Elohor Aiboni, Managing Director of SNEPCo speaking at a panel session during the NOGENERGYWEEK conference in Abuja.
…Fiscal environment has to be conducive for more decisions to be made in the industry.
…If your projects are not investable, funds will go elsewhere.
-Felix Douglas
Speaking at a panel session titled: Assessing the Attractiveness of Nigeria’s Energy Sector, during the NOGEnergyWeek conference held in Abuja, SNEPCo Managing Director, Elohor Aiboni made it known vividly that “Capital has no emotions. If projects are not attractive, the capital will be directed somewhere else”.
Aiboni explained that any investor that goes into a country had in mind of return in investment. Assuredly, he has to get his money back.
“There are several things they put into consideration. They look at the country’s stability, funding and ethics compliance risks. Security risk and regulatory framework are among other considerations.”
Put these together and focus on the impact of the Petroleum Industry Act (PIA), it took Nigeria almost two decades to pass PIA with an excitement that the protracted bill has been passed. Although, the investors are happy but some of them are still apprehensive waiting to see what happens next after the passage.
“Some of them have gone past that wait and see mode and they’re beginning to make some decisions.”
One thing with the oil and gas industry is that capital doesn’t sit down and wait for anyone, it has to be attracted. “And you’ve got to be absolutely clear before you put your money in it.” Bold investors are ready to take risk. They’ve moved past wait and see position. “They are beginning to reflect and ask themselves. What do we do?” Indeed, some projects have started in the industry. Taking a look at the PIA for example, it favours onshore oil because it has reduced tax and royalty.
She said gas is a transition fuel and almost every International Oil Company (IOC) focuses on gas and deepwater. “For those projects to work, we have to immediately address some of the gaps that we see today.”
Pricing and other fiscal issues are being considered but it has to be quickly addressed so that decisions can be made on certain projects.
Therefore, it is too early to see the impact of PIA. “It takes time for us to begin to see it because certain things have to be in place. It’s not just the regulatory framework.”
There are certainly many things to be addressed before investors can invest to bring money into Nigeria. “We are getting there like a curve slowly ramping up and when it gets to that stick point, it ramps up.”
“We are all looking excitedly to that stick point where it ramps up.”
Before it gets to that point, industry operators should continuously deliver on what they are doing.
Aiboni wondered how many rig count that are ramping up focusing on new projects. “It’s good to see the rig count ramping up for already existing fields, but we want to be in a position where we see more new projects coming up be it onshore, shallow or deepwater.”
Looking at the number of sanction projects, they are promising provided fiscal environment is right. It has to be done for more decisions to be made in the industry because Nigeria is blessed. A lot of projects can exist if the environment is conducive. For international contractors, many of them have also moved out hence the industry should find its feet to attract them back to the country.
“We recognize that Nigeria wants to build capacity but we will work with international contractors to build capacity.”
She mentioned offshore space, for example, deepwater, is a niche skill which requires intensive capital and only big contractors can play in that space. “We need to get them back in the country so they can begin to work on some of our projects.”
On the aspect of fabrication, Aiboni pointed out that there are lots of fabrication yards that are empty. “We want our fabrication yards to be full again.” The country needs more projects on stream.
The SNEPCo MD said it is a huge challenge competing for funds. “If you look at us in Shell Group, for instance, I’ve got to compete with countries like Gulf of Mexico, Brazil and others for funds, that is on the offshore space and if you do the same thing on the onshore space, we’ve got Malaysia and several other countries to compete with. If your projects are not investible, the funds will go elsewhere.”
There is a constant competition in the oil and gas industry. We need to ask ourselves what is required to be able to make all our projects investible. “Look at our portfolio, where have we been investing? In the onshore shallow water, there are Oil Mining Leases (OML) that have not been able to develop for years.
The beauty is that the PIA has given stakeholders the opportunity to deliberate on issues around the industry. What is required to make this project investable? How can we make them fly?
Aiboni stated clearly that fiscal is required to make these projects fly in order to be successful.
There are OMLs that have not been developed because there is no fiscal term for gas. They have not been developed because “we don’t have fiscal terms for gas, so how do you invest in such projects? Let us ask ourselves, what are others doing that is making their projects investable?”
“Look at the likes of Namibia, Guyana and other countries what are they doing?” Some of these countries have used different approach. They have come up with fiscal for each project that will make it work.”
However, the energy transition has created opportunities for more countries to be involved in the industry. For instance, countries like Ghana, Sudan and Mozambique are thriving in the industry.
Surprisingly, with respect to the huge resources these countries have, they are not comparable to Nigeria. “If their volumes are smaller and they can be involved in fiscal terms to attract investors, we’ve got to go back to the drawing board to ask ourselves, what are we going to do differently to enable companies invest in moribund projects.”
“We’ve recycled, yet, it is still not competitive. Let us ask ourselves, how we can build our local content. And what impact does that have on the cost of doing projects in Nigeria?”
Due to insecurity, Aiboni said Nigeria is already being described as a war risk country which attracts additional cost for investment. Local content requirement is also another issue of additional costs.
“We recognise there is an Act. But what can we do differently to enable these projects work?” The country wants to build capacity, but some things are lacking in-country. There are some things to consider and put in place to help reduce cost of project.
On the issue of tax, PIA has reduced tax for onshore. Shortly after PIA passage, finance Act eroded value from what it created.
“Are we willing to attract people for investment? We’ve got to think about it end to end in trying to create value.”
Aiboni decried brain drain in the oil and gas industry as young engineers are quitting for greener pasture outside the shores of the land. Some of them were trained with huge investment on them by the IOCs. Most of them believe Nigeria is becoming more difficult for young people with promising career. Hence they go to countries where their careers will be appreciated with promising future.
“We are losing a lot of fantastic young brains. It’s not because they don’t want to stay in Nigeria. We’ve got people that actually believe in Nigeria. But when they look left and right and see that they will sit in one place for a couple of years. They will rather go to where it’s more promising for them.”
She advised that stakeholders should make Nigeria great again with a lot of projects for people to see that the country is working. People can move from one place to another gaining experience not necessarily money.
“If there are projects in-country people will like to stay.”
Aiboni emphasised on the issue of contract both in government and industry. For instance, NLNG contracts were awarded to contractors and it worth about N5 billion within one year it was in place. She encouraged more of such contracts in the industry while bureaucracies that will hinder progress should be discarded. “Take out all those things that create lack of confidence in Nigeria and make ease of doing business in Nigeria better.”
This will attract the IOCs.
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