By Kunle SHONUGA
Worried by persistent drop in international crude oil prices, some Nigerian experts are becoming apprehensive that the implementation of the 2019 budget may be hugely challenged as government revenue may fall below key projections.
This anxiety is further worsened by dwindling government revenues, largely occasioned by the persistent drop in crude oil prices.
Crude oil prices have been on a consistent drop in the last one year as Brent crude fell from $88 in October 2018 to $52 later same month Friday, the lowest in one year.
President Muhammadu Buhari, had on December 19, presented the 2019 budget to the National Assembly indexing oil production of 2.3 million barrels per day, with oil benchmark price of $60 per barrel at an exchange rate of N305 to the dollar.
While experts have predicted that the 2019 may run into murky waters, others have said there was no cause for alarm as the country’s oil and gas assets lying fallow could provide a source of funding for the 2019 budget.
They submitted that the much awaited oil bid round was capable of generating N112 billion into government coffers while also advising to reduce its stake in the Nigerian Liquefied Natural Gas(NLNG) Limited to generate additional revenue.
Raising revenue from idle acreages
Stakeholders have expressed concern that an estimated 46 oil acreages have been lying fallow while their potential remained untapped due to the Federal Government’s failure to conduct a fresh marginal oil field bid round in more than a decade. The last of such exercise was conducted during the administration of ex-President Olusegun Obasanjo in 2007.
The Group Managing Director of Nigerian National Petroleum Corporation (NNPC), Mr. Maikanti Baru, had in August 2017 put the number of marginal fields up for grabs at 30, and urged members of the Independent Petroleum Producers Group (IPPG) to participate in the bid exercise when they are eventually thrown open.
Regrettably, close to four years after the administration of President Muhammadu Buhari, came on board, a dark cloud still surrounds this all important licensing bid round in the oil and gas industry.
Meanwhile, as an estimated 46 acreages remain idle, the country is said to be losing value on the assets to other countries in Africa, including Senegal, Ghana, Gabon and Angola, who have made tremendous progress in oil production and exploration and have become an investment destination for Foreign Direct Investment (FDI).
For 11 years since the last bid round was conducted, many investors with high hopes that the field would soon be open for grabs have since moved their resources to other countries where they consider the business environment to be more friendly.
Some experts have argued that the failure of the Federal Government to conduct the much awaited oil bid round may have robbed the country revenue in the region of about N112 billion in signature bonuses.
Signature bonuses, according to NNPC, are funds paid by oil companies to the Federal Government upon their successful bid for oil blocks.
Commenting, Partner, Bloomfield Law Practice, Mr. Ayodele Oni, said the Federal Government should conduct a marginal bid round without further delay.
He lamented that most investors are beginning to see options in Angola because the cost of oil production is relatively cheaper compared to what obtains in Nigeria.
He equally took a swipe at some Nigerian investors who won marginal bids in the past but have failed to develop them due to lack of expertise, saying such fields were better in the hands of foreigners than Nigerians because they have the technical know-how to handle such investments.
‘‘Government I believe should also consider the option of reducing its 49 percent stake in NLNG in order to raise revenue,’’ he said.
40bn oil reserve target foreclosed
The delay in the award of new oil blocks and uncertainties over existing marginal oilfields are upsetting industry players, amid a warning that the country’s economic development could be jeopardised.
The aspiration of the Federal Government to attain a crude oil reserve of 40 billion barrels, last November, suffered a huge setback as the apex body of professional geoscientists – the Nigerian Association of Petroleum Explorationists (NAPE) –foreclosed the target.
The Federal Government in 2010 set the target of 40 billion barrels of crude oil reserves and a production of four million barrels per day by 2020. But with one year to the 2020 timeline, stakeholders in the nation’s oil and gas sector are apprehensive that the target may after all be a mirage.
Prior to now, experts had believed that the country would meet the target, which was aimed at boosting reserves through increased exploration and production activities.
NAPE President, Dr. Andrew Ejayeriese, in arriving at his conclusion, submitted that the lack of a clear cut fiscal terms, failure to conduct oil bid rounds, multiple taxation, poor infrastructure and a hostile business environment remained some of the factors that would make the target an impossible task.
Already, the development has pitted operators and commentators against each other. While some believe the target is achievable, others have described it as a tall order that may not see the light of day.
