New govt should prioritise in oil sector’s development, says Okwuosa
Emeka Okwuosa is the Managing Director/Chief Executive of Oilserv Limited. He was the Executive Secretary at Pipeline Professionals Association of Nigeria and Technical Manager at Schlumberger. In this interview with Roseline Okere, he spoke on the challenges in the petroleum industry and tasks before the new administration. Excerpts.
Nigeria has just sworn in another president. What is your advice for the new administration on how to move Nigeria’s oil and gas sector forward? I will advise the new government because I believe they are capable and that was the reason they received the support of Nigerians during the election.
The first assignment for the new government is to set up a very good team that understands the operations of the oil and gas industry.
A team that understands current problems in the oil and gas industry and how to ameliorate the problems. Next is to look at the Nigerian National Petroleum Corporation (NNPC) and be able to restructure, reinforce and make it workable in a way that it represents the current thinking in the industry.
An example is I see no reason NNPC as it is constituted today should be owing and managing refineries, petrochemical plants,. Even the issue of pipelines has to be restructured in terms of ownership.
There are quite a few aspects of NNPC today that are not fit for the purpose of transaction in terms of what the NNPC should be doing. This is because today, the world has advanced and it doesn’t make sense anymore to do certain things compared with 30 to 40 years ago. So, it is also very important to reinforce the NNPC.
Fuel subsidy should be completely discontinued with because all we need is to have an industry that works. If we have enough refinery capacity, which we had, we need to make sure that the capacity is put to use. Nigeria has enough refineries capacity today to refine what we require. If all the refineries are running, we will not be subsidizing. We only talk about the subsidy because we import the product. Why should we be importing product, so subsidy is a no-brainer, it has no place in any normal economy.
It must be organised to survive as a major player in Nigerian economy equation. If the NNPC today is not functioning, it will affect Nigerian economy.
So, NNPC is very important to Nigerian economy and it is my hope that the new administration will look deeply into the issues that will make NNPC to be more effective.
Of course, another issue is the ability to set up a sustainable oil and gas industry, where capacity will be built all the time in order to have more Nigerians participating in the oil and gas industry so that we can provide employment in a sustainable manner and create employment opportunities for several Nigerians to grow and continue to grow in the oil and gas industry.
What do you expect from the new government as regards the local contents development in the oil and gas sector? Oil and gas industry is a continuous industry, which is the bedrock of our economy.
We know that a new government is still a government made up of Nigerians and is meant for Nigerians, and is government that will also come and have the level of continuity in the management of oil and gas activities. We are optimistic entirely clearly that they will come with new innovations; they will come with possible better ways of doing things.
How would rate the performance of the local content policy on the capacity and perhaps technology as far as the industry is concern? Do not forget one thing that a company like Oilserve and the few of the company that are pioneer members of Petroleum Technology Association of Nigeria (PETAN), actually fought for local content to be established.
We paid the price by using our own resources with a good vision to ensure that local content is established.
The entire sense of local content law is to help build capacity continuously to the extent that the best expertise in technology will apply and it will continue to apply. It is a moving target, but as we built, and expand and we consolidate.
We create more opportunity. One thing I have to say is that it is absolutely wrong and unacceptable for us to practice local contents capacity building in a way that allows brief case companies to come in the name of local content development. I see that creeping in and I believe that this is time for the authority to look into that.
What we want the incoming government to do is purely to look and appreciate the fact that the governing law for petroleum product exploration and production addresses what the current and future situation in the country.
There is need to have a change, call it Petroleum Industry Bill (PIB), call it whatever you want to call it, it is overdue and there is a need to look at the best practice in the industry as far as international standards are concerned. PIB or any form of PIB will be a welcome situation relating to what we commonly have but make no mistake; there is a need to review whatever we have today. It has to be well look into so that we don’t have a law that will set us backward in terms of building capacity for industries.
What is your take on fuel subsidy in the country? I am not going to even spend time on this with all due respect. Why should I say that fuel subsidy should continue to be in Nigeria? It does not make sense and it will never make sense. Fuel subsidy should be completely discontinued with because all we need is to have an industry that works.
If we have enough refinery capacity, which we had, we need to make sure that the capacity is put to use. Nigeria has enough refineries capacity today to refine what we require. If all the refineries are running, we will not be subsidizing.
We only talk about the subsidy because we import the product. Why should we be importing product, so subsidy is a no-brainer, it has no place in any normal economy. Do you subscribe to the argument that because the PIB is too large it should now be broken down? The way the PIB is structured today is not a matter of whether it should be broken into 20. What is important is the content of it.
Now the content should be addressed or should be addressing tickle issues, legal issues and other issues that concern oil and gas industry and the content does not have to be thinking of the short terms situation of the low oil price.
The first assignment for the new government is to set up a very good team that understands the operations of the oil and gas industry. A team that understands current problems in the oil and gas industry and how to ameliorate the problems. Next is to look at the Nigerian National Petroleum Corporation (NNPC) and be able to restructure, reinforce and make it workable in a way that it represents the current thinking in the industry.
The low oil price we have today is a usual thing. Secondly, whether we have a low oil price regime, don’t forget that the oil price today is above $50. Do not forget that in 1996 oil price went to $9 a barrel and we still existed as a country. It is not the first time and this is not even the worse. What is important is the effective management of our resources. So, you plan for when the price is low, when you have high price, prepare for low price.
What is the impact of PIB and absence of bid round on the aggressive growth plans of Oilserv? The PIB and bid round are two different things.
Bid round is a prerogative of Nigerian government through the agencies charged with the responsibility of conducting licensing round. When it is organised anytime, Oilserv will definitely participate. But you know government is changing in a couple of weeks and when it happens, the new government may have different plans.
