Indigenous participation critical to oil, gas industry growth

Two of the issues that dominated the just concluded oil and gas conference and exhibition held in Abuja recently were those of funding the sector and how indigenous oil companies could help build up the nation’s production reserve.

In this write up, OLUSOLA BELLO, energy editor, tries to capture the view of the various panelists at one of the session with topics titled “Overcoming Challenges & Supporting the Growth of Independent, Indigenous Producers & Service produces.”

The panel of discussants on the issue was led by Scott Aitken, the Co-CEO of Atlantic Energy.

Scott Aitken, a veteran in the Nigerian oil and gas sector, said that there are yet untapped potentials that indigenous companies can take advantage of, to push up the country’s production in both the oil and gas sector.

According to him, the indigenous players will not only boost production, but they can also provide the much needed gas to boost power generation. He said for a nation that wants to develop it economy, it must pay more attention to the activities of indigenous oil producers by providing them with enabling environment to operate.

The Altantic Energy boss was of the view that the role of indigenous producers cannot be overemphasised in the nation’s development, and therefore stated that there are Nigerian solutions to every challenge that faces the nation.

Citing the example of gas flared or compressed as LNG for export as possible areas where indigenous potentials could be harnessed, he said that as indigenous producers, they needed to capture the gas, transport it safely and economically to the domestic market for highly effective and reliable power.

He stated at the conference that some of the problems facing independent producers are old infrastructure, community-stakeholder relationship and expectations, multiple partners and a new model. After enumerating these problems, he went ahead to proffer possible solutions that could help to further boost the production capacities of the indigenous producers.

Part of the solutions he proffered included detailed evaluation and phased infrastructure replacement/upgrade; terrain based asset management; community engagement and updated needs assessment; project prioritisation and clear centralised management structures. Others are strong relationships; fact-track solutions to deliver early results to further fund development, among others.

On the issue of funding which is one of the major problems facing the industry, Aiken was of the view that fast-tracking solutions to deliver early results will further help provide the funds required for development, thereby reducing the over-reliance on bank loans.

In his contribution, one of the panelists, Herbert Wigwe, managing director of Access Bank plc, explained that local financial support for independent oil producers and indigenous services companies has improved significantly over the last 15 years. It has also helped that banks, which are now stronger, come with increased capacity and willingness to fund oil and gas projects up to the tune of $150m.

“Supporting independents in the oil and gas sector is different from other sectors. A lot of technical evaluations have to precede any relationship. Then you have to study the nature of infrastructure available, expected revenue, impact of taxation on expected cashflow, etc before a final decision is taken to provide funding,” he explained.

He highlighted governance structure supporting the business, financial discipline and accountability as major issues in dealing with independent companies, adding that “governance structure supporting the business has been a major issue over times especially as there no physical structures available to serve as collateral for some types of transactions.”

George Osahon, director of the Department of Petroleum Resources (DPR), urged the operators to find better ways of funding their productions if the industry must grow. He decried the situation in which attention is being shifted from Nigeria to East Africa.

Defending the alliance entered into between Atlantic Energy and Nigeria Petroleum Development Company (NPDC), Dayo Okusami, group general counsel and executive director of Atlantic Energy, said the nature of the Strategic Alliance Agreement, (SAA), was to serve as a platform to provide alternative funding arrangement for the NPDC to meet its cash call obligations whilst developing technical competence.

“Atlantic Energy basically just offers a risk management service also referred to as SAA in which it fulfils the cash-call obligation and offers technical expertise in exploration and production to help NPDC achieve its production goal on OMLs 26, 30, 34, 42,” Okusami said.

Today, Atlantic Energy has invested over $600 million in NPDC assets in two years of operation. As a result of this partnership, NPDC is currently the 5th largest oil producer in Nigeria and major gas supplier to the domestic market, and has set the NNPC to meet its production target of 250,000bpd by 2015.

Okusami, also said that Atlantic Energy has in furtherance of the SAAs, invested in such key projects as the replacement and upgrade of the Utorogu Gas Plant to a 360 million standard cubic feet per day facility.

Utorogu Gas Plant is the largest gas supply facility for the Escravos-Lagos pipeline system which distributes gas feedstock to power plants in South East Nigeria. This corroborates the position of his principal, Scott Aiken, who argued that “gas supply to domestic market will help achieve reliable power supply in Nigeria in the near future during his presentation on the second day of NOG.

The SAAs have arrested production declines in the underdeveloped fields comprised in the relevant OMLs, thereby optimising production activities and infrastructure improvements initiated by NPDC and Atlantic Energy, thus resulting in increased production year-to-year.

Furthermore, on account of Atlantic Energy’s contributions, he said NPDC has recorded significant step-change progress in understanding the subsurface reservoirs and surface facilities in the areas comprised in the OMLs, thus resulting in a 200 percent increase in certified reserves and the generation of 200 million barrels of crude oil of new field development plans.

Going down memory lane between 2011 and 2012, some International Oil Companies (IOCs), divested their interests in some marginal oil fields in Nigeria. The NNPC exercised its rights under the Joint Venture Agreement, JVAs, to operate the Oil Mining Leases (OMLs). The NNPC proceeded to transfer 55% of these shares to the NPDC.

In 2001, prior to recent developments, the NPDC signed a Strategic Alliance Agreement (SAA), with AGIP/ENI, a Europe-based IOC. In 2004, it signed another SAA with SINOPEC, an Asia-based IOC. As recently as 2013, it signed another SAA with PETROFAC.