Failure by the Federal Government to take remedial measures to arrest fast declining rate of her oil reserve base, which stakeholders say has dropped to 28.2 billion barrels from 36 billion in the last few years, could lead to crisis in an economy struggling to cope with sliding oil prices and currency restrictions.
Investors are said to be losing faith in the country that is still toying with the passage of the Petroleum Industry Bill (PIB), which is expected to unlock potentials in the oil and gas industry with the attendant investments by foreign oil companies.
President Muhammadu Buhari has continued to back foreign-currency controls that have led to an overvalued naira, restricted imports and curbed economic growth in Africa’s biggest oil producer.
Stakeholders are of the opinion that the future of the oil business in Nigeria looks gloomy, adding that except something urgent is done, the economy may be heading for a major crisis.
Consequently, they say that for the country to have a reasonable level of reserve addition, government must encourage companies that are willing to go into exploration activities with bonuses
Tony Chukwueke, former director of Department of Petroleum Resources (DPR) who was one of the speakers at the just concluded conference of the Nigerian Association of Petroleum Explorationists (NAPE), attributed the declining in the reserve base to a number of regulatory challenges that had not encouraged private sector investment in the exploration and production processes.
Chukwueke listed such challenges to include, the inability of the government to fund its share of the joint venture budgets with the international oil companies (IOCs) and therefore preference of the IOCs for deep offshore production sharing contracts (PSC).
The reduced exploration efforts in the deepwater and Niger Delta, which has resulted in less aggressive pursuits of deep exploration arising from immature fiscal treatment of gas, hang over of oil and gas over the delayed PIB, among others, tend to compound the effects of the low oil prices of the last few years.
Osagie Okunbor, managing director, Shell Petroleum Development Company (SPDC), believes that there must be an aggressive framework for reserve addition to replace what is being produced, adding that for the reserves to be increased there is need for incentive from the government so that oil companies would be encouraged to go intro exploration activities that would help boost the country’s crude oil production.
There is also a need to free up funding for the system to operate, Okunbor said, stressing that against the backdrop of the low oil prices slash, capital investment in the industry has tended to come down across the globe with over $200 billion worth of projects being deferred due to the development.
If the country does not look for imaginative way of investing during this low revenue regime, her ability to fund exploration and replenish produced reserve will be in jeopardy, he said.
Apart from the global crisis in the sector, there are the needs for better security in the oil and gas sector, a more effective counter strategy against oil theft and sabotage, better joint venture funding for capital projects while pending payment and arrears should be cleared, he further said.
Oil companies are looking forward to Nigeria with expectations of more predictability around leases, regulations so as to attract investments, according to him.
However, Shell is aware of these challenges as well as mapping out strategies for survival, he noted, but the oil giant is not leaving the country but, would rather consolidate its onshore prints while enhancing its investment in other growth areas, particularly in deepwater and the gas value chain.
Also, Ibe Kachikwu, minister of state for petroleum resources, while assuring investors, said the government would take the necessary steps to redress the decline in the reserve, adding that sourcing funds to boost the nation’s reserve was a priority in low revenue environment where everybody was seeing a near financing crisis.
According to him, operational optimisation is more critical in the current environment than ever before to deliver capital projects on time and on budget, as the government will like to see the fiscal terms of the PSC and concessions reflect the current issue of facing the industry today.
Olusola Bello
