Collaborate and competeJuly 1, 2016
Clay Neff, then-chairman and managing director of Chevron companies in Nigeria, talks to TOGY about its 36-well drilling programme, as well as what the company has been doing to reduce gas flaring, a huge problem in Nigeria. He weighs in on what needs to be done to incentivise companies to enable more gas-to-power systems and the structural reforms the government is implementing in the oil and gas industry.
Could you tell us more about the drilling programme Chevron is running?
It’s a 36-well programme with 23 wells onshore and 13 wells offshore. Two rigs are in place for operations. We started the programme in November 2015 and will start our first onshore well in November 2016.
We are in a joint venture with NNPC on this project. As the operator, we hold a 40% share, while NNPC, our senior partner, has 60%. It’s really important to ensure that the project is properly funded. We’ve worked to not only be sure of the funding from our side but also to be sure that the NNPC share is funded through a syndication of banks.
International banks are funding 75% of the programme while the remaining 25% is coming from Nigerian banks. We are working together to provide some certainty regarding the timeline for the project’s phases, because this is a multi-year undertaking. We’re making contracting commitments on rigs and other equipment, so it’s imperative to know the scope of work ahead of us and that everything is in place from start to finish.
What has Chevron done to reduce gas flaring locally?
We have reduced our flaring by more than 90% over the past eight to 10 years. We have invested significant capital into putting in the needed infrastructure. In June 2015, we started the Meren gas compression production platforms. We’ve put in the infrastructure to get that gas directly to the market, and we’ll continue to do that. We’re down to really small amount of routine flaring from our operations.
What will it take to incentivise players throughout the value chain to encourage more gas-to-power systems?
What you want to do is get to a point where you have a willing buyer and a willing seller, moving to a more de-regulated market.
At the moment, the market is regulated for a number of reasons that the government sees as benefitting Nigeria. There also needs to be a higher degree of certainty up and down the value chain around some projects to make sure that the gas flows to the power generation facility and the power flows to the end user. The value chain’s health will depend on the size of the deposit and whether the proper infrastructure is in place, which would require a higher gas price than the current regulated price.
From another perspective, looking at deepwater plays, there is very little commercialised gas in the deepwater. It’s injected. We are not flaring; we’re injecting the gas for reservoir maintenance.
Eventually that gas will need to be taken into the market. There is a need for infrastructure in deepwater such as pipelines, which are big investments to put in place. There’s going have to be some dialogue and discussion, and the right incentives for both parties, whether you’re a seller or a buyer, have to be set up to make things happen.
How can IOCs and indigenous independent exploration and production companies collaborate better in the market?
There’s a number of ways. You might have a smaller company out there with a small footprint, drilling some wells. It might be very difficult to put in the same infrastructures as we have, so why not work out an arrangement where we can process and handle that crude to help bring that oil and gas to market?
Chevron has a number of crude-handling agreements with indigenous independent companies. It’s important to collaborate and help each other to build a relationship and capability in the entire industry. Chevron was the first company to farm out to an indigenous company back around 2000. The agreement was with Niger Delta Petroleum Resources Company, and they actually bought the acreage. They developed it and brought it on line in 2005.
A lot has been done since then, making way for a lot of players. It’s very important for healthy market dynamics. The same process happened in the US, where you now have your majors, but you also have a lot of independents entering the market. It’s good for the industry, it’s good for the economy and it’s good all the way around. I think you’ll continue to see that same trend in Nigeria.
What kind of structural reforms have you been seeing from the new government? How has collaboration with them been progressing?
I’ve been very impressed with the amount of collaboration we’ve had with the government. They’re viewing us and treating us more as partners and investors in the country. The things that the minister of petroleum is doing to try to streamline and bring more transparency to the industry are something we all support. These efforts alone bring many benefits such as bringing down the cost structure.
Another reform that is currently being streamlined is the tendering process reform. Some tenders currently take two and a half or three years. This creates uncertainty for the investor such as when you’ll get a project in place and how long you have to keep a project team and the general and administrative expenses in place, which puts particular stress on companies.
All of us in the industry have a lot of input for the government, and they’re being very receptive. For example, they took the tendering process from two and a half or three years down to six months. We are seeing progress. This cannot happen overnight of course, but we see a lot of positive effort.
What local and global strategies have Chevron been employing amid the low oil prices?
Any time this happens, companies have to step back and look at the way they are doing business. At Chevron we’re really spending a lot of our time analysing how to get our cost structures in line with the reality of the situation, how to get more efficient and how to maintain our competitiveness in this lower price environment.
No one can predict where and when oil prices will rise or fall, but I think we may see more volatility in the oil prices. This means that we need to make sure that we’re nimble enough to compete. Globally, we’re doing a lot of the same things to address those issues. We had to reduce our investment, as did everybody else in the current climate.