For us in the industry, we work with any government, our stake is usually to keep building capacity and create employment opportunities and develop business irrespective of any government in power. But every government when they take over, they try to create employment, but we cannot forecast ahead of time.
In the past four years, I have been talking about PIB and the failure to pass the PIB is an impediment to the growth of the Nigerian oil and gas industry because the laws governing E&P and downstream activities are outdated and not fit for the purpose of today’s business.
There is a need to review them. The PIB is quite a massive shift. There are some aspects of PIB that the government is expected to review to ensure that it will attract investment from stakeholders in the the oil and gas industry.
The bottom line is such that the PIB should be promulgated in a way that it will balance the interest of investors whether IOCs, independents or National Oil companies on one hand.
It must also meet government’s expectation and needs on the other hand. It must equally meet the interest of the service companies by covering issues pertaining to oil communities in areas where we have E&P activities. It has to address all these interests holistically in a way that it is acceptable and it will be sustained over the next decade or two before we will have to look at the laws again.
Hence, it is important that the PIB should be promulgated in a way that it will help the industry grow.
Some indigenous contractors have complained that the IOCs are calling for review of their existing contracts due to the fall in oil prices.
What is the effect of the low oil prices on indigenous companies in Nigeria? Again, I will answer generally. What I said before has not change. We need a proper management of our natural resources.
If the price of oil goes up, will the contractors be expecting the IOCs to review the contract in their favour? The only thing oil company could done is to rationalise and say they may want to short down contracts because it doesn’t make sense for some of the contracts to exist, and they pay for the cancellation of contract. But contract rate and terms should be maintained as far as pricing is concerned.
Do you think that Nigeria can be regarded as a gas nation? Not yet, but I believe what is going on today and the capacity built in our gas sector of oil and gas industries Nigeria, we will eventually become a gas nation.
For us to talk of capacity in gas, you know that there is peculiarity of gas and that peculiarity is that you cannot store gas like you can store oil, you will always match the production with the off take.
You have to put in place transposition system in form of pipeline, in term of factual pipeline, to utilization system.
You have to match all those to be able to drive the development of gas and gas is capital intensive as far as development is concerned and it also a long term project. You do not start gas development and finish all the processes in five to ten years. No, it will take you five to ten years to get to building up a field, been able to produce.
But before you start production of gas you already would have worked on the mainstream and downstream issue if you do not do that, you will have to flare the gas produced because you can’t keep it.
So the point am making here is a process but we already investing. Nigeria government is doing a lot, but they still have to do some more in encouraging the investment and the fiscal system that will encourage investment. You know very clearly that today; there is a Nigerian gas master plan that has been set up.
I believe that we will have to go to the extent of making it a policy document by gazetting it, so that it becomes a socialize situation. Gas master plan was to address the issue of production of gas to the processing by having some central possessing facility with the transportation through pipelines and then to even having smaller pipelines beyond the transportation line .
As of today, not much of that has been implemented. But the NNPC thinks that gas prices issue can’t be solved with willing buyer, willing seller.
What is your take on this? Is part of the utilization of price? We need to have a willing buyer and willing sellers, but at the end of the day, there is need for a regulator. You require a lot of fund to invest in gas.
It is a huge investment and if you don’t regulate it, it will stick to one side of the other, which will eventually create what you have that is not optimal. A regulatory system, like national electricity regulatory commission are involve in it.
You have to look at the entities at the end of it all, if you don’t get willing seller, willing buyer equilibrium, then is not going to work because when the price is not high enough for the seller to sell, is not going to sell. Also, when the price is too high for the buyer to buy, the seller will not be able to sell.
How do we as a country solve the issue of low capacity utilization of the nation’s refineries? For me really, we have the refinery already at various levels of readiness and maintenance situations. What we need is to go back and review these refineries and realise that it is not entirely right for government or government entity to run a system like a refinery.
If we have private entities taking up refineries, the refineries will begin to produce to capacity. Example is the Eleme Petrochemical, which was taken over about 15 years ago. Remember that before selling Eleme, it was at a time shut down entirely because of one story or the other.
Since privatisation took place and it was purchased by private entities, they have increase capacity by more than 200 per cent and they are still building more capacity today. What is your company’s operational profile?
You are right to say that my company has come of age, the fact is that the bedrock of our business and activities still remains Engineering Procurement and Construction (EPC) of pipelines and facilities for oil and gas covering offshore, swamp and land.
For the offshore that we enter recently, we have set up a system to run the offshore pipeline facilities installation that covers shallow to deepwater.
In addition, we have expanded into gas delivery. By this, the first thing is owing the molecules and delivering the molecules. It means we are taking positions in gas asset and at the same time we are growing our capability in the EPC of pipelines.
But we are also working on what we called virtual pipeline methods. This covers from CNG to mini LNG to micro LNG to main LNG.
The whole idea of this virtual pipeline methods is to be able to deliver gas to places and uses for which it doesn’t make economic sense to run pipeline maybe for small power plants over long distances.
We have also diversified into exploration and production (E&P). In terms of exploration, we are taking position with the ownership of an asset in Benin Republic. We are also bidding for other exploration assets.
In the area of production, we have invested in some assets in Nigeria. And for some of the assets divested by Shell in Nigeria, we have strategically acquired stakes in some of them as partner and not as operator. It depends on the economic of the asset, if it makes economics sense to become an operator.
What is important for Oilserv is to work according to plans for the short, medium and long term plans.
As professionals, we invest in business, plans and develop strategies that match a long term plan backed entirely by strong technical basis.
The board and management of Oilserv are professionals and not traders that jump into the industry for the sake of jumping into the industry.