• Thursday, April 18, 2024
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Why NNPC should monetise its holdings in oil and gas assets, by Fajemisin


Adeboye Fajemisin is the co-founder and chief executive of Energy Production and Infrastructure Company Limited (EPIC), who recently had an interactive session with select journalists where he shared insights on the ongoing divestments in the oil and gas sector, which he sees as an opportunity to encourage local participation in Nigeria’s leading wealth creation industry. To achieve this, the Nigerian National Petroleum Company (NNPC) should monetise some of its current holdings in the oil and gas assets to unlock the residual values and increase investments in the basin. He spoke on other issues such as energy transition and the role of EPIC in that sub-sector. PIUS Dukor brings the excerpt:

How would you describe the Nigerian oil and gas sector?

The Nigerian basin is world class and well known for its oil abundance; it boasts of some of the largest gas reserves globally. One certainty about the Nigerian oil and gas sector is that the sub-surface is almost certain; there is a chance that if you drilled a hole anywhere in the basin, you would produce oil.

Do you think Nigeria is ready for transition to gas?

Energy transition is inevitable, it is a challenge that everyone can’t shy away from. There are justifiable mounting pressures from every corner for us to find sustainable and equitable ways to power our developments as a nation. We recognise the place of gas in the energy transition, and its position as the transition fuel, and there has been a lot of focus by the Nigerian government to harness and utilise its vast gas resources. It is evident with the creation of a separate ministry for gas, with a Minister empowered to oversee the maturation of our gas potential. The simple answer to your question is that we all recognise that it is inevitable, and we have seen several efforts towards positioning the country to better harness and utilise its gas resources. Another of such effort includes the determination by the regulatory body to make upstream non-associated gas resource exploration and production attractive to investors via policies.

Read also: NNPC woos South Korean investors for gas projects

A few weeks ago, Shell announced the sale of its shares in the SPDC JV, what benefits, lessons or importance are there to learn or know in the action and transaction?

As I mentioned earlier, these divestments are a welcomed development for various reasons. I am particularly delighted about this announcement because it further cements the current administration’s openness to doing business and protecting investors’ choices.

It is also evident that the divestment and the selection of the final acquirer have been done in a systematic way bearing in mind the need for continued operational integrity and investments in the underlying assets. I am excited about the deal structure, and the caliber of companies and individuals leading the consortium that emerged as the preferred acquirer.

I was privileged to comment on this topic a few years ago when the initial divestment announcements were made, I had mentioned at the time the need to come up with an optimal deal structure that creates a win-win scenario for all parties. I am confident this has set us on the path of recording excellence among our indigenous operating and non-operating industry stakeholders.

What are the implications of the divestments in the Nigeria’s upstream oil and gas sector?

I think it is a welcomed development for a number of reasons. I have been a proponent of local participation in Nigeria’s resource maturation largely because nobody can be as passionate about our economic prosperity as much as we are, and when we don’t encourage local participation in one of our prominent wealth creation industries, we are likely going to continue suffering from capital flight.

On the flip side, the divestments also encourage the foreign investors and large international oil companies (IOCs) who have contributed significantly to the growth of our oil and gas industry over the decades to now focus on exploring new frontiers like deep and ultra-deep water developments, and other unconventional plays, while indigenous companies build on the legacies in onshore and shallow water plays.

Deepwater development will unlock a great fortune for the nation as we have seen with the Eginas and Bongas of this world, however they require such deep pocket and technical expertise that may be said to be residual with the large international oil companies.

What unique challenge does EPIC intend to solve in the oil and gas space?

Energy Production and Infrastructure Co (EPIC) is committed to driving towards energy independence across Africa and Nigeria in particular. EPIC is committed to meeting energy demands within a net-zero dispensation.

Our long-term strategy is to develop energy infrastructure in a sustainable manner in partnership with local communities and complementing the goals and aspiration of the Federal Government of Nigeria with regards to energy security.

