NOVEMBER
18th 2003 - EBIZGUIDES NIGERIA 1) Could you give
us a short overview of the oil sector in Nigeria and how it
has been evolving, especially in the last ten years? For
the last ten years, we had an oil reserve level of between
15 and 20 billion barrels. Each year we set a target for ourselves:
20 billion, 25 billion, 30 billion and now we are targeting
40 billion by 2010. We have met each of the targets, sometimes
ahead of time. Currently we have about 33 billion barrels,
which is ahead of our target of 30 billion for end of 2003.
So you can easily see that the projection of 40 by 2010 is
achievable.
The areas of challenge have been to build up the production
in line with the reserve level. The installation of new capacity
takes a lot of investment. At the same time, you have to watch
the market to make sure you utilise the capacity so installed.
To fund the joint-ventures up to this point in time has required
a lot of cash injection from the government. So when you add
new projects on top of the on-going joint-venture funding,
the build-up becomes quite tremendous. Consequently, within
these few years the government has explored innovative ways
of funding various stand-alone projects. There is currently
a shallow offshore project called the ("EA") project,
which is among the pilot schemes that will benefit from this
new approach where the government is carried. The government
starts to enjoy full net profit from the project after the
obligation to the investor is met. Alternative funding is
likely to come up even more. This is one of the ways we are
trying to meet the challenge.
One of the big things that happened to the upstream is the
deepwater offshore which came on around 1990-1991, when the
blocks were put on sale. Shell was very much in the vanguard
of new companies in the deepwater offshore from 200 meters
to about 1500 meters of water depth; Shell, Agip, Elf, all
the major operators already here, went for it, while Exxon
was among the notable outsiders. It has helped to boost the
reserve build-up to the 33 billion barrels we have as of today.
2) With this reserve and the building of capacity through
innovative funding, how is it going to evolve in terms of
the industry?
The aim is to be able to bring production level more or less
commensurate with the reserve level. Currently we have a production-to-reserve
ratio of somewhere around 25 to 30 years. The government wants
to maximise its revenue stream both from the joint-venture
projects and from the new production sharing contracts for
deep water exploration where the costs are tremendous and
as an alternative way to approach it. Government chose to
go into production sharing arrangement rather than the conventional
joint-venture arrangement because of the funding burden and
risks.
To add to what I said on the upstream, I would like to talk
on gas. Associated gas production has always been a nuisance
because it is flared causing environmental problems. We set
various targets dates in the 1970s for flares to be out. We
even levied a penalty for the volume of gas being flared,
believing that penalty would pressurise operators to start
utilizing gas. This punitive effort did not really work. Government
thought about it again and realized that it was better to
attract people through incentives to utilize gas than to be
punitive. Many projects are now coming up, such as the Gas
to Liquid Conversion [GTL] project, a big scheme-involving
Chevron. We are hoping that many more will come. Independent
power generation, outside the NEPA grid, should also enable
us to utilize gas, as does industrial consumption in the Lagos
area. There are various other schemes that are on hand. These
include the LNG project involving Shell, Elf, Agip and of
course the government represented by NNPC. It has surpassed
the initial target of two trains and now we are already talking
of the 6th train. There is also another scheme planned by
Agip and Philips Conoco. The government is a partner in all
of these schemes, which are anticipated to come on stream
in the near future. Together with the West African Gas Pipeline
Project, these schemes have a good chance to reduce flaring
considerably, if not stop it entirely by 2008.
3) Can you tell us about what concerns downstream and
the development in the creation of new industries related
to oil?
Nigeria has a population of 120 million people. With the
passage of time, the people have become more sophisticated.
People move around, industrial capacity is growing, and thus
we have a high demand for refined products. Forecasting this
many years ago, government built three refineries with a combined
capacity of 450 000 barrels per day of crude oil with the
intention to satisfy the domestic market. With time, the refineries
started aging so much that the crude being allocated to them
was not all being refined and some excess crude was being
marketed outside more or less in exchange for products. The
government's immediate plan now is to encourage more efficient
utilization of the installed refining capacity, by involving
the private sector. This is also part of the thrust by the
government to involve the private sector more in what used
to be a total government preserve. This is part of the privatisation
and deregulation programme. Government has, for this reason,
deregulated the pricing of petroleum products, because it
would not make sense if you bring in a private investor into
refining and the government controls the prices. So the government
had to see the two sides of the coin: deregulate and divest.
The depots and pipelines are also targets for divestment under
suitable equity share between public and private, at least
initially.
