Recovery dynamics in Nigeria

How has the crisis in oil price impacted the hydrocarbons industry?
It has been three years of recession. To some extent, parts of it were not predicted and other parts were fairly obvious to occur as soon as there was a flux in the economics of our industry – by that, I am referring to upstream. It has been very challenging. However, what doesn’t kill you makes you stronger.
Nigerian companies have been forced to look at cost-cutting measures, innovative ways of staying in business and partnering ourselves to get to our desired objectives. A part of that is to plan with your clients to give them options that make sense so that they can save money while you are trying to make money during the process. We are happy to see the price of crude north of USD 60 now, and we hope that will be sustained. I hope the new industry that comes out of this will be more sane, more enduring and more self-reliant.

Do you believe that a cost-cutting attitude will continue even if prices rise to pre-crisis levels?
There is a popular oilfield prayer that says, “The next time there is an oil boom, we will manage it better than we did last time.” That is a global prayer. Regardless of our long-term attitudes, something will have stuck from this recession. Those who have survived the recession have proven that they are able to manage. It will give them a level of expertise and also a level of openness to embrace new ideas and sometimes lateral diversification. As a company, we have picked up interest in upstream gas, we have invested quite heavily in equipment and now the gas as a product that is starting to look appealing. These are all learnings from the recession and hopefully it is something we will be able to take forward.

What challenges does Nigeria face in developing gas?
It is all about the resolve to do the proper things. Gas is not as much of a cash cow now as oil is. We will have to tap into the patience that we have picked up over the period of recession to work with the gas programme and wait for its return. It will return on investment, but not as quickly as oil because the structure for it is not as in place. However, I believe that the Nigerian population – close to 200 million – stands to benefit quite a lot from gas.
For that we need friendly policies that welcome risk takers and investors, and encourage and enhance investment. We require futuristic policy that is bold enough to articulate the challenges that new entrants will face and maintain an enabling environment for that to perpetuate itself. Policy can bring in infrastructure. For something like hydrocarbons and gas, I believe the less government intervention, the better.

How do you view security issues in the Niger Delta and measures to address them?
It is all policy related. Security in the Niger Delta is much better now than it has been in the past. Local communities have felt the pinch of militancy. To a great degree, we are grateful that most of it is behind us now. We are aware of the effects of fair policy on human beings. If we have fair policies, I am sure we can count on a stable land. Otherwise, we will need to negotiate more so as to sell whatever views the policymakers want. However, on a human level, the people of the Niger Delta have come to a point of readiness to continue hydrocarbons exploration and production, fairly and equitably.

How would you describe the competitive landscape here in Nigeria?
It is opening up. Previously, it had been closed. It was not just difficult, it was non-existent. However, it had become very vibrant before the recession. Industry completely shut down during this time, but now inquiries are coming back and Nigerian companies are rising up to the challenge. The competitive environment is there, but there is enough work for everybody.

What does Nigeria’s oil and gas industry require as it moves forward?
We should precipitate a more symbiotic industry. We need an upstream petroleum industry that is intertwined in between various disciplines of our country’s economics. We do not quite have that yet. The much anticipated PIB is hoped to address that. We have specialists in individual disciplines, but we need to find a way to bring everyone together efficiently to reduce costs in the upstream space.
If the people commanding the decision are not inherently oil and gas entrepreneurs, they may not understand that you should invest in difficult times because that is when it is cheapest. It kind of works backwards.

How can the country stimulate drilling activity at the moment?
It is a mixed bag. There is no straightforward, given method of stimulating demand. There is a inter-reliant approach to economics and planning that may or may not work depending on how astute our understandings and market projections are.
Certainly the invisible hand is the leader for successful market-based policy. If your wells are watering or sanding-in, you have to do something, so you have to bring in heavy-duty equipment. The problem is that by this time, you cannot have your equipment just go back to work. So recession- and recovery-friendly policies will assist these heavy machines jump start back into productivity. However, levels of activity in the upstream are not driven by much other than the invisible hand and by the policies that keep them around, such as exchange rates, other operating and finance policies and money repatriation policies. All of this will make a difference in the long run stimulation of future business.

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