The African demography is characterised by a youthful, growing and increasingly urban population, with emerging middle class. Energy demand is therefore expected to increase steadily over the long term. While we are cognisant of the need for a transition, we are also of the opinion that we would continue to need oil for some time and gas for a much longer time. That said, there is a place for developing and producing these resources responsibly with as low carbon footprint as possible.

Our intention is to drive gas utilisation by leveraging our oil revenue to create minimum infrastructure to seed local demand of gas to power, gas to industries, gas to utilities including LPG and CNG.

What roles will EPIC play in the energy transition in Nigeria and Africa?

EPIC is strategically positioned to deploy the much-needed technology and investments across brown field and green field assets within its portfolio to help unlock the required resources to develop Nigeria’s upstream gas sustainably and efficiently. Our goals are aligned with that of Nigeria, and our intention is to seed a large gas and infrastructure business that not only guarantees domestic utilisation of gas, but also cement Nigeria’s place as a world class gas producer, sustainably exploiting its vast upstream gas resource.

We have dedicated a good portion of our resources to working up the basin, identifying the opportunities for gas aggregation, and developing development scenarios that systematically iterate towards a zero-carbon emission play. We have a zero-gas flaring policy, and our plan is to utilise as much of the associated gas we can use in the production process, while sequestering the rest until we have a minimum gas infrastructure to process and export the gas for use.

In Nigeria, there’s usually high cost of fuel and sustained fear of price increment, there is also scarcity, how can the government address these challenges?

Nigeria has been heavily reliant on imported refined petroleum products, which means as a nation we are not able to maximise our foreign exchange revenue potential. The price of petroleum product is driven internationally coupled with the cost premiums of logistics, import duties, and foreign exchange volatility; these are some of the many factors reflected in the pricing at the pumps, especially in an era where subsidy is announced to have been phased out. That said, we have seen intensified efforts from the NNPC and the Federal Government to ensure that we are able to meet local demands through our refineries imminently, hence, we may be able to save some of the cost premiums thereby resulting in improved availability and lower prices.

Overall, I am not a fan of leaving the government to solve all our problems, the government should be an enabler, and I think with policies geared at encouraging investments in the energy sector, we can very quickly overcome some of the major challenges we suffer today across the energy sector. At EPIC, our goal is to drive towards energy independence and sufficiency in Nigeria.

There has always been the call that Nigeria should diversify into other income-generating resources; will this in anyway affect the growth and development of the oil and gas industry in the future?

Globally, energy plays a very vital role in industrialisation, and oil and gas remains a very dominant part of the energy mix. While the call for diversification is always prudent, I believe there are many low hanging fruits that we can harvest to leapfrog our development and the availability of required finances to scale other sectors of the economy including agriculture, technology and services. Nigeria is gas rich, and the basin remains one of the most viable in the world, with improved regulatory environment, technology transfer, and local participation, we can leverage the oil and gas industry to seed the pathway to economic diversification.

This administration is less than a year old. As a stakeholder in the industry, what advice do you have for the government and other stakeholders on how to make progress and meaningful improvement in the sector?

I must admit that this administration has demonstrated the will to identify success across all economic metrics, and this is very good for business and national prosperity. Like I mentioned earlier, the resolution of divestment challenges faced by some of the major international oil companies and the manner with which the regulators have remained relevant to providing an enabling environment to ensure these transactions are closed efficiently is a testament to the direction of travel by this administration.

We are a nation of abundance, and I am confident that Nigeria can rival Saudi Arabia, Norway and other similar basins in terms of oil and gas production resulting in energy security. We need to increase efficiency to stabilise current production and invest towards realising further upsides. My advice for the regulators would be in areas of production cost premiums and policies that support investments.

Today, NNPC is the largest producer in the country, followed by the IOCs; I would like to see a scenario where the indigenous producers are also ramping up their reserves size and production targets. I believe the NNPC should monetise some of its current holdings in various oil and gas assets to unlock the residual values for the prosperity of the nation, and to gear towards incremental investments in the basin.