that. So far, they’ve done a very good job; but they still have a lot more to do. Capacity building is the issue and we need to see that
The PIB has not been passed and if this is not passed what will you advise the incoming government to do with the PIB?
What we will advise the incoming government to do is purely to appreciate the fact that the governing law for petroleum – exploration and production is outdated and is not addressing the current challenges. There is a need to have a change – call it PIB or call it whatever you want to call it; it is overdue, and there is indeed a need to look at the best practice in the industry as far as international standards are concerned.
The passage of PIB will be a welcome development for the industry. but make no mistakes, whatever is passed as the PIB, make sure it is fit for purpose and addresses the requirements that we need in Nigeria as a country, as investors, as communities and every impacted systems or entities; it has to be well looked into so that we don’t have a law that will send us backwards.
Still on the PIB; do you subscribe to the view, as some people have said, that the bill be broken into pieces because it is too big? If that be the case, what do you foresee as the challenges as it were on account of the inability of the current National Assembly to pass the bill?
Also, the oil and gas industry is facing serious challenges now on account of the falling oil prices as there is the need now for cost management and to streamline operations. How will Nigerian companies including Oilserv tackle these challenges?
Let me start with the issue of the PIB the way it is structured today. It is not a matter of whether it is one law or that it is too big and should be broken into 20; what is important is its content. The content should address technical issues, legal issues and other issues that concern the oil and gas industry.
The content should not be thinking of the short term situation of low oil price. The low oil price we have today is a sure thing; oil price, or gas price – it goes up or comes down, there are mechanisms that drive that. You don’t set up a law to address whether it is high or low. The law should address a system that has a very solid background, so it would not matter whether we are now in a low price regime or not.
Secondly, whether we have a low oil price regime or not; don’t forget oil price today is above $50 per barrel; do not forget that in 1996, oil price went to $9/bbl and we still existed as a country. It’s not the first time and this is not even the worse, what is important is the management of our resources. Whether we are selling at $30 or above, everybody wants to sell at $100, but you will not get that on a continuous basis, so you plan for when the price is low – which is the management.
When you have high oil price for a long time, and when we are operating at a low price you know it’s going to come up down the road. So what is important is adequate and proper management of the oil and gas industry and that is what is key. And that means we have to be able to manage it in a way that will look at all the variables and all possible conditions and be able to address that.
What would you advise on the oil subsidy?
I am not going to spend time talking about oil subsidy, why do I say that? Fuel subsidy should not be in Nigeria, it does not make sense. All we need is to have an industry that works. We have enough refining capacity, and all we need is to make sure the capacity is put to use. Nigeria has enough refining capacity today to refine what we require. If all the refineries are running, what are we subsidising? Who is talking about subsidy today; why should we be importing products? Subsidy has no place in any normal economy.
Some indigenous companies are complaining that due to the fall in oil prices, the IOCs are now asking for a review of existing contracts with a view to cutting costs. How does this affect your own contracts?
Again I’ll answer generally, what I’ve said before have not changed. If we have a proper management of our system, we will see that what the IOCs are asking for is wrong. When the oil prices go up, are we expecting that they will call us back to increase the value of our contracts? No. A contract is sacrosanct and should be respected.
The only thing oil companies should do is to rationalise and say, they may want to shut down contracts because it doesn’t make sense for some of the contracts to continue to exist, and what does the contract say on cancellation? But contracts rates and terms remain as far as pricing is concerned irrespective of the oil price. So we are impacted and a lot of our members are impacted, the service companies are impacted by this practice, which is wrong.
Again, it goes back to the issue of the Department of Petroleum Resources or the Ministry being able to manage this process in way a way that they should call these companies to order.
Are we ready to be called gas nation yet?
Not yet, but I believe that if by what is going on today and the capacity that is being built in the gas sector of the petroleum industry, Nigeria will eventually be a gas nation.
…Break it down in terms of pricing, infrastructure and capacity so far
For us to talk about capacity in gas; you know there is a peculiarity of gas, and that peculiarity is that you cannot store gas like you can store oil. You will always match the production with the off take. How you match the infrastructure is based on what you need. From processing systems to transportation systems in form of pipelines and vessels, to utilisation systems; you’ll have to match all those to be able to drive gas development.
Gas is capital intensive and it is also long term. You cannot start gas development and finish all the processes in five to 10 years, no. If it takes five to 10 years to get to building up the field, being able to produce, and when you start production, you would have already taken care of the midstream and downstream issues. If you do not do that if you produce gas, you’ll have to flare it because you can’t keep it.
The point I’m making is that it is a process, and we are already investing and the Nigerian government is doing a lot. But they still have to do some more in encouraging investments in gas and the fiscal system has to be out in a way as to encourage investors. If the fiscal system is not okay, and if the investment is not bankable, like in the price of gas for the end user; if it’s not at a level where you can drive investment, nobody will invest.
Can you bring us up to speed with the pipelines and the infrastructure to get gas out to the consumers?
There is a Nigerian Gas Master Plan, and I said we have to make it a policy and gazzetted. The Gas Master Plan is well set up; it is well articulated, and it starts from addressing the issue of production to processing by having some central gas processing facilities, CPFs, to transportation to various plants, and to having smaller pipelines beyond. But as at today, not much of these have been implemented.
Last month (April), they flagged off the Ogidigben Gas facilities and out of all the pipelines needed for this project only the OB 3 has been awarded, plus the extension of the Escravos to Lagos Pipelines, ELPs System 2.
Currently, we are the ones handling the OB 3, we have progressed and as you may be aware by the end of 2016, we would have ended, and by first quarter 2017, gas will be flowing from these pipelines. The pipeline would be able to evacuate as much as 2 billion standard cubic feet of gas from the eastern sector to the west.
But the major arteries, which will take gas from Calabar or the Qua Iboe Terminal to Ajaokuta and all the way to Kano, have not been acted on. So there is still a major gap. We need the major strands to be put in place to enable distributors take gas from the terminals and move.
Talking about the pipeline infrastructure is not enough; you have to be able to manage the system in such a way that you have enough gas for the consumers. This means you have to reach out to the IOCs and other producers, and that again, brings you back to the pricing of gas.
Pricing has to be optimal in order to make the investment of putting gas into the system worthwhile. To build a pipeline that can take 2 billion scf of gas, and meanwhile you don’t have up to 200,000 scf, that pipeline is useless, so it should be an integrated system.
But the NNPC and government think that gas pricing can be solved with a willing buyer-willing seller module, is that all there is to it?
It’s part of the optimisation of price; you have to still have willing buyer-willing seller, but at the end of the day there has to be a regulator that determines that. It’s not up to the willing buyer-willing seller because it’s not like selling groundnuts in the market; this is something that is fundamental and if you don’t regulate it, it will skew to one side or the other, and eventually create what we have that is not optimal, a dis-equilibrium.
So the regulatory systems like the Nigerian Electricity Regulatory Commission is involved in this, involve the gas purchaser. You also have to look at the entities such that, if there is a willing buyer-willing seller disequilibrium, it’s not going to work. When price is not high enough for the seller to sell, he won’t sell, and when the price is too high for the buyer to buy, the seller will put out gas and there will be nobody to buy.
So what can be done to address these issues in terms of gas infrastructure, availability, and pricing so that we don’t lose our markets outside the country?
The issue of gas is a bit more complicated than a lot know. Of course you have gas pricing at the international market, and no matter what it is, there are variables. If you look at gas from the point of view of price from the well head, or price at the end of the transmission lines, and from the transmission lines to Lagos for instance, and when it gets to Lagos, you have pipelines that is built entirely and owned by Oando, it becomes another price.