…Targets cut in cost of managing oil, gas investments

…New Petroleum Policy puts yearly cost at N61bn

By Udeme Akpan

THE Federal Government has commenced moves to restructure National Petroleum Investment Management Services, NAPIMS, a Corporate Services Unit, CSU, in the Exploration and Production (E&P) Directorate of the Nigerian National Petroleum Corporation, NNPC. The action is targeted at achieving further reduction in the cost of managing oil and gas investments in Nigeria, which the new Petroleum Policy has put at $200 million, which amounts to N61 billion yearly at the current exchange rate of N305 per dollar.

Investigations showed that the officials of NAPIMS, NNPC, Department of Petroleum Resources and the Ministry of Petroleum Resources have already held various engagements in Abuja to fashion out the restructuring.

FACILITY TOUR: Dafe S. Sejebor. GGM NAPIMS (5th right) and his team, SPDC Reps. & Saipem team in a group photograph during a facility tour of Southern Swamp Association Gas Solution Project (TUNU Worksite Bayelsa State)

A reliable source in attendance at the 2017 conference of the National Association of Energy Correspondents, NAEC, in Lagos, disclosed that the current 10 divisions in NAPIMS may be reduced to about seven at the end of the restructuring. He said NAPIMS would be armed with major essentials, including documented rules, procedures and systems to guide its operations. According to him, NAPIMS would also be blessed with some vital units, including compliance and data management to enhance activities.

In its new Petroleum Policy, a copy which was made available to Vanguard, the government stated that the high cost of managing oil and gas investments was unacceptable at this time. It indicated that efforts would be made to review and reduce the cost in the coming months, especially now that crude oil price has dropped to about $50 per barrel.

The government noted that its investments are managed directly by NAPIMS, a Corporate Services Unit (CSU) in the Exploration and Production (E&P) Directorate of the Nigerian National Petroleum Corporation, NNPC.

According to the policy, “NNPC’s representatives in the Operating Committees of the various joint ventures are seconded from Nigerian Petroleum Investment Management Services Limited, NAPIMS, which is a subsidiary company of NNPC. NAPIMS was established to manage NNPC’s interests in the various oil concessions. In addition, all project proposals, joint venture (JV) budgets and key operating decisions in oil and gas projects are subject to NAPIMS approval.

“NAPIMS cost of managing government’s interest is significantly higher than it ought to be. An expenditure of over $200 million per year is unjustifiable in the current oil price environment. These costs when applied across the JVs and PSCs (Production sharing contracts) make some of the government equity interests in the joint venture unprofitable.

“NAPIMS has 10 divisions but only three are operational (JVs, PSCs, Gas). There are no written rules, procedures or policies to guide its activities; Institutional capacity (management and staff capability) is weak; There is no compliance unit, which there should be as a given; costs per barrel within operations under its supervision are unacceptably high; There is poor data management, information asymmetry both internally and with NNPC Corporate and the organisational structure is fractured.

“The Petroleum Policy considers that NAPIMS is incapable of reforming itself because of the internal organisation. Effective NAPIMS reform can only come from fundamental restructuring with commercial discipline, and reform must come from outside NAPIMS. NAPIMS will be substantially restructured and may ultimately become independent and with full autonomy from the National Oil Company of Nigeria (NOCN).

The restructuring and reform process, to be led jointly by the Ministry of Petroleum Resources and the Ministry of Finance will include: a global level management consultancy to be hired to help with restructuring; a value-for-money audit, amongst others.

“They also include: emphasis on sustainable brownfield projects; standard commercial management practices to be introduced, including KPIs; asset wide budget monitoring introduced as a standard KPI objective; marine asset sharing in all its blocks introduced as compulsory measure; cost benchmarking data and system to be developed; NAPIMS will be limited to a pure asset management function whilst cost regulation will reside with the sector regulator; Data has to be shared amongst the key agencies, including: NAPIMS, MPR, MoF, NOCN, the Petroleum Regulator, NCDMB.”

It noted that the nation is blessed with an abundant and active private sector in the petroleum industry, including international Oil and Gas Companies (IOCs); international Independents; National Independents; Oil and gas service companies and Independent Power Plant companies (IPPs); Project Developers.

The policy, which observed that the private sector is vital to the development of the Nigerian petroleum industry, added: “Government agencies, government corporations, international companies and national companies need to and will work together to meet the common vision of a dynamic, successful and profitable Nigerian petroleum industry.”

It also stated that under the policy, Nigeria will have a market driven oil and gas industry, structured to meet the vision of a nation where hydrocarbons are used as a fuel for economic growth and not simply as a source of income.

The policy disclosed that this means that “restructuring the government sector to one where efficiencies are introduced and there is a level playing field between the private and public sectors.”

It stated that clearly separating the roles of policy (Ministry), regulation (independent regulator) and operations (NNPC and successors); ensuring private investment across upstream, midstream and downstream segments of the value chain; moving away from Oil as a source of income to oil as a fuel for economic growth; Improving the whole enabling supply chain; move the Nigerian economy from a crude oil based exporter to a gas based industrial economy, enabling Nigeria to become a manufacturing and industrial nation; enabling effective refining and processing within Nigeria (whether public or private owned and/or operated).

The Group General Manager of NAPIMS), Mr. Dafe Sejebor, had stressed the need to for continuous cut in the cost of producing oil and gas.

Sejebor, who disclosed this during the inauguration of the Anti-Corruption Committee of the unit, said the country had saved a minimum of $3 billion per annum.

He said NAPIMS arrived at the figure after looking at the difference between the $78 and $23, which represent the old and new cost of production in relation to the present daily average production in the country. ,

“If you knock down your cost of production from $78 per barrel to $23, take the difference and multiply by the average daily production, you will discover that we are saving a minimum of $3billion in the upstream for both Production Sharing Contracts (PSCs) and Joint Ventures (Jvs),” he said.

The GGM informed that the target was to bring the cost of production to between $17 and $19 for onshore and offshore production respectively.

He commended the Federal Government for its support to the NNPC management in tackling the challenges in the petroleum industry, especially the cash call exit agreement signed in 2016 and the reduction of contracting circle from three years to six months.

On the new Petroleum Policy, Sejebor said it was necessitated by the increasing difficulty in operating the petroleum industry within the framework of the old Petroleum Act in the face of the delayed passage of the Petroleum Industry Bill (PIB).

He said the policy would restore investors’ confidence in the industry pending the full passage of the entire PIB by the National Assembly.

On the NAPIMS Anti-Corruption Committee, Sejebor urged the management and staff to let the principles of accountability, integrity, honesty and transparency be their watchword.

However, Mr. Abiodun Adesanya, President of the Nigerian Association of Petroleum Explorationists, NAPE, tasked the government to create an enabling environment in order to attract more local and foreign investors into the nation’s petroleum industry.

According to him, the nation require to make new investments in order to boost exploration and production, capable of leading the making of new oil and gas finds and reserves.

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