20 March 2014

Nigeria: Oil Industry At Risk Over High Cost - IOCs

Photo: Amnesty International
Hand covered in oily mud.

Abuja — International Oil Companies, IOCs, yesterday, warned that rising cost was threatening the growth and development of the Nigerian petroleum industry.

This is even as independent and marginal fields' operators blamed the delay in the growth of the sector on limited assets and inadequate funding.

Speaking at the ongoing Nigerian Oil and Gas Conference and Exhibition, Managing Director of one of the IOCs, Shell Petroleum Development Company, Mr. Mutiu Sunmonu, said that issues of cost inefficiency are capable of killing the oil industry, adding that it will also make it impossible for both government and stakeholders to achieve their aims for the sector.

According to him, the major drivers of costs are delay in the contracting process, the security situation and the challenges of funding.

In addition, Mr. Mark Ward, Chairman/Managing Director, ExxonMobil Companies, Nigeria, said aging infrastructure, crude theft and difficult contracting processes were other drivers of cost.

According to Ward, facilities that are used in the early days of oil discovery in Nigeria are still being used in the sector, making it very difficult for operators to make meaningful efforts towards growing the sector.

In the area of independent, small or marginal fields operators, Mr. Victor Briggs, Managing Director, Nigerian Petroleum Development Company, NPDC, said the ability of small producers to drive sustained growth in the sector was constrained by limited assets, inadequate technical and financial resources.

Mr. Adams Okoene, Chief Executive Officer/Managing Director, Midwestern Oil and Gas, lamented the high tax regime in the sector and the issue of limited assets.

All these factors and a number of others, according to Group Managing Director, Access Bank Plc, Mr. Herbert Wigwe, are responsible for the inability of the oil companies to get support from banks in the country.

He said banks look at a number of factors before extending loan facilities to oil companies, such as the impact of taxation on the companies, ability of the companies' cash flow to support their spending and the governance structure of the companies.

He said companies without good governance structure and the necessary financial security will find it difficult to get funds from banks.

Wigwe further stated that banks tend to assess how all the partners of a particular venture understands the issue of growth and risks surrounding their operations.

According to him, the purpose of the financing is also important, especially if the fund is to be used to finance greenfield or brownfield oil operations.

He maintained that Nigerian banks have come of age and are presently capable of funding big ticket transactions in the oil sector.

He noted that Nigerian banks are aware of the achievements of independents and small or marginal fields' operators and are putting in place structures to help grow the sector.

He said Access Bank as well as other banks in the country, have realised the challenges confronting indigenous operators and are helping the operators build their governance structure, while it is also helping to address the issue of infrastructure in the sector.

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