09-23-2017, 08:23 AM
Meka Olowola is the Managing Partner of Zenera Consulting. A branding and communications advisory firm with a Nigerian’s foremost Energy practice with two offices in Nigeria and one in London.
Meka has served Nigeria as a Member of the Special Subcommittee on Nigeria’s Hosting of the World Economic Forum on Africa in 2014.
Meka Olowola
He also doubles as the Chairman of the BuzzzDigital, a digital marketing advisory firm based in Lagos.
With over 20 years’ cross-functional experience in communications straddling Public Relations, Banking as well as Oil and Gas, he is a much sought-after communications expert.
Born in Kogi State, Meka had his secondary education at the Federal Government College, Ogbomosho, Oyo State.The Ahmadu Bello University Graduate of Physiology has to his credit a Change Management Certificate from the Colorado State University, USA. Olowola is a major exponent of sustainability in Africa.
He belongs to several regulatory bodies such as the Nigerian Institute of Public Relations, Advertising Practitioners Council of Nigeria, Nigerian Institute of Management, Certified Marketing Communications Institute of Nigeria, National Institute of Marketing, Nigeria and Chartered Institute of Public Relations, UK. Just as he is also on the Board of the Nigeria Zimbabwe
As an oil and gas expert, he identifies and advises on critical improvements for corporates and governments, and organises the Sustainability in the Extractive Industries (SITEI) Series currently in its 6th year. In this chat, he critically analyses the Oil and Gas industry in Nigeria. Excerpts:
Nigeria’s oil sector is in turmoil. What, in your opinion, could be responsible?
Needless to say, there’s been a crash in global oil prices and the ripple effect is mostly responsible for this seeming turmoil.
Then again, over the last few months, the spate of pipeline bombings has increased and currently costs Nigeria about 1.3 billion barrels of crude oil daily. The resultant shutdowns and shut-ins are of course affecting oil revenue. Recently, Minister of State for Petroleum Resources Ibe Kachikwu disclosed that since January, 1600 cases of pipeline vandalism had been recorded.
Nigeria needs to ramp up daily production by 1.1 million barrels per day to close the gap. Crude oil exports account for about 70 per cent of Nigeria’s revenue and 90 per cent of her foreign exchange earnings. So if pipeline vandalism persists, you can imagine how much impact this would have on the industry and economy.The dilapidated state of our refineries is also a major factor. Despite the huge capital investment to turn them around, no significant improvement has been recorded. The past administration shopped for a $1.6 billion loan to revamp these same four refineries, all to no avail.
This administration seems to be toeing the turnaround path as well. Note that these refineries have seldom been known to function near full capacity, and more money has been spent turning them around compared to their output over the years.
Please explain the JV and PSC options in Oil and Gas industry in Nigeria ?
In existing Joint Venture (JV) arrangements between the NNPC and the International Oil Companies (IOC’s)s, NNPC contributes about 55 per cent of the funding requirement, while the IOC’s make up the outstanding 45 per cent.
Contrastively, the Production Sharing Contract (PSC) is solely funded by the IOC’s, even though the NNPC can participate in the venture as a working interest owner. However, both arrangements come with their setbacks.
The government is leery of JV arrangements due to funding constraints. As you well know, the NNPC has been unable to meet up with its cash call obligations under the JV arrangement due to cash inflow challenges occasioned by the drop in global oil prices and related factors.The result is accumulated cash-call arrears to the tune of about $7 billion at the last count. Naturally, the IOC’s are hedging their bets. They have resorted to selling their JV stakes to local entities. So this option may not be viable.
The PSC arrangement looks like a much better bet since the government is under no funding obligation. Under this arrangement, IOC’s are not refunded their exploration cost or paid royalty if oil is not found in commercial quantities in the course of such projects.
However, this doesn’t look good for national growth. Currently, the number of PSC projects solely funded by the IOC’s is on the increase. Nigeria could do a lot better for itself as one of the largest economies in Africa. I’m sure the government is looking for a win-win, which explains Kachikwu’s proposed Accelerated Upstream Funding model.
How has IOC’s diversification affected the industry?
I would say it is a blessing in disguise. The divestments that we’ve seen have been to indigenous players. So the likes of Aiteo, Oando, Seplat, Nestoil, First Hydrocarbons, Shoreline, Eroton, Amni etc of Nigeria are the winners. And because they are indigenous, they are less likely to have capital flight.
