Marginal fields bid round to commence this month - Kachikwu
Minister of State for Petroleum Resources, Dr. Ibe Kachikwu spoke to select Nigerian journalists on the sidelines of the just concluded Offshore Technology Conference (OTC) in Houston on what to expect in Nigeria’s oil sector before the end of 2017. Excep
The federal government recently paid $400 million as part settlement of an outstanding 2016 joint venture cash call debts it owes international oil companies (IOCs), could you explain more on this?
At the time that we did the joint venture review, we came up with, we had two components to it. The first was the $6.8 billion of arrears covering about six years which were owed the oil companies.
In our negotiations, we were able to trim that down to about $5.1 billion, so we knocked off $1.7 billion out of it and then spread the $5.1 billion over the next five years to be paid from incremental production, not from existing production.
In other words, they will have to go find new oil and from that new oil, recover their money because we didn’t want to imperil the 2.2 million that everybody is already used to.
The second tranche of the money which was not in the $6.8 billion or the $5.1 billion, depending on where you land, was a figure of about $1.2 billion which represented only 2016 arrears, and the oil companies insisted that it needed to be repaid completely because they couldn’t begin to add that to the $5.1 billion.
We eventually agreed to pay in several tranches. $400 million out of that for the first tranche and then the remaining $700 million paid in monthly installments for a period of one year; that will roughly be about $60 or $70 million every month after the first $400 million.
That was a major milestone and we have made provisions through the central bank for the payment of the balance on a monthly basis.
But more important and significant even more than the payment of the outstanding debt, was the restructuring of the JV cash calls.
Previously, what happened was that all income went back to the Federation Account and from then you budgeted and sent back to them some money.
Invariably, even when there was a budget, we never met that, we ate both the cost and revenue.
What this has done now is to skew that to the other direction such that from production after royalties, you take away the cost of production on a budgeted basis and then the balance goes back to the Federation Account. So, hopefully, going forward, we shouldn’t have that problem again.
What we cannot cover in terms of the budget, the oil companies will go out to raise loans from third parties to enable them continue with their exploration and production programmes.
What this would do will be that it addresses arrears, current cash call requirements and then investment funding requirements.
That’s the beauty of what is happening and the net effect over the last two months is that we have seen the Zabazaba signing and Bonga coming back.
We have today, cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels over and above the 2.2 million barrels per day.
That is why I can say with confidence that we are in a position to move up to 3 million barrels per day very quickly.
You have said the government is punchy about having the International Oil Companies (IOCs) relocate to the Niger Delta. Are you forcing them back, what do you mean by punchy?
I wouldn’t use the word force. When I say punchy, I mean we are bullish about having them get back to those areas, some are already there. Preponderance of oil companies have what you call their operational headquarters in a lot of the Niger Delta areas what they don't have is 'headquarters' and I have tried to let the state know that there is a difference between administrative headquarters and where the work is done. Let’s not focus on the wrong things and they give you a headquarters and move the operational headquarters which has 80 per cent of their employment. But what are state government after? They want related development, they want income from Personal Income Taxes to hit them and obviously they want infrastructural development to hit them. All that you get with operational headquarters.
Our focus is more on operational headquarters than administrative headquarters and on physical presence. Like in Bayelsa state, is an oil state but some oil companies don’t even have an office not to talk of a big office. So, if you wanted to address something in Bayelsa you brought in somebody from Port Harcourt. But why? One of the reasons is that Bayelsa doesn't have an airport. So, there are certain basic infrastructures that you have to put in place for those things to work but when you already have those infrastructures it’s a lot easier.
How realistic is the government's desire to exit importation by 2019 and what is the state of the refineries co-location initiative?
I think anything you set your mind to achieve you can achieve.
We have been able to do a pie chart that shows that by 2019 we should be able to deliver. We have taken the first six months to analyse what really the issues are, what's really wrong with the refineries. Even if in 2019. I don't achieve the target I still would have been able to reduce importation substantially, it is better than not doing anything. For the co-location, there have been challenges but we have been able to show through utilisation of opportunities from the Direct Sales Direct Purchase (DSDP) that they (investors) can recover their money and the government is proposed to give guarantees in the event they don't. Right now the co-location of refineries for Warri and Kaduna are almost wrapped up, Port Harcourt is still a bit of a challenge.
You have gone around asking IOCs to invest in these refineries. What kind of responses have you gotten from them?
I have visited Agip and Exxon Mobil. Agip was very receptive, in fact they are getting involved in Port Harcourt, they are going to be one of the preferred partners so they are receptive. From a refining concept they are ready to put money there. Exxon Mobil was not too receptive. Their argument was that they are getting out from downstream all over the world and Nigeria where they just sold their affiliate. Two, you have got to deal with the issue of pricing which isn't encouraging for them.
My solution to that is that we are prepared to give you (investors) export licence. So, build it export all your oil. If Nigeria wants to buy from you they pay the export price. If they don't want to buy from you, you go and sell it outside.
When do we expect bids for the marginal bids and renewal of oil blocks licences?
My understanding is that by the end of May we should have all the data that we need. We have identified about 40-45 marginal fields. We are not contemplating the major OMLs right now, OMLs renewals, yes, we have already sent out letters on those for existing OMLs but in terms of issuing new blocks we are probably not contemplating that for the rest of this year. But marginal fields we will deal with by end of May we should have all the data that we need. We have identified about 40-45 marginal fields we hope to increase those, we will go forward to a bidding process and then see how we can go forward with that.
What do we expect to see when the PIB is eventually passed?
I won't go into the details for obvious reasons because I don't want to be seen jumping ahead of the senate. I am happy so far with the cooperation going between both of us. I am also happy that a lot of the initiatives that we created have actually been adopted as part of their PIB. From everything that we are doing when PIB is done and dusted we should be able to transit very smoothly during the one year transition period which the minster is supposed to help manage. But I don't want to go into specifics, the Bill is still in third reading but everything I have seen so far in terms of collaborative work has been very positive.