Part of the ways the petroleum industry can overcome current crises facing it is through government’s favourable policies and greater collaboration between government and operators, Chairman, Petroleum Technology Association of Nigeria, PETAN, Mr. Emeka Ene, tells Sweetcrude Editor, Clara Nwachukwu in this interview. Excerpts:
A new administration is coming on board by May 29, I am sure PETAN has some expectations, what are these expectations?
Our expectation is for the new government to continue to sustain the growth of the oil and gas industry through favorable policies, because the industry right now is undergoing some major challenges. We are facing oil prices of about 50 percent of what they were last year and this is impacting directly on all the major projects and investments in the country.
If the situation is not properly handled, all the gains that have been realised over the past five years would be lost. The Petroleum Industry Bill, PIB, needs to be passed and the full implementation of the Nigerian Content Act strengthened to such an extent that we continue to grow the industry’s capacity beyond mere service contracts to manufacturing and fabrication.
Also, engaging the different stakeholders in the industry on how to move the industry and economy forward is essential. They need to talk with organisations such as PETAN, IOCs, independent operators, marginal field operators, so we can figure a way out of the industry downturn.
From your comments do I take it that the outgoing administration did not meet these aspirations?
The petroleum industry is a real-time, 24-7 business and it is currently facing the challenges I mentioned earlier with the oil price crash and these are problems we did not face previously. So, while the NOGIC Act went a long way in creating a level playing ground for Nigerian companies to operate, we need to take it to the next level so that we don’t lose the gains of the last five years. To do this, access to long term capital remains critical with the cost of funds still very high and not in sync with the requirements of the industry. Also, the operating costs for producing oil have largely been fuelled by $100 per barrel oil price. At $50 or $60/barrel, the challenge becomes how to align these operating costs in order not to stifle the oil industry.
So then how are your members coping with these challenges in the face of the current realities?
It has been very tough on the service industry. The initial response was a blanket instruction to the operators in the industry to slash prices of services by 30 per cent instantly. This strategy is short sighted and focused on destroying Nigerian companies, who are now being forced to lay off staff. The profit margins of these companies even during the boom years of $100 oil lie between 20 and 30 percent for the most profitable ones.
For most, it has historically been a “rob Peter to pay Paul” business model because of the prevalence of short term call off service contracts in the industry. The discounted prices for these services were fixed during the last oil price down turn. Now, at $50 these same companies are being asked to drop their prices unilaterally by 30 per cent. At least one multinational service company whom I will not name has been going around the industry offering to drop their prices by over 30per cent if they are given 100per cent of the work. The fact is that if you can realistically drop your prices by that margin without going under, then it suggests that you have been exploiting the industry or your intention is to kill off smaller Nigerian companies. Either way, this is not acceptable or is it going to solve the problem of reducing costs.
What we expect is greater collaboration amongst industry players to manage costs across the table and to explore better ways to reduce duplication of resource allocation and investment in the industry. Deliberately falling for the allure of a price way is the fastest way to compromise safety, encourage graft and destroy the progress made in developing local content in our industry. A number of our members who are trying to cope with the situation are now laying off staff, others are slashing salaries and no new employment is being generated because there are no new projects to execute.
In that case what new thing is PETAN taking to OTC 2015 since it is the representative of the Nigerian contingent to the conference?
Thank you very much for that question; for the OTC 2015, we are carrying the message that we, as an industry, can work together to fix the challenges and are creating new opportunities for investment in Nigeria. For example, our theme for the topical panel session at this year’s OTC is “Natural Gas development in Nigeria – A compelling investment frontier in a turbulent oil market.”
We believe that Nigeria still offers an attractive opportunity for investments in the oil and gas industry, particularly in the gas sector. There are potential opportunities for investing in gas infrastructure development, gas to power and cooking gas.
PETAN members and Nigerian companies are encouraging further collaboration and value-added partnerships with the IOCs, independent producers, marginal field operators and off course the private investor community. During the OTC week, we are also collaborating with the U.S. Embassy commercial department to set up match-making business sessions not just between Nigerian companies and US companies, but also involving Angolan and Mozambican business men and women.
One is curious about this refocus on gas, we both know that the federal government has been singing this gas monetisation song for a long time without much success. What makes PETAN think it will make headway this time around?
The success of the gas monetisation drive will ultimately depend on private sector engagement powered by local content. Local companies can build gas infrastructure, create a viable market for gas, expand the market for technical services, pool resources and attract more investment into the industry.
This marriage of convenience you spoke about earlier, I remember the Nigerian government also tried something in that regard, but the marriages collapsed almost as soon as they were contracted. What makes you think they will work better this time around?
We are more optimistic because the current market situation has imposed a more pragmatic and realistic mindset in the industry. Apart from the large companies – Shell, Total, ExxonMobil, Chevron, NLNG and Nigerian companies with active involvement in the gas business such as Seplat and Seven Energy, marginal field operators and independent companies like NDPR and Xenergi have also been able to invest successfully in this area. To site an obvious example, the only new refinery built in Nigeria in the last 20 years, was built by NDPR, a Nigerian independent operator, not the government.
You also touched on gas to power, and over the years the more government struggled in this regard the less power we have seen. Besides, these gas gathering infrastructure don’t come cheap, how do you hope to maneuver this?
We prefer to focus on the bright side. The fact that electricity has not been readily available in the desired capacity needed to run industrial and manufacturing economy of the country means that Nigerians have found ingenious and creative ways around the challenge by primarily by generating their own power. You can only imagine what could happen when the power situation is turned around.
You said earlier that you expected the incoming government to have been in talks with the operators which is not yet happening, in the light of your expectations do you think you will get a listening ear from the government?
We believe we will get a listening ear because all stakeholders are working towards the same objective and we all desire the best for Nigeria and Nigerians.
The downturn that is affecting the industry, how do you think this will affect participation of Nigerians at the OTC?
You will agree with me that activity is down right across every sphere of the industry.
This is not the first time the industry is going through crises. Through every downturn, the industry has always emerged leaner and stronger and more innovative. Participation at the OTC is driven more by the quality of people who attend rather than the quantity.
Don’t you think this hard times will affect the number of participants to this year’s conference?
Definitely those who really don’t have anything serious to do at the OTC will not be attending the conference. However, we remain optimistic that the long term benefits of continuous engagement ultimately outweigh the short term impact of reduced budgets. This is a “cross” we have chosen to bear as an organisation and PETAN has remained consistent over the years, in good times and bad, proudly flying Nigeria’s flag.
Finally, in the light of the foregoing, what is your final word or advice going forward by way of overcoming these challenges?
My final word will be “collaboration”. The second is to be guided and conscious of our collective national interest. Local content is not another word for adding costs or creating “toll gates”. It represents building capacity from the ground-up to create jobs and grow our economy particularly during an industry down-turn. All stakeholders need to work together as an industry to get through this very difficult period. Our people say that tomorrow belongs to the people who prepare for it today.