Rather, they are more likely to have indigenous contractors and Nigerians working on those assets.
Lastly and perhaps more importantly, community relations will be at the forefront of local operators. So Nigeria stands to gain in multiple folds from manpower development to reduction in unemployment and other corollary benefits.
Apart from crashing oil price that has prompted cut in field development, IOC’s over time have not made substantial investment, what is responsible for this?
The uncertainty in the market caused by the delayed-passage of the PIB has a major influence on this state of affairs. That notwithstanding, we cannot discount the security situation in the Niger Delta region. IOC’s operating in the Niger Delta region would naturally be wary of making sustainable investments in such an uncertain environment.The surge in oil pipeline vandalism was so high that it had made Nigeria temporarily cede its position to Angola as Africa’s top crude oil producer. This is obviously the result of having about 380,000 barrels of crude oil per day shut-in due to vandalism of the 48-inch sub-sea export line in February this year.
Then again, I’m sure the investment climate has not been favourable for the IOC’s. The NNPC has been unable to honour its cash calls in Joint Venture agreements. As a result, most IOC’s are selling their stakes in JVs to local entities.
What by your estimation is Nigeria losing from IOC’s lack of sustainable investment?
The Nigerian Extractive Industries Transparency Initiative (NEITI) recently disclosed that Nigeria has lost about $200 billion as a result of the non-passage of the PIB.
If you add the lost arbitrage of high oil prices put at $10 billion, when we should have seen significant investments in the industry due to oil prices hovering over $100 bpd, I will put the aggregate loss at $210 billion at the minimum.
If the trend continues, it will not bode well for the oil and gas industry and Nigeria, by extension. Let’s not forget that today, Nigeria’s crude oil exports are sustained by oil production from deep offshore fields such as Shell’s Bonga, ExxonMobil’s Erha and Total’s Akpo and Usan, among others. If these reserves are not replenished, then we are going to face serious issues in the nest 20 years.
Can you suggest ways the Corporation could properly restructure that it will operate like its contemporaries?
I think strict adherence to the provisions of the proposed Petroleum Industry Governance Bill would be the best bet to reposition the NNPC for effectiveness. Besides, technological innovation is key.
Meka has served Nigeria as a Member of the Special Subcommittee on Nigeria’s Hosting of the World Economic Forum on Africa in 2014.
Meka Olowola
He also doubles as the Chairman of the BuzzzDigital, a digital marketing advisory firm based in Lagos.
With over 20 years’ cross-functional experience in communications straddling Public Relations, Banking as well as Oil and Gas, he is a much sought-after communications expert.
Born in Kogi State, Meka had his secondary education at the Federal Government College, Ogbomosho, Oyo State.The Ahmadu Bello University Graduate of Physiology has to his credit a Change Management Certificate from the Colorado State University, USA. Olowola is a major exponent of sustainability in Africa.
He belongs to several regulatory bodies such as the Nigerian Institute of Public Relations, Advertising Practitioners Council of Nigeria, Nigerian Institute of Management, Certified Marketing Communications Institute of Nigeria, National Institute of Marketing, Nigeria and Chartered Institute of Public Relations, UK. Just as he is also on the Board of the Nigeria Zimbabwe
As an oil and gas expert, he identifies and advises on critical improvements for corporates and governments, and organises the Sustainability in the Extractive Industries (SITEI) Series currently in its 6th year. In this chat, he critically analyses the Oil and Gas industry in Nigeria. Excerpts:
Nigeria’s oil sector is in turmoil. What, in your opinion, could be responsible?
Needless to say, there’s been a crash in global oil prices and the ripple effect is mostly responsible for this seeming turmoil.
Then again, over the last few months, the spate of pipeline bombings has increased and currently costs Nigeria about 1.3 billion barrels of crude oil daily. The resultant shutdowns and shut-ins are of course affecting oil revenue. Recently, Minister of State for Petroleum Resources Ibe Kachikwu disclosed that since January, 1600 cases of pipeline vandalism had been recorded.
