Nigeria’s largest oil producing company, Shell Petroleum Development Company (SPDC) yesterday warned
Shell accounts for just under 40 percent of Nigeria’s total oil production.
While production and prices of crude oil are dipping, with negative economic consequences, SPDC is laying out the factors that have dulled its zeal to invest in the sector, fingering fiscal instability as one.
The failure of fiscal stability in Nigeria’s oil and gas sector, in the face of dwindling oil prices, could drastically reduce investment in the sector, with production levels declining shortly afterwards, said Markus Droll, Shell’s Vice President for Nigeria and Gabon, at the ongoing Nigeria Oil and Gas conference in Abuja.
Droll said fiscal stability and predictability remain crucial in ensuring that investors of all sizes could commit confidently, if only government revenues could be forecast reliably and a capable service industry is maintained with a steady workload.
“If we succeed on this, I am confident Nigeria would be able to attract as much capital as is needed, not just in the oil industry, but across board. If we fail, then I fear investment could dry up fast, with production levels declining shortly afterwards,” he said
He further observed that low prices had big implications for exporting countries like Iran, Russia, Venezuela and Nigeria, adding that nobody could predict what would happen for the rest of the year.
“However, it is clear that we need to be prepared to deal with volatility in 2015 and possibly beyond,” he said.
Apart from the low price of crude oil, Droll identified other challenges facing the industry in Nigeria, especially the refusal of government to renew oil leases. He said renewal of production leases remained a threat to project development and delivery in Nigeria.
“There are many leases that will expire in a few years’ time. When you consider the length of time required for developing resources and then the time required for recovering costs, the industry needs 10 – 15 years or more to make confident investment decisions. The industry and the regulators can work together productively to avoid hindering investments into good projects that will be mutually beneficial to all stakeholders”, he added.
He identified other challenges as including the need for better security for workers in the oil and gas industry; more effective counter strategy against oil theft and sabotage.
He also advocated for better funding for capital projects and clearing of pending payments and expenditure, with more predictability around leases.
He said oil theft remained a complex issue that would require sustained, multi-stakeholder measures on a number of fronts, to arrest and ultimately reverse.
“Together as an industry, with support from government, we can succeed in turning this problem around.”
Droll however assured that Nigeria remains an important part of Shell’s portfolio, where they would continue to have a significant onshore presence in oil and gas, adding that Nigeria had clear growth potentials, even in deepwater and onshore gas. “So, the divestments thus far are primarily a re-focusing of Shell’s portfolio,’ he summed.
Diezani Alison-Madueke, minister of Petroleum Resources, said that most analysts agreed that as oil producers, Nigeria should brace up for extended periods of lower prices and increased price volatility, which had led to companies slashing capital spending in 2015 in response to dramatic collapse in oil prices.
Madueke said the current market reality of low oil price, presented opportunity for Nigeria to improve efficiency in its operations.
“In the Nigeria upstream sector, there is renewed impetus in managing cost, compressing contracting cycles, vigorously addressing the menace of pipeline vandalism and associated crude oil theft, pursuing the passage of the Petroleum Industry Bill (PIB)”, Madueke said.
She warned that persistent depressed oil prices might limit industry scope to manoeuvre in growing long term production, but urged the industry to challenge itself to raise funding for projects, in order to meet the target of 40 billion barrels of oil reserve and four million barrels of oil per day by 2020.
According to Wood Mackenzie, relative to 2014, a total of $120 million (24 percent) has been cut from the 2015 upstream budgets of some 116 companies. This could go up to as much as 40 percent.
Contributing to the challenge in the oil and gas sector, Wale Tinubu, group chief executive of OANDO, said that the false sense of security was over, with the crash of oil prices, adding that high oil prices made the nation complacent, as the country failed to take advantage of it.
He explained that with low oil prices, downsizing was bound to occur.
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