Nigeria’s quest for oil in Northeast

Nigeria has been prospecting for oil wells in the country’s North East. Abiodun Adesanya, CEO, Dege Conek and president of the National Association Of Petroleum Explorationists, joined CNBC Africa’s Esther Awoniyi to discuss this.

Oil wasn’t discovered in the North Eastern part of the country. What has happened is that since 1984 there’ve been exploration efforts in North East Nigeria. To be particular we call it the Bornu or the Chad Basin area. They’ve been drilling wells. They’ve drilled about 23 wells in that region so far. About 2 of the 23 had some minor shows of gas and between 1995 and 1997 when then the deep water aspects of Nigeria were beginning to be developed some IOC companies namely, Chevron, Total and Shell were given certain blocks in the upper Benue trough. Each of those companies drilled one well each in their respective blocks. All together we’ve had about 26 wells to date. Out of the 23 that were drilled earlier, only those two gas shows were discovered, and out of the three that were drilled by the IOCs, the block given to Shell had a gas discovery, but the gas discovery is untested. It’s undimensioned, so we don’t know the exact reserve size of that gas discovery and the volume has not yet been certified. Therefore, the frontier exploration service of the NNPC is doing some work at the moment to acquire additional data.

You mentioned gas. You didn’t mention oil.
There’s been no crude oil discovered at this time.

But how come we have minister of state for petroleum on record talking about oil discovery there?
To be honest I wouldn’t know, but from the information I have and to the best of my knowledge, no crude oil has been discovered, just gas.

Is it in commercial quantities?
We haven’t been able to determine its commercial value yet because we need additional data to do so.

How long will it take because I know the president said in November that the NNPC should step up its efforts?
Well, they’re stepping it up and you know the oil and gas industry is not a day and night kind of operation. It takes a while for things to mature up to the point where you can say, “Yes, we have a commercial discovery of anything, either oil or gas.” And after that you begin to figure out exactly how you want to utilise that resource from that point.

Hypothetically speaking, let’s say they go on and there’s gas in commercial quantities. What would that mean?
It has a lot of ramifications economically. Obviously, gas is required at this point in time, and you mustn’t forget that the time some of these exploration efforts were undertaken, we weren’t looking seriously at the utilisation of gas. If you look at the fact that gas flaring has been the order of the day in several areas, and that has reduced significantly. We need the gas for power and all kinds of industries, including ammonia, for fertilisers, etc. The benefit of this would be the fact you wouldn’t have to lay down extensive long pipe lines to anywhere. You can just build your industry on top of the field, and then you would reap the benefits straight away.

Is there a clear frame work for how this would be managed if the gas is found in commercial quantities?
The framework to manage is there but the plan on how to utilise it may not have formed yet because we don’t have the volumes, we don’t have the commerciality. We have to basically run the numbers and the economics properly and then begin to build on that. So those are not in place yet.
Let’s move on to joint venture agreements. We know that according to the NNPC the funding of their cash core obligations in 2016 came to around $2.3 billion. Now the federal government has come up with a new Joint Venture regime. Tell us how that is going so far.

That initiative is meant to address two key issues. Number one is that it’s meant to address the backlog of the cash owed to these IOCs on joint venture funding. Secondly, it’s that it’s now meant to change the dynamics of exactly how projects are funded going forward. There won’t be cash call anymore, the joint venture is still in place but basically what it will do is that each project will have to compete for funding commercially. so you’re going to run the economics, you have a project, you put the packaging together, and together with the partners you go raise funding for it. That way the government is relieved of the burden of having to be the one to put the projects together.

Do you see that working in this environment?
Yes! It’s one of the best initiatives that has come up, and that’s the way it should have been done in the first instance. It removes a lot of the challenges that we’ve traditionally had. It removes the bureaucracy. It removes the lack of competitiveness. It removes all manner of shoddy practices that have characterised some of these things in the past. But, the beauty of it is that is that economics will drive. And when you raise money in that manner you don’t want to mess about with the money you raise, so you’ll be more serious more focused with the project that you have at hand and you’ll try to pay back the loan you’ve taken.

Will there be significant impact on our production levels and government revenues and investment?
It will definitely increase investment levels. It will increase revenue because there will be more efficiency in the system and if you look at the other part of what this is meant to cure which is the joint ventures arrears funding, what that specifically speaks to is that every one of the JV companies has a production quota and this is meant to incentivise them to do more, so for every extra bit of production they’re able to do, those extra funds go into paying back what is being owed to you in terms of JV funding arrears. That way, we will remove these challenges or the burden of JV funding.

There are challenges of course and I’m sure the particulars of how this deal will work are still being developed as we speak. The biggest challenge to it has to do with the fact that the base production of 2.2 million barrels per day that Nigeria is supposed to be producing is not quite achievable simply because of the problems we have with security or with the production infrastucture that we have. The other thing is that funding to government comes from four basic agreements. It comes from the JV funding, it comes from the PSE, it comes from the sole risk contract and it comes from the marginal fuel production. The JV is the largest contributor of funding to government. So there’s an absolute need to cure that problem once and for all as much as possible. And we can all see what the government effort has been in terms of pacifying and engaging with the people from the Niger Delta area to sustain production.

Well let’s hope that their efforts in that area continue. If you think about other similar countries like Angola on the African continent are they running similar arrangements? And is the JV system the best for Nigeria?
No. This is peculiar to us. The JV is one of the oldest arrangements around. It is the best in terms of the fact that it tends to give the Nigerian government the largest contribution in terms of revenue. If it works and it’s managed properly then it does this. The alternative is the PSE. The PSE is meant to relieve government of the need to have to put any cash up front in exploration and production. So whoever the investor is comes in and spends his money, and then recovers it. After recovery then there’s something to share going forward. That gives you delayed revenue, as opposed to something that could be quicker with the J.V.A.