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Nigeria’s oil and gas industry will emerge from the COVID-19 era stronger —Auwalu

The Director, Department of Petroleum Resources (DPR), Sarki Auwalu, in this interview with Nigerian Tribune, speaks on the current volatility in the global oil market and efforts of the federal government to ensure Nigeria’s oil and gas industry emerges stronger post-COVID-19. Excerpts:

The oil industry has been going through some turbulence for a few months, do you foresee any immediate return to normalcy in the industry?

The global oil and gas industry is, indeed, facing challenging times. However, the industry is noted for its resilience and ability to navigate tough times. Like the saying goes, tough times don’t last; tough people do’. Oil has proved tough in the course of its many decades of exploitation. The industry has emerged through a series of global political and economic turmoil that characterizes modern history of the industry since the 19th century – from the great depression of the 1930s, oil gluts, recessions, energy crises, and, more recently, the global financial crisis of the 2000s. The survival of oil is connected with its unique combination of attributes – sufficiency, accessibility, versatility, ease of transport and, in some cases, low cost of development.

Prior to the onset of the raging turbulence caused by the coronavirus pandemic, the industry had been challenged by the global financial crisis and recessions, crude oil oversupply accelerated by shale revolution, oil price war and drive to control market share, to mention a few. These challenges are compounded by the already pervasive impact of alternative energies and climate change campaign in the oil and gas industry.

In simple terms, therefore, Nigeria’s oil and gas industry will emerge from the COVID-19 era stronger. However, we must do things differently. The pandemic has brought up ‘new normal’ and indications are that the virus may be with us for some time to come. We thus must prepare to live and work around COVID-19. For a fact, there is reason for confidence that the industry will survive through COVID-19. Today, we see the gradual pick-up of economic activities. Many indicators suggest that the worst may be over as global energy demand grows with economies gradually reopening. Oil and gas prices are also pointing northwards following the price shock of the April 2020 at the heat of the lockdown. The industry is adapting to new ways and methods for doing business. Innovative work methods and processes have also emerged. Use of online resources, work tools and media has gained grounds over face-to-face meetings. Thus, we can say that the challenges of COVID-19 have created new opportunities. This is an era for strategic partnership and collaboration.

The Nigerian industry is bedeviled with lack of non-functional synergies and legal tussles which are militating against the development of many assets. For example, a number of the marginal fields awarded in 2003 and Oil Prospecting Licences issued in 2005, 2006 and 2007 have underperformed due to legal encumbrances, among other reasons.

Nigeria will be conducting its marginal bid round after 10 years. What are the opportunities, challenges and how many have applied?

Honestly, this current bid round is one of the biggest tasks the federal government has taken to open the economy in this pandemic. The 2020 marginal bid round will grow the nation’s oil and gas reserve, optimize the potentials of assets, create wealth and ensure good revenue growth of the Nigerian economy.

As at now, over 600 companies have applied to be prequalified for the ongoing bid rounds of 57 marginal oil fields in the country and none of the 11 marginal fields in the court is part of the 57 fields. The bid round is tailored to ensure a win-win situation for all the stakeholders, Nigerians, government, Nigerian investors and foreign investors. It has a multi range objective of the 2020 marginal bid round including but not limited to generate employment, increase national production, build technical capacity, promote indigenous participation, encourage capital inflow and promote use of shared facilities.

Also, the objective of the 2020 marginal field bid round is to deepen the participation of indigenous companies in the upstream segment, and provide opportunities for technical and financial partnerships for investors.

The existing 16 marginal oilfields contribute only two per cent to the national gas reserves, and their operations have brought peace and development to host communities in the Niger Delta and there is optimism that the current exercise, which is at the evaluation stage, would not encounter similar issues because of the processes put in place by the government.

We have learnt from the mistakes made in the past, and have come up with workable solutions to ensure that the objective of the development of our marginal fields is achieved. This time around, our awardees will be credible investors with technical and financial capability.

Where are we exactly on the marginal oil fields bid? Could you give us the latest information on it and the guidelines to participate in the bidding round etc?

The marginal fields bid round exercise started on June 1, 2020, when the Department of Petroleum Resources, on behalf of the Federal Government, announced the commencement of the process which was well-publicized. So, the process is live and progressing according to schedule. We are currently at the Expression/Registration of Interest stage.

Thereafter, all pre-qualified companies, who will continue in the process, will be availed the list of the marginal fields on offer across land, swamp and shallow offshore terrains. The next phases of the process include data prying, leasing, purchase of reports, payment of applicable fees and submission of technical and commercial bids. The entire process is managed electronically via an online portal to ensure service delivery and efficiency. In addition, there is a dedicated response centre through DPR Enquiry Management System and 24hrs call centre to assist potential investors get through the application process seamlessly.

What would you say are the benefits of the Gas Transportation Network Code to Nigeria’s economy?

Let me first give you an overview of the Nigeria Gas Transportation Network Code, or simply Network Code. The Network Code is a set of rules that guide the operation and use of the gas transportation system in Nigeria. The Code will ensure fair and non-discriminatory open access to the gas transmission network systems in order to promote competitiveness and drive economic growth in line with the aspirations of the government for the sector. All network players, including gas suppliers, transporters, shippers and agents, are being licensed to operate in line with the code. As you may be aware, following the declaration of the 2020 as ‘Year-of-Gas’, the Network Code was launched by the Minister of State, Petroleum Resources on February 19, 2020, and the minister issued directives for full implementation of the Code within six months of launch.

So, we are working to meet the ministerial target and I recently inaugurated industry committees to fine-tune our modality in readiness for implementation. Now to answer your question: The Code will promote investment in midstream gas infrastructure which is an essential missing piece in our drive to grow domestic supply of gas and the development of Gas Based Industries (GBIs). GBIs are very critical to job creation, economic growth and revenue generation. You will recall that Mr. President, in his January 1, 2020, speech addressed the critical need for GBIs as part of measures to lift 100 million Nigerians out of poverty. The president in that message also highlighted the need for critical gas infrastructure which the current drive to complete the Escravos-Lagos Pipeline System (ELPS) expansion, Obiafu-Obirikom to Oben (OB3) Pipeline and the Ajaokuta-Kaduna-Kano (AKK) Pipeline will help address.

How can Nigeria implement the oil production cut agreement without affecting its economy?

The falling global oil demand has led to a slowdown in most economies around the globe. In response, OPEC (and Non-OPEC participating countries) agreed to production cuts to stabilise the oil market at the 10th (Extraordinary) Ministerial Meeting. Nigeria has accepted its volume reduction and implemented the same accordingly.

However, the question arises whether the production cut is based on commercial volume or on underground withdrawal from producing wells extracted. DPR issues the bi-annual Technical Allowable Rate (TAR) for all producing wells in the country. And this is the instrument used to assign underground withdrawal rate from producing wells and thus allocate production ceilings to crude streams and scheduling liftings accordingly, subject to technical and commercial considerations. We implemented the production cuts strategically to ensure that impact on the revenue accruable is cushioned.

What do you think Nigeria could do to attract new investments into the oil industry?

Government is committed to guarantee that Nigeria remains one of the top destinations for investments in the industry. The nation is therefore working to improve investment climate, entrench transparency, respect sanctity of contracts, and provide clarity on legislative and regulatory matters. Oil and gas is the engine of the Nigerian economy similar to what obtains in many countries; hence the need for Foreign Direct Investments (FDIs) inflows to stimulate growth.