Breaking News

Govt, Oil firms disagree over investment on projects

By Yemie Adeoye
INDICATIONS emerged yesterday that Multinational oil companies operating in the nation’s upstream sector might have opted for the stability of the operating environments as the federal government moves to ensure adequate funding of oil exploration and production in the country.

President Yar Adau
President Yar Adau

According to the oil firms, it would not be possible to consider the government’s proposal of adequate funding due to the current terrain in the oil and gas sector coupled with the global oil prices.

To them, stabilizing their investments are their priorities which led them to task the government to find ways at ensuring security of their operations in the Niger Delta rather than expecting them to come out with investment fund to embark on oil and gas projects.
This was disclosed by Shell Petroleum Development Company (SPDC)’s Managing Director, Mutiu Sunmonu during the first plenary session of the Society of Petroleum Engineers (SPE)’s 33rd yearly International Conference and Exhibition in Abuja yesterdayn, eve as he also noted that oil operators are aware of the challenges on investment funding in the all important sector.

However, he opined that the key issue to operators is how government provides an enabling environment for them to operate without fear of the militants, noting that they have suffer great losses in terms of oil production and oil facilities.
According to the Shell’s boss, large chunks of money would be required to protect existing oil and also to discover new oil and gas wells in the country.
He said that the bulk of these investments lies with the private sectorn participation but uncertainties surround the current operating environment does not give them the go ahead to source for the funds.

Sunmonu pointed out that government should start consider other alternative of sourcing for funds for the sector because to the operators, it would only invest their monies in a country where there is political stability in terms of carrying out day_to_day activities.
In addition, he noted that the global meltdown has culminated into tight credit in the global market.
He said that tight credit by investors might scuttle the government’s projections for the sector because no investor is willing to stake his money where it would not yield returns on investments.

“The proposed investment by the government in the oil and gas sector is going to be large. Large sum of monies would be required to protect existing oil, to also bring about new oil and gas. And this investment would be by necessity and have to come from the private sector. And also believe that for the private sector to be willing to commits such large sum, they must have confidence in the investment climate. And that for me is the grouse of the matter, because that confidence right now is checking, and we should all admits that. And the issue therefore is if you are going to attract investment what are the things we need to do to encourage investors.

And those perquisites are basic and they don’t vary wherever you are. Whether you are in Norway, or you are in Nigeria, or you are in the Neitherland. Those conditions that attract investors don’t vary. And that for me is the thing we really need to start to think about here. The first thing for me is really the safety facility of our environment. It is always very tempting for people and governments in different part of the world too to want to vary the terms of contract midway, just because some parameters are strange. If the oil price goes up, the first thing government would say is hey I need to make sure that I can take more money from these investors because they are now making more profits.

The truth of the matter is that will just destroy investors’ confidence,” he continued, “Instead of just interjecting and exchanging the term as we go along, it is always better for us to think about our contracts, make sure that they are flexible to be able to address the changes in commodity prices.

So it is the suitability of our environment it is the very very key. And the second thing which is also alluded to us have to do with the PIB in terms of it policy but am not going to spend time on that today on the PIB. I think that I have done my bit on that last week on this PIB. But it is just very important to us that why we are thinking about maximizing value for government, we need to consider the need of investors too so that we really don’t kill the goose that is laying the golden egg. It is absolutely important. I would always support a situation whereby resource holders maximize value. So we have to be careful that we don’t squeeze the investors too much.

I think when we talk about the government thing, I think I just want to make the points that in today’s world where credit is very tight, investors would take their funds to place that are stable and profitable. I mean we all read about BP at the weekend that they are pulling out of OKLNG. And their reason is very clear. They think they have a better and profitable business in Australia. Every shareholder would do that.

So we got to bear that in mind that today’s tight credit means that people would just be looking around the whole world and it is a global market that where would I get more money from my investment. If I have money too I would be shopping around to say where could I put this money to give me some better investment.

The other thing I want to talk about is the government_take is that the physical environment alone, the tax regime alone is not going to deliver government take. In Nigeria, the stability of the operating environment is key.

Even if government takes royalty and tax goes from whatever it is today to 90 per cent, I always say that 90 per cent of zero is zero. 100 per cent of zero is zero. So if our operating environment is not stable, and we cannot produce, there is no government take. So we really need to look at these things in totality that how do we ensure our operating environment is stable.

The whole issues about community disturbance, the Niger Delta security issue is so interwoven with the fortune of the oil and gas industry that we cannot dodge it. And I think in my own views, this whole PIB needs to start look at that a lot more closely. A situation whereby we are planning to legislate the oil companies to do road, hospital and water for community would not bring about a stable operating environment, it would just create an increasing decline in government fortunes. Between 2006 and now, federal government has lost close to $50 billion just from Shell operations alone because of shut in oil.

So by the time you add the losses from the other operators, it’s huge. So we really need to pay attention to stability of the operating environment. How are we going to make sure that the communities in which these oil companies operate feels that guaranteed of lives are thrown to them directly. I think we need to start to look at that especially as we move forward the PIB”, the Shell boss concluded.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.