2017 annual conference of the Society of Petroleum Engineers (SPE) Nigeria Council, held in Lagos



Dr. Ibe Kachikwu, Minister of State for Petroleum Resources, is not known for frivolities.

At the 2017 annual conference of the Society of Petroleum Engineers (SPE) Nigeria Council, held in Lagos last week, Kachikwu left many mouths agape as he reeled out what carelessness and visionless leadership during the oil boom between 2012 and 2013 cost Nigeria.

It would be recalled that crude oil price got to a height of between $85 and $70 in 2013 and as far as $120 per barrel in 2007, with no tangible investments the country can pinpoint today as main investment from the oil boom.

During the period, billions of oil dollars were siphoned to different banks abroad by government officials while some were kept in private safes at home.

However, the bubble suddenly bust when oil price dropped by 80 per cent from 2014 to 2016, the most dramatic in a very long time, creeping between $30 and $25 per barrel.

Unfortunately for Nigeria, crude oil production became limited as aggrieved youths in the Niger Delta took to the creeks, vandalising any available pipelines, thereby crippling Nigeria’s efforts to meet its daily obligation in the international oil market.

Within the period, Nigeria’s daily output declined to 900,000 from 2.23 million barrels per day.

In the process, inflation crept in.

Purchasing power of an average Nigerian dropped significantly.

Recession overpowered government’s spending while the Central Bank of Nigeria (CBN) fought tooth and nail to reverse exchange rate that shot up to N503 to a dollar.

Beside the disappearance of investments in the nation’s oil sector for over a decade due to wrong policies, insecurity and inefficiency, many investors relocated their businesses to other parts of oil producing states in Africa.

Speaking on the theme: ‘Riding the Waves of Boom and Bust: Common Objectives, Diverse Perspectives’, Kachikwu said for the first time in the history of the oil industry in Nigeria, there was huge job loss.

“The expectation in the past was that once you got a job in the oil industry, you had got there for life.

That is not the case again,” he said.

He said investments worth over $300bn had disappeared in the last two years in exploration and production.

“What that meant is that most countries in Africa are getting the heat, but because of inefficiency in the security system, inconsistency of policies, foreign investors failed to put their limited resources in Africa, particularly, Nigeria.

It was a very challenging situation.

“When oil boomed, Nigeria did nothing with it but fraudulently siphoned it abroad but other countries did,” Kachikwu said.

“What the oil boom has done for these wise countries is that it has helped to save a lot and also they invested externally.

For instance, Saudi Arabia began to invest in filling stations, downstream sector in the 1980’s at a time when nobody thought that was the concept and the UAE invested massively in hedged fund and buying property all over the world.

Those countries who were smart enough invested their money right.

“Unfortunately for Nigeria; we didn’t.

We did one thing though; we sought out our money in different parts of the world with lots of fraudulent activities and corruption.

A lot of Nigerian money is sitting in countries unknown, even some give Nigerian government conditions under which they are to return our stolen money.

“We went through a process recently of a country which wanted to return stolen money to the Nigerian government instructing and giving us terms where the money must be invested.

We have belittled ourselves to the extent that nobody respects us anymore and that is why the present government is focusing on corruption; which is very key.

“Unless we do this, we won’t be able to bring our trust index up because right now, our trust index has depreciated so much that attending a foreign meeting is even a disgrace.

Hopefully, the present administration has been able to do something and we have started seeing return of normalcy, still a lot needs to be done.

These are the effects of bust situation,” he said.

Kachikwu said currently Nigeria was in a huge budgeting and in the face of no proper pricing for oil and that there was a need to climb out of it.

”In the absence of proper pricing for petroleum products over demand, we will continue to struggle.

Anytime I am meeting with my colleagues in the United Arab Emirate (UAE) and Saudi Arabia, sometimes I am ashamed to say what I have as my reserve because when they are celebrating a reserve of 30 billion barrels, some of them are celebrating a trillion reserves and you begin to ask what happened,” he said.

Way forward

For the country to derive maximum benefits from the oil and gas sector, Kachikwu said government must deal with inefficiency: whether embedded in our national company, parastatals, ministries or in the private oil companies.

“The reality is that every side of the eye has benefited from this efficiency.

A country where after prices moved past $20 per barrel could not even enforce requirement terms that would enable it negotiate with multinationals to plough back what has been calculated.

Close to $60bn spent on oil companies that didn’t get to Nigeria because some people didn’t do their work: that is the height of inefficiency.

When you look at cost of production in Nigeria, it remains blatantly high.

Even in spite of the efforts, the figure has not dramatically reduced,” he said.

He said government would soon compel oil companies to lower the cost of their oil production.

“We are not only going to force this on the oil companies, we are going to compel it because there is no way we can be producing at the soaring price with no margin left for the country.

Only oil companies that are efficient and able to drive down cost will have footage in Nigeria.

Cost is going to be the main driver.

We are working collaboratively with oil companies.

If we cannot negotiate it down, we will compel it or stop the production.

It does not make any sense to produce at high cost with no margin for the country.

Every cost is going down.

It is no longer making sense to say Nigeria is unique because of security situation.

“Yes, there is security problem, what is the security component in the cost of oil production, $2 to $3 per barrel.

This is no longer enough. Security collaboration must begin to take place so that those costs must be driven down,” he stated

He said government would be working with NNPC and other parastatals and agencies under his ministry to loosen the grip of the infrastructure in the industry so as to enable the private sector have a foothold.

“Then we need to save irrespective of pricing.

There must be saving culture on a barrel of oil.

We need to have a mechanism where irrespective of pricing, we must find money we must put aside for our children.

One of the things that interested me was the number of wells that had been discovered and left unproductive.

We are working with major oil companies to release some of the oil wells that are not being exploited which they don’t find profitable.

There are lots of marginal oil companies today in Nigeria that must be boosted to be able to get into these fields, give them the right incentives and they begin to produce oil.

The Managing Director and Chief Executive Officer of Mellenium Oil and Gas, Mrs. Cecilia Aqua Umoren, said the best way to come out of the current recession by most marginal field operators was to synergise with bigger oil companies in a bid to reduce cost, adding that the reason why most oil companies found it hard to survive was their inability to merge.

Senior Vice President, Africa, Welltec A/S, Mr. Gbenga Onadeko, urged Nigerian oil producers to hedge their infrastructure and oil as this provided many opportunities to negotiate at high prices and reap bountifully when the price was low.

The Chairman of SPE Nigeria Council, Mr. Saka Matemilola, said the petroleum sector remained the main focus in the country’s economy, adding that the current challenges in the oil sector provided the necessary catalyst to provide opportunities for the country.
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