Nigerian Oil Sector:  Obasanjo’s Lamentable Upstream Of Distress

By

Senior Fyneface

senior_fyneface@yahoo.com

 

 

Amidst the trumpeted economic reform initiatives in all the sectors of the Nigerian economy, and assumed gains from them, the nation’s upstream oil and gas sub sector under the Obasanjo administration could best be described as an arena of distress investment-wise.

 

Since 1999, the only remarkable upstream activity in the Nigerian oil sector was the sharing of the remaining lucrative acreages in the deep and ultra-deep offshore amongst President Obasanjo loyalists to compensate for political support including the two blocks ceded to the president using Transcorp Unlimited as front.

 

The situation is pathetic and no matter how many trips Dr Edmund Dakouru makes to China to woe investors, as long as President Obasanjo continues to combine the post of the president with that of the Petroleum Minister, the pitiable condition of the nation’s upstream sub-sector would continue to grow from bad to worse.

 

It is disgraceful that even Chad Republic, a desert producer, has maintained an upstream Capital Expenditure (Capex) profile that is a mockery of what the present administration can boast of as cumulatively investment.

 

Before now, I belonged to the group of industry watchers who believed that the alarm by the multinational oil companies concerning the federal government’s joint venture cash call defaults was a conspiracy to blackmail the government. But I received a rude shock recently when I stumbled into a document concerning joint venture financing and arrears of default by just one partner, the Federal Government or aptly the presidency.

 

As an indication of the health of the nation’s upstream oil sector, a recent survey conducted by the Organisation of Petroleum Exporting Countries (OPEC) showed that only nine rigs were operational in Nigerian oil fields both in the onshore and offshore arena. This represents over 90 percent slash in the nation’s previous rig activity.

 

As if the revelation was not shocking enough, the study went ahead to show that Nigeria’s African sister OPEC member, Algeria, had 27 rigs in operation within the same period under review. With all its fundamentalist terror attacks and massacres, the country managed to keep up with bubbling activity level in its upstream arena because it knows that there is a very sharp demarcating line between capacity to pump from existing wells and reserve replenishment by capital injection.

 

Even Indonesia had 45 active rigs with all the uprising and the East Timor palaver in addition to earthquakes and hurricanes.

 

Iran has 46 active rigs, Kuwait 13, Libya 10, Qatar 10, Saudi Arabia 63, UAE 16 and Venezuela 88.

 

Libya whose oil industry could best be described as shut down before the recent lifting of sanctions by the western countries had 10 active rigs within the same period and majority of them are drilling rather than the fleet of workovers currently engaged in the Nigerian arena.

 

Is it not shameful to the present administration that with all the monies made over several years of excess crude oil sales, the drilling activities in offshore oil blocks 2, 3 and 4 in the Joint Development Zone owned by Nigeria and Sao Tome and Principe cannot get underway until the middle of 2007 because of shortage of drilling rigs?

 

This is happening in a country whose previous rig activities prior to the Obasanjo era were the envy of neighboring oil producers. Administrators of the nation’s oil industry should bury their heads in shame for lack of will power to tell the president the truth about the devastating effects of his diversion of investment funds that would have helped sustained and maybe expand the nation’s production capabilities.

 

Of course what else do you expect when the NNPC group managing director reports directly to the president who acts as the sole administrator of the NNPC despite the fact that he has no iota of knowledge of the dynamics of the oil sector especially the upstream sub-sector?

 

The interesting thing about the Nigerian situation is that majority, if not all, of the nine rigs actively working here are work-over machines, not drilling rigs.

 

Interestingly also, most of the other OPEC countries mentioned have their peculiar share of violence and instability but the difference is the priority they are giving to injecting the highly needed capex fund to fire their upstream activity and this is where the Obasanjo-led government has woefully failed. Except something drastic is done to reverse the trend by injecting back into the oil sector, good part of the monies generated by the sector,       Nigeria will continue to loose capacity even if it pumps 5 million barrels per day from one single well. More so, the agitations from the neglected people of the Niger Delta is not going to abate rather it will grow worse. This is the pure and simple truth.

 

Agreed that the country has suffered daily output shortfall of about 1 million barrels due to lost production orchestrated by the disturbances in the Niger Delta, President Obasanjo failed to acknowledge that in addition to the protest by the people of the Niger Delta, the Federal Government has the greater part of the blame by its deliberate starvation in funding and default in cash call payments for joint venture operations.

 

The militants’ attacks which in reality is part of the problem, is mainly an onshore or near-shore phenomenon. So if the country’s production capacity is disrupted at these arenas can the president say that the same scenario plays in most of the nation’s deep offshore and shallow water producing oil fields?

 

On good authourity I can say that Nigeria has more offshore production capacity than what we currently have from the land and swamp fields. But the over seven years of neglect in terms of quality investments  by the federal government (NNPC) produced the current situation which if care is not taken, the remaining output capacity may be tied-in. because the agitation in the Niger Delta is not going to abate except government listens and dialogue with the Niger Delta people.

 

The sole administrator of the nation’s oil industry should tell Nigerians how many new oil fields came on-stream during the seven-year of the Obasanjo administration. Most of the producing wells/fields except those in the prolific deep offshore are no longer bleeding the way they used to because of aging and over pumping.

 

If government had maintained a gradual but steady upstream investment policy and programme, the talk of output loss due to disturbances mainly in Delta and Bayelsa states could not have been an issue to be played upon by President Obasanjo to covertly get approval from the Senate to squander the remaining part of the windfall money. 

 

The truth is that Nigeria lost about a third of its production capacity not because of the disturbances in the Niger Delta but purely from NNPC’s, or the Presidency’s deliberate policy of not injecting money into upstream arena. Rather the government prefers to syndicate wells in few of the field that are yet to be disturbed by the Niger Delta uprising.

The President through the NNPC should tell Nigerians how much they have invested in new exploration activities in the offshore arena, Niger Delta, and the new frontiers in the nation’s inland basins. In addition, the President should make public the joint venture upstream funding profile in all the existing partnerships.

 

Whosoever advised President Obasanjo on the option of Production Sharing Agreement contracts with the foreign multinational should be arrested by the EFCC because that concept has remained the greatest avenue for shady deals in upstream oil operations in Nigeria.

 

Now that expatriates have become targets in the ongoing hostage saga in parts of the Niger Delta, the foreign oil operator are no longer ready to bring their money into Nigeria. And since the federal government has failed so far to address the root cause of the agitation, they have to make do with whatever the production sharing partners declares as output. Alternatively, they should continue with the recent order to the PSC partners to pump more oil from existing wells. And this will last until the wells one day will refuse to release crude oil from the reserviours.

 

 SENIOR FYNEFACE WRITES FROM PORT HARCOURT, RIVERS STATE, NIGERIA