Nigeria needs to ramp up daily production by 1.1 million barrels per day to close the gap. Crude oil exports account for about 70 per cent of Nigeria’s revenue and 90 per cent of her foreign exchange earnings. So if pipeline vandalism persists, you can imagine how much impact this would have on the industry and economy.The dilapidated state of our refineries is also a major factor. Despite the huge capital investment to turn them around, no significant improvement has been recorded. The past administration shopped for a $1.6 billion loan to revamp these same four refineries, all to no avail.
This administration seems to be toeing the turnaround path as well. Note that these refineries have seldom been known to function near full capacity, and more money has been spent turning them around compared to their output over the years.
Please explain the JV and PSC options in Oil and Gas industry in Nigeria ?
In existing Joint Venture (JV) arrangements between the NNPC and the International Oil Companies (IOC’s)s, NNPC contributes about 55 per cent of the funding requirement, while the IOC’s make up the outstanding 45 per cent.
Contrastively, the Production Sharing Contract (PSC) is solely funded by the IOC’s, even though the NNPC can participate in the venture as a working interest owner. However, both arrangements come with their setbacks.
The government is leery of JV arrangements due to funding constraints. As you well know, the NNPC has been unable to meet up with its cash call obligations under the JV arrangement due to cash inflow challenges occasioned by the drop in global oil prices and related factors.The result is accumulated cash-call arrears to the tune of about $7 billion at the last count. Naturally, the IOC’s are hedging their bets. They have resorted to selling their JV stakes to local entities. So this option may not be viable.
The PSC arrangement looks like a much better bet since the government is under no funding obligation. Under this arrangement, IOC’s are not refunded their exploration cost or paid royalty if oil is not found in commercial quantities in the course of such projects.
However, this doesn’t look good for national growth. Currently, the number of PSC projects solely funded by the IOC’s is on the increase. Nigeria could do a lot better for itself as one of the largest economies in Africa. I’m sure the government is looking for a win-win, which explains Kachikwu’s proposed Accelerated Upstream Funding model.
How has IOC’s diversification affected the industry?
I would say it is a blessing in disguise. The divestments that we’ve seen have been to indigenous players. So the likes of Aiteo, Oando, Seplat, Nestoil, First Hydrocarbons, Shoreline, Eroton, Amni etc of Nigeria are the winners. And because they are indigenous, they are less likely to have capital flight.
Rather, they are more likely to have indigenous contractors and Nigerians working on those assets.
Lastly and perhaps more importantly, community relations will be at the forefront of local operators. So Nigeria stands to gain in multiple folds from manpower development to reduction in unemployment and other corollary benefits.
Apart from crashing oil price that has prompted cut in field development, IOC’s over time have not made substantial investment, what is responsible for this?
The uncertainty in the market caused by the delayed-passage of the PIB has a major influence on this state of affairs. That notwithstanding, we cannot discount the security situation in the Niger Delta region. IOC’s operating in the Niger Delta region would naturally be wary of making sustainable investments in such an uncertain environment.The surge in oil pipeline vandalism was so high that it had made Nigeria temporarily cede its position to Angola as Africa’s top crude oil producer. This is obviously the result of having about 380,000 barrels of crude oil per day shut-in due to vandalism of the 48-inch sub-sea export line in February this year.
Then again, I’m sure the investment climate has not been favourable for the IOC’s. The NNPC has been unable to honour its cash calls in Joint Venture agreements. As a result, most IOC’s are selling their stakes in JVs to local entities.
What by your estimation is Nigeria losing from IOC’s lack of sustainable investment?
The Nigerian Extractive Industries Transparency Initiative (NEITI) recently disclosed that Nigeria has lost about $200 billion as a result of the non-passage of the PIB.
If you add the lost arbitrage of high oil prices put at $10 billion, when we should have seen significant investments in the industry due to oil prices hovering over $100 bpd, I will put the aggregate loss at $210 billion at the minimum.
If the trend continues, it will not bode well for the oil and gas industry and Nigeria, by extension. Let’s not forget that today, Nigeria’s crude oil exports are sustained by oil production from deep offshore fields such as Shell’s Bonga, ExxonMobil’s Erha and Total’s Akpo and Usan, among others. If these reserves are not replenished, then we are going to face serious issues in the nest 20 years.
Can you suggest ways the Corporation could properly restructure that it will operate like its contemporaries?
I think strict adherence to the provisions of the proposed Petroleum Industry Governance Bill would be the best bet to reposition the NNPC for effectiveness. Besides, technological innovation is key.