4) What are the structures, facilities you are preparing
in order to attract investors?
Very basic, make us an offer in a competitive, transparent
bid based on the condition of the assets as you see it. We
do not want to add more funds than is necessary to keep the
assets in basic functional mode. It is a better policy to
keep them as such to get what we can for them. It is a transparent
process of bidding; people will have access to inspect what
is there and place their offer, and the government will look
at the best promising offer, both technically and commercially.
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5) Can you tell us more
about the plans of privatisation?
The issue of privatisation is being handled by the National
Council on Privatisation. Under it there is the Bureau of
Public Enterprises, which packages the various public companies.
They have progressed in the petroleum sector but a lot more
in other sectors. The next targets in the oil sector are the
refineries and distribution network. These are all part of
the new economic reforms being pursued by Mr. President in
his current tenure.
6) There are a lot of projects regarding regional integration;
one of the biggest starting in Nigeria is the West African
Pipeline. Can you tell us about Nigeria's involvement in this
project and what it means for the economy?
Nigeria is the driver of this project; the World Bank and
Nigeria jointly hatched the idea. Given the number of West
African countries with growing economies and with such a major
energy resource such as we have here, it is only natural that
while supplying our industrial areas, such as near Lagos,
we should extend to our neighbours; Benin Republic, Togo,
Ghana, the Ivory coast
7) The Nigerian economy has been dominated for years by
the oil sector, bringing most of the foreign currency, contributing
a lot to the GDP. There is a tendency to diversify to other
sectors, what is the role of the oil sector within this development?
It is a question of how funds are appropriated. In fact,
the contribution to GDP is not as high as Government would
have liked to see it. It is still very low (between 12% and
15%) because there is inadequate linkage between the oil sector
and the rest of the economy. In terms of foreign exchange,
oil is bringing between 90% and 95%. The oil sector has been
so far a kind of enclave within the economy and government
wants to put a stop to it. Mr President is coming up with
basic reforms, and one of the platforms of these reforms is
to make sure that there is better linkage between the oil
sector and the other sectors. Funds that come from oil are
ploughed back into other areas such as agriculture, which
is commanding quite a high priority. A number of questions
can be asked - What is the local contribution into oil activities,
not in terms of cash or materials only, but also in terms
of know-how? How much can Nigeria contribute in human capital
and know-how? It is going to be quantified in all these dimensions.
With this in place, in the next few years, there should be
better way to monitor the level of GDP contribution from the
oil sector.
8) How do you see the oil sector evolving in the next
ten years?
In a democratic setting, you can make very long-term projections
but any incoming government has the right to review such plans.
As far as this administration is concerned, by 2010 the reserve
level is projected to be 40 billion, I have already said that
we are able to achieve that. As far as downstream is concerned,
there will be an end to products price fixing, we foresee
more refineries coming in, greater utilization of gas, greater
local participation. So in the next ten years, these are the
areas where major improvements are going to be made.
9) Could you tell us about your career path?
I have been an oilman right from the beginning. After acquiring
primary and secondary education, I was picked by Shell to
go abroad for my studies; I studied Geology at the Imperial
College of London. On finishing my doctorate degree programme,
I came back to join Shell. I have thus been a Shell-man right
from the beginning: first as a scholar, then an employee.
I went through the ranks and became the first indigenous chief
geologist in the industry, then first indigenous general manager
and director of exploration, which is one of the functions
of high conceptual content in the oil industry. Up until 1992,
I was with Shell. Then I was seconded to NNPC. It was the
first time someone from the private sector came in at the
top of NNPC. I was in that post for about 18 months until
a new government came into place and retired me. I have made
contributions to national discussions on petroleum matters
over the years since my retirement. Mr. President has given
me an opportunity to serve again so I came into this position
just a week ago.
10) What would be your final message and recommendations
to foreign investors?
The resource base is here; with respect to the downstream,
the market is here. Within the larger economy, one can make
end products such as plastics and fertilizers both of which
are consumed in large quantities. You can do a lot of other
things; the population is here. The investment climate is
very good: there is a vast land mass, a successful democratic
system of government, with a very good relationship between
the different arms of government. This is a democratic country
moving ahead with very dynamic people. I could not recommend
a better country for investments. People are very friendly
and accommodating, it is the best environment for any investor.
Mr. President does not only go overseas to market the country
for investment opportunities, but goes beyond that in the
various follow-up programmes. It should be very encouraging
for an investor to know that there is real political will
and commitment coming right from the top.
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