Last week we attended the Nigeria Oil and Gas Conference in Abuja. Panel discussions supported the narrative that the oil economy is capable of thriving in the face of new realities. In his opening address, the minister of state for petroleum resources, Ibe Kachikwu, revealed an oil production target of 3 mbpd within the next five years. This compares with the short-term projection of 2.2 mbpd in the FGN’s 2017 budget proposals. However, an annual investment of US$10bn over the stipulated timeframe is required to achieve this target.
The OPEC secretary general, Mohammad Barkindo, reassured the conference about the organization’s efforts in support of oil prices. In October it introduced production cuts for members (excluding Nigeria, Libya and Iran), which pushed up prices above US$50/b (where they have since held).
A topical theme through the conference was the high cost of production. One panelist stated that security is the largest incremental expense and accounts for 40% of the industry’s average costs of production.
Another common theme was collaboration between oil servicing firms to reduce the overall cost of doing business. Such partnerships could presumably cover maintenance and fabrication operations.
For the downstream segment, one panelist suggested that the FGN concessions the pipeline network for the better transportation of petroleum products (particularly premium motor spirit). The thinking is that a privately-owned pipeline operator would be better equipped to tackle vandalism issues.
The NNPC has set out to resuscitate its refineries, adopting a three-step approach (preparation, financing and execution). The corporation is close to completing the first phase, which requires securing expressions of interest from potential partners with technical and funding capacity. Its target is refining capacity utilization of 90% by 2019; utilization is currently around 14%.
Local content also featured in panel discussions. We gather that the local content fund within the Nigerian Content Development and Monitoring Board now amounts to US$600m. The board has decided on a lending rate of 8% over a five-year repayment period; this should assist in driving participation of local O&G businesses.
In addition to the better known SEPLAT, another major indigenous player is Aiteo, which successfully acquired OML 29 in mid-2015 in a Shell divestment. The firm’s average daily production has risen from 23,000 b/d in 2015 to 80,000 b/d currently.
However, the firm faces some familiar challenges for the industry such as ageing assets, vandalism and theft, high debt service and community management issues. It could be a candidate for listing in the near future.