More importantly, the pragmatic group believes that should government implement the recommended policies, including matching its thoughts with action rather than its policy summersaults, the industry could achieve the 40 billion reserve target.
Nigeria is projected to witness a shortage of crude oil, as new refineries may have to compete with the sale of the product at the international market where the country earns the bulk of its hard currency. Also, some experts think the Nigerian National Petroleum Corporation’s (NNPC) bid to increase crude oil reserves by one billion barrels yearly to meet targets would remain elusive.
The Federal Government has repeatedly failed to meet a 40-billion reserve target for about eight years. Instead of making progress, the country could be inching backwards, according to statistics from the Department of Petroleum Resources (DPR), showing that the reserves declined by 961.47 million barrels between 2012 and 2016 alone.
Experts said the challenges that have frustrated meaningful exploration and production activities from marginal fields for the past 13 years could spell doom for the future of the nation’s oil sector. Of the 30 marginal fields awarded since 2004, only 12 are active and currently produce about 2.6 per cent of daily oil production and 2.5 per cent of the estimated 4,000 MMscf gas production in the country.
New regulations as soft landing
Considering the fact that it has been over a decade since the country conducted a bid round, Minister of State for Petroleum Resources Ibe Kachikwu recently insisted that unless there are new oil and gas regulations, the country might not award oil blocks.
Kachikwu, had said the Federal Government was yet to conduct the bid rounds for marginal oil fields because it was still awaiting approval from President Muhammadu Buhari.
With the failure of President Muhammadu Buhari to assent to the governance fragment of the four-part Petroleum Industry Bill (PIB) and the delay that has impeded the entire legislation for about two decades, stakeholders said the stagnation would continue to frustrate desired objectives in Nigeria’s oil and gas sector.
Oni, while corroborating the position of Kachikwu said unless there are new set of rules to guide the operations of the oil sector, fresh investments will continue to elude the country.
‘‘ For over two decades, we have been on the issue of the Petroleum Industry Bill (PIB). Investors are watching on what the intentions of government are. While waiting, new investments are finding their ways to other climes. We need to act fast. It is either government comes out to say they are not passing the PIB for now while we go ahead with the old rules or it is passed. Something must just be done in the interest of the economy,’’ he warned.
For his part, Chairman, Society of Petroleum Engineers (SPE), Nigeria Council, Mr. Chikezie Nwosu, told Daily Sun that several investors and stakeholders have been waiting for this marginal field bid round, saying the question is, why have they not happened?
‘‘And that is same question SPE is asking because we have a lot of members and partners who have been waiting for when the bid rounds will come up. The resources are there. Basically, we have to find a way to unlock the obstacles in order to get the marginal bid round thrown up.”
Nwosu said the impact and expectation on the marginal bid round is substantial, explaining that the intention of Independent Petroleum Producers Group (IPPG) as echoed by its Chairman, Mr. Ademola Adeyemi-Bero, at the 2018 NIPS summit in Abuja was for IPPG members to grow production levels by up to 30 per cent of the total production in the next couple of years.
The SPE Chairman said this target is dependent on members of IPPG getting more marginal fields for them to have their investments active.
‘‘You have to see that the IPPG has the intention of growing production but they have to be enabled through access to these marginal fields. SPE and the press must continue to put pressure and ask questions on why we are delaying and losing value,’’ he warned.
Chairman/Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe, had said in a recent interview that, “Nigeria is not helping itself by locking up so many fields to be developed and for either administrative or policy reasons, we are not getting the fields to be developed. What are we waiting for? We are wasting too much time.”
Fawibe, a former General Manager, Marketing, at NNPC, recalled that the marginal fields programme was conceived to give marginal fields to indigenous firms operating in the industry with the financial wherewithal to develop such fields.
“But politicians and vested interests hijacked the process and at the end of the day, some of the people who won the marginal fields are not professionals and some of them don’t even know anything about oil and gas business,” he said.
A former board member of NNPC, Alhaji Abudullahi Bukar, for his part said, “the tragedy is that money that could have come as investment into Nigeria went elsewhere, especially during the years when oil price was over $100 per barrel.
“The government would have earned huge revenue from the signature bonus and other filing charges because Nigeria has a lot of attractive acreages in very strategic places in comparison to many other countries.”
