Production increase lies in alternative funding

INDIGENOUS OIL COMPANIES should seek alternative funding options to increase their current share of 15 percent (180,000 – 200,000 barrels per day) of national output as injection of required investment in oil projects would shoot up crude production substantially, Maikantu Baru, group managing director of Nigerian National Petroleum Corporation (NNPC) has said.

Baru said in a forum in Lagos that a new class of players, including small local independents with nondiversified portfolio and lean balance sheet but with track record, could raise funds from international financiers, highlighting the importance of diversified players, including locals as against the trend where the international oil companies (IOCs) and the NNPC dominate oil exploration and production.

The emergence of indigenous oil companies, also known as independents has led to increased reserve volumes, commercialization of fallow/small sized assets, employment opportunities and especially indigenous capacity building.

Also, the enactment of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010 has been instrumental in encouraging Nigerians to enter into the foray of exploration and production of crude oil.

According to Simbi Wabote, executive secretary of Nigerian Content Development and Monitoring Board (NCDMB), prior to the enactment of the local content act, Nigerian indigenous companies were producing three percent of Nigeria’s oil and gas but are now produc- ing close to 10 percent with a target to achieve 30 percent by 2020.

However, they are also hobbled by several major obstacles, some of which include security issues, inadequate funding, dearth of indigenous expertise, nonpartnership, old infrastructure, isolated and difficult field terrains/locations and so on.

In spite of these challenges, the independents are driving change. Baru admitted that independents along with IOCs have contributed to the growth of production sharing contracts in Nigeria, which is now responsible for 41 percent of the country’s total oil production.

Also looking at joint ventures ( JV) as complement to the PSC funding option of oil projects, Baru stressed that joint ventures ( JVs) need to get the necessary investments, in order for production to increase because joint venture ( JV) under funding has led to significant decline in JV production over the last 10 years, up to 2 million to 2.5 million barrels decline in JV production over the last 10 years.

“Chronic JV funding shortfalls have resulted in declining JV oil production. JVs are unable to sustain production levels. To arrest JV oil production fall from one million barrels per day to 0.6 million barrels per day, which is a 40 percent decline and JV gas production decline from 3.6 billion cubic feet per day to 3.2 billion cubic feet per day about 11 percent decline, the JV funding challenges need to be resolved,” he said.

The federal government has also said it has less cash to fund its JVs operations, but Baru noted that the financing issues of the JVs must be put to bed.

“Resolving the JV funding challenges would potentially increase production by more than 1.2 million barrels equivalent per day by 2025, thereby adding value to both government and investors. The goal is to ensure continuous investment by the IOCs while maintaining a competitive share of government take compared to other petroleum provinces of similar nature such as Angola, Norway, Brazil and Gulf of Mexico, among others,” he added.

Chronic JV funding shortfalls have resulted in declining JV oil production