Austin Avuru
…Rental revenue that easily funds budget no longer feasible
…New PIB should reshape economic and regulatory structure for vibrancy
…Non-oil sector is a significant factor for declining revenue
…Marginal bid round to build local capacity
-By Olufunke Afolami
Speaking recently at a webinar session organized by the Nigerian Association of Petroleum Explorationists (NAPE), on the current situation of the oil industry and its global impact was the Chief Executive Officer of Seplat Petroleum Development Company, Austin Avuru. He said, issues have always been in the Nigerian oil and gas industry, but present realities have shown a new normal. “It is not because of low oil price that this is happening, the difference is that easy rental revenue which has always been funding Nigeria’s budget, irrespective of how bad the country handled both its policies and industry in the past, is no longer available which is what the country is losing.”
Avuru bemoaned that when revenue begins to account for only 25% to 30% federal budget, there should be a rethink. The luxury of sitting and speaking about these problems and doing nothing will not augur well. For instance, for the past twenty years, the country has been emphasizing on deregulating the downstream with about $2.5 billion being spent every year subsidizing the sub-sector. The country borrows money to fund the budget and the downstream is subsidized with Premium Motor Spirit (PMS) for $2.5billion, “it was never sensible but the country afforded to do that because it had revenue to play with.”
For now, even if its intention is to continue on subsidy, it cannot afford it. It has been spending $2.5billion for subsidy but cannot pay gas producers to give gas to Generating Companies (GenCos). Electricity supply has been an issue in the country for 10 years, it has been hovering around 4000Megawatts (MW) of electricity, in the new normal, wastages must go. The new reality shows that there is no longer room for luxury because revenue is low.
On Petroleum Industry Bill (PIB), Avuru explained that most legislative attempts were made to get more revenue for government. The initial intention for PIB was not to make money from Deep Water. Ultimately, it is to increase income from the oil and gas industry. “If you pass a PIB targeted at revenue and doesn’t stimulate the economy, in five years, you will see the result.”
There is need for changes in Nigeria’s economic and regulatory structure in order to galvanize the industry to increase government income. “It is not just about passing PIB to make more revenue for government.” It has to be a PIB that recognizes new realities and can stimulate the industry and bring it to relevance and vibrancy. This however will stimulate management of economy and the oil industry will progress.
The Nigerian oil and gas industry is not different from global oil and gas industry, every operator either small or big utilizes services of the likes of Schlumberger, Halliburton and other service companies. It could be local service companies which may either be affiliated with big multinationals or practice on their own depending on the equipment at their disposal.
Avuru noted that technology application to the oil and gas industry is global, “technology found in Nigeria is embraced in Europe, in US and the Middle East.”
The oil industry takes a lead in application of technology. It started from 2D seismic and migrated to 3D and 4D. There is seismic acoustic and other improved version. “Now, we deal with big data and data analysis which come into the industry.” Technology is the key to the industry and it has global approach either in Nigeria or elsewhere in the world.
Power has been an issue in Nigeria since the country’s electricity distribution companies distribute less than what the country needs. Avuru believed that if generating capacity is 15 Gigawatts, instead of 4000 MW which it currently generates, it would amount to bigger industry for the service companies and taxes to government. This is where non-oil sector becomes a significant factor to make up for declining revenue.
The Seplat helmsman opined that the new normal will soon take its toll on the oil industry. Surprisingly, operators are still “carrying on as if we have not been hit.”
There hasn’t been a general wave of disengagements of staff yet, that may soon start with the service companies, for instance, if a company has four rigs and none of them is working or a rig of 200 people. “You are not going to keep overall of 1200 people when your rigs are not working.” Operators will watch two to four quarters and if things don’t improve, they will down size workers.
However, the general trend for operators, firstly, is to cut Capital Expenditure (CAPEX) since revenue to government is cut by half occasioned by low oil price. If the situation persists, it will get to a time when governments at all levels will not be able to pay salaries and will resort to borrowing.
Reacting to operators’ concern, if this is the right time for marginal bid round since the government has made it known that bid round will soon take off. Avuru said, if it is a major bid round, there is no issue with the decision. “There is no right time for marginal field bid round provided the intentions are clear to develop local capacity and also pay attention to these tiny fields that ordinarily the multinationals will not pay attention to.”
The Seplat boss revealed that operators who participated in the 2003 bid round paid $150,000 as signature bonuses and out of the 24 fields, some are producing, seventeen years after. “Today, if the intention of this is to collect hundreds of millions of dollars of signature bonuses, it is the Nigerian banks that will suffer, borrow the money and if things don’t come up in production, there will be no tax revenue.”
Notwithstanding, the 2003 exercise probably can never be replicated, it was thorough. Avuru pointed out that the intention was to build aggregate Nigerian professionals into the upstream and give them opportunity to perform in that space. It succeeded and 10 out of 24 fields are in production. Some companies have gone ahead to build bigger institutions. For instance, Niger Delta Exploration and Production Company, a pioneer marginal field, has further produced another company, ND Western. Waltersmith is building a refinery and Seplat is listed on Nigerian and London Stock Exchanges.
For the pioneer marginal field bid round, it has been a huge success. Therefore, this current bid round should build on that success. “If we do it well, be pragmatic and scientific about it, we should be able to sit down and measure the success that came out from the last one.”
Emphasizing on refineries, Avuru expressed confidence that since Dangote is building 650,000 barrels of refinery and total demand is about 400,000 barrels, it will give hope for Nigeria’s midstream and downstream.
Several refineries are springing up, the focus should be on regional markets. If Dangote and other conglomeration, pick four key West African demand centres, they will make success. For instance, “if you put a major spectacle for petroleum products in Accra and a pipeline to Kumasi, such that you can take your vessel, supply the products, draw a depot in Accra and pipe to Kumasi to cover the country.”
When similar gesture is done in Ivory Coast, Senegal and a few others. Some parts of West Africa market would have been covered. According to Avuru, “I don’t see a refinery in Europe or North America that can compete with these refineries bringing products to the same place.” Deliberately, operators need to capture the domestic market.
Comment here