Briefcase Companies, Procurement Scams, Partly to Blame for Decline in Nigerian Crude Output – NNPCL Boss - Africa’s premier report on the oil, gas and energy landscape.

Briefcase Companies, Procurement Scams, Partly to Blame for Decline in Nigerian Crude Output – NNPCL Boss

By Lukman Abolade, Senior Correspondent

Mele Kolo Kyari, Group Chief Executive Officer of the NNPC Limited, the Nigerian state hydrocarbon company, has fingered security issues, ‘briefcase companies’ and the fiscal environment, as parts of a cohort of challenges responsible for the declining investment in Nigeria’s oil and gas sector.

“As we all know, the security challenges are real, it is not just about theft, it is about the availability of the infrastructure to deliver the volume to the market. No one is going to put money into oil production when he knows that the production will not get to the market”, Kyari told a Stakeholders’ Engagement with the National Association of Petroleum Explorationists (NAPE).

Calling out ‘bad actors’ among the ranks of Nigerian indigenous operating companies, as well as the contracting segment of the industry’s upstream class, Kyari said: “the reality is that people create companies, in all segments, around friendships around relationships, not around value and the ultimate impact is that this country is seen not just as a bad investment location, but as a war zone. War means many things: war can be economic war, it is not just gun. So that’s why the issue of contracting both within our own company NNPC and within our partner companies is important to us. The good intention our country has of having local content development is essential, which is to produce locally, build capacity and return value to our country. This is beautiful, but it doesn’t mean that the meaning of this is to enrich a few people. I don’t think so. The combination of those compromises along the value chain resulted in sending most of the critical contractors out of our country today. And the reason is not competition”.

Arguing that contractual issues and “paper companies” were huge challenges wrestling down investors‘ confidence in the country, Kyari, a trained geoscientist who is a card carrying member and Fellow of NAPE, lamented to the group of petroleum explorationists  and C-suite level executives of  oil majors, that by creating shell contracting firms, several companies focus on making the money from procurement than from production, shooting up the cost of production.

But Mr Kyari c kept going back to highlight the security issues along the crude oil pipeline right of way in the Niger Delta.

“Within the last two years, we removed over 5,800 illegal connections from our immediate frontline, we took down over 6,800 illegal refineries. We simply cannot get people to put money into it until we solve that problem,” he said.

Kyari added that the discussions on energy transition, late passage of the Petroleum Industry Act (PIA), poor infrastructure “and the discovery of oil in many places” also contributed to the decline in oil and gas investments in the country.

“Our country struggled to change its fiscal terms since the year 2000 until 2021, when the PIA came into being, it was already 21 years late. New troubles that were created by the energy transition conversation, banks stopped lending to oil and gas and many more things. And secondly, oil started appearing in unexpected places. And everybody decided to throttle down investment in Nigerian oil and gas,” Kyari noted.

Highlighting the enduring demand for oil and gas in the energy mix, Kyari said projections have suggested a continued need for up to 100Million barrels of oil equivalent by 2050. Against this backdrop, he stressed Nigeria’s strategic position in Sub-Saharan Africa, where a substantial portion of global growth is forecasted to occur, with Nigeria poised to play a central role.

While speaking on NNPCL’s effort to increase production and attract investment in the sector, Kyari disclosed that three substantive gas projects are set to take off in 2024.

He stated that NNPC in collaboration with its JV and PSC partners plan to drill up to 26 gas exploration and appraisal wells, over 16 gas development wells and 21 oil exploratory wells as well as come up with a rig-sharing program to reduce the cost of drilling and enhance collaboration among companies.

“We are going to come up with a rig-share programme so that even the rig owners can have an assurance when they come to this country, they don’t have to go away. So that the cost of drilling itself will go down, there’s a visibility about when this will end, you have the assurance that the rig can stay with you for three to five years. We’re going to check this and this industry will align it so that we have a line of sight around our commitments. So that those drilling activities can actually take place at a cost and invest of course, that is possible,” he noted.

During his welcome address, the NAPE President, Abiodun Ogunjobi, said the Stakeholders engagement was to address pressing issues in the oil and gas industry that demand urgent intervention, most especially the declining investment in the sector.

“To restore us to the Two Million plus-barrel per day production will require a deliberate investment in the exploration and production activities. Despite our projections over the years of 40Billion barrel reserves and 600Trillion cubic feet (Tcf) of gas, we have consistently remained at the threshold of 37Billion barrels of oil and 209Tcf of gas”, Ogunjobi said.

The NAPE president added that to tackle these challenges, there must be strong and intentional collaboration between the NNPCL and E&P players.

He also said there is a need to leverage technology and foster a skilled workforce that is crucial for the industry to deliver these objectives.

“For efficient gas production and utilisation, we will need to upgrade all our existing and add more infrastructure to our gas development system. The time to increase your oil and gas production is now and it requires an intentional workforce such that we can use the resources that we have and navigate our way through the transition phase to the new mega-change dynamics,” Ogunjobi noted.

Kyari was asked, in a post-address question-and-answer session, about the status of the NNPCL’s frontier basin drilling as well as update on the Ajaokuta-Kaduna-Kano (AKK) gas pipeline in the north of the country. A summary of his response:

“The Chad Basin, you know that we’ve been around there for over 40 years. Currently, we are drilling a well. I think it’s too early to speak about it due to some NDA issues. I don’t know if I can speak about it. But where we are today is better than what we ever did in 40 years. Now that is sufficient information. So, there is oil in the cretaceous, of course, you know, there are regulatory issues around making declarations but I can tell you with all confidence that there is sufficient oil even in the Chad basin,” he said.

On the AKK pipeline, Kyari said that over 75% has been completed and is expected to become functional by the end of 2024 or first quarter of 2025.

“I can also tell you today, we have almost done over 75% on the AKK line and our target is to complete it by the end of this year. At least introduce hydrocarbon into it, we may not complete some of the associated facility that we don’t need today,” he said.

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