As the novel coronavirus outbreak continues to trigger a drop in global crude oil demand and prices, experts say effective cost maximization and government support is key in helping businesses in the sector survive the negative impact of the virus.
The experts who spoke during a webinar on ‘Strategies to Navigate the Oil and Gas Business Through the Global Pandemic’ urge businesses in the sector to seek effective ways to maximise their cost of production.
Ainojie Elex Irune, chief operating officer of Oando Energy Resources, said that oil producers have to look for an efficient way to maximise their cost of production.
Irune also called on the government to assist local oil and gas producers sustainably during this process.
“The recent OPEC, OPEC+ production cuts of about 10 million barrel is a historic one in the oil and gas industry. For us in Nigeria, it is about 22percent of over 2 million barrel per day production,” he said.
“The Nigerian Government has been very aggressive to bring down the cost. And, it is the first time we are seeing this kind of movement,” he further said.
“But, the Petroleum Industry Fiscal Bill will be very useful this period as it speaks very much in a situation like this. I would urge the Federal Government to take a closer look at this for the passage of the Bill,” Irune added.
Speaking also, Ade Adeola, managing director – energy &natural resources of Standard Chartered Bank, noted that the oil and gas industry is a huge catalyst due to the number of players in the industry.
According to him, COVID-19 induced CAPEX cut which resulted in key projects that had been delayed and countries like Cameroon, Nigeria, Ghana, and Senegal have put on hold some of their deepwater projects, while some are been reviewed, optimized and cancelled.
“We do not expect to see additional project been sanctioned. Capital will flow to where it gets is best value and investors require variables that they can manage and control,” Adeola said.
“We have seen the efforts of the Federal Government regarding the PIGB as they are working on passing the Bill to address specific challenges and to move the industry forward,” he added.
Speaking further, he stressed that during the 2014 oil price downturn, the most important lesson that was learned during that period is hedging commodity.
He advised producers to consider new cost consolidation structures, noting that IOCs in Nigeria have historically found opportunities to collaborate on cost reduction.
He explained that industry players need to work together on collaborative measures to provide advocacy to policymakers putting forward a clear part of how to reduce the overall cost budgets and how to optimize value in the industry more efficiently.
“We need to rapidly implement the PIGB as this will help in situations like this,” he said
In his forecast for 2020 – 2021, he noted that there will challenges in the industry due to the oil price been lower plus production cuts.
Oluwatoyin Aina, group head energy, downstream & international oil trading, First Bank of Nigeria, said: “Aside from reducing cost in this current market situation, indigenous producers are beginning to do the valuation of the asset they want to buy and are very conservative so that they don’t run into stunning waters based on their past experiences.”
She said the financiers have a very important role to play to curtail the pricing and bidding of assets to ensure they maintain their budget for loans.
During her speech, Seyi Bella, partner of Banwo and Ighodalo, said dealing with Force Majeure during this period has become a challenge.
“Force majeure isn’t something that can be waved whenever you want to suspend the performance of contracts,” she said.
