•Lagos to generate 3,000mw
A grim picture of the oil and gas industry has been painted by Nigerian National Petroleum Corporation (NNPC) boss Dr Maikanti Baru.
The Group Managing Director said cash call underfunding had hit $2.5 billion. Besides, vandalism has contributed to the biting recession, according to him.
Baru spoke at the 34th Annual International Conference of the Nigerian Association of Petroleum Exploration (NAPE) with the theme “Nigerian oil and gas industry; tackling our realities’’ in Lagos.
He said that the joint ventures would relieve the government of the cash call burden by sourcing for their operational funds estimated at 7-9 billion dollars annually.
According to him, this is aside the inherited arrears estimated at six billion dollars.
To tackle the challenges, Baru said, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu and himself “are working assiduously with our Joint Venture partners to see that we exit the JV cash call system and also clear our funding arrears.
“To address this structural funding problem which is further compounded by the security challenges in Niger Delta, we are exploring alternative funding mechanism that allows the Joint Venture Business finance itself by retaining its operating costs and capital allowances (fiscal costs) in order to sustain and grow the business. Where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the Joint Venture, part of the profit margin could be retained to fund the budget and where necessary, external financing could also be sought to finance commercially viable and bankable capital projects without recourse to government treasury.
“The import of the above is that the Joint Ventures will relieve government of the cash call burden by sourcing for its funds for its operations (estimated at $7-$9billion annually). In 2016 alone, underfunding of NNPC cash calls is estimated to be about $2.5billion. This is aside the inherited arrears estimated at over $6billion.
“The JV cash call exit model we are pursuing guarantees government most of the revenue that normally accrues to it from the JV operations by lifting the royalty and tax oil upfront. This contributes 75 per cent to 85 per cent of the accruable revenues to government. Consequently, the effect on government take would be minimised. We are working assiduously to kick start this from 1st January, 2017.”
“This contributes 75 per cent to 85 per cent of the accruable revenues to government. Consequently, the effect on government take will be minimised. We are working assiduously to kick start this from 1st January, 2017,’’ he said.
Baru said that it was difficult to deliver the volumes without adequate funding and with an average JV cash call requirement of about 600 million dollar a month coupled with flat low budget levels over the past years.
He said that this had led to under-funding of the industry by the government, which has become a challenge to production growth.
Baru said that consequently, managing these funding issues was part of the management’s most immediate challenge.
He, however, appealed to those behind the indiscriminate acts of infrastructure vandalism to put an end forthwith to “these despicable acts of sabotage’’.
Baru said the destruction of critical energy infrastructure was a great threat to the environment, the economy and energy security.
He said the outage of these key facilities was detrimental to the growth of the industry in particular and the country at large.
According to him, it also has a negative effect on the level of funds to be distributed to the various tiers of government, resulting in the ripple effect on the economy.
“We have faced challenges relating to low oil prices, production challenges due to infrastructure vandalism, inadequate joint venture funding.
“Others are low reserves replacement, adequacy gap in technology and shortage of skilled manpower, among a host of other issues.
“Most critical of all these challenges is the fact that they are all intertwined in a viral fashion,’’ he said.
Baru also said the low oil price and deferred production challenges would lead to lower government revenues.
The oil sector accounts for approximately 90 per cent of the nation’s foreign exchange earnings. Some of the highlighted challenges were part of the root causes of the recession, Baru said.
Lagos State Governor Akinwunmi Ambode disclosed that the state planned to generate more than 3,000 Mega Watts in the next seven years.
Ambode, who was represented by Mr Wale Oluwo, the Commissioner for Minerals and Energy Resources, said gas supply was the major challenge.
The governor said that due to lack of gas to power the existing power plants, the state was spending thrice the amount it used planned to spend to get gas.
He said the discovery of oil in the state would increase employment opportunities for young graduates, provide gas and improve electricity supply.
Ambode said: “If the Federal Government fulfils its promise of paying 13 per cent derivation for oil, the state would have more money to execute meaningful projects.’’
He pledged to support investors in the oil and gas sector.
Mr Nosa Omorodion, the NAPE President, said the global industry had lost more than 600,000 jobs, with the oilfield services and exploration and production sector contributing almost 70 per cent of the losses.
Omorodion said the industry was facing the longest period of investment cuts ever.
