No Nigerian firm can handle deep offshore drilling – Minister

Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri...Photo Credit: X(Heineken Lokpobiri,)

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The Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has said that no Nigerian company currently has the capacity to undertake drilling in deep offshore, stressing the need to strengthen local capacity without misapplying local content laws.

Speaking at the just-concluded Practical Nigerian Content Forum organised by the Nigerian Content Development and Monitoring Board in Yenagoa, Bayelsa State, Lokpobiri said, “Strengthening local capacity and local content shouldn’t be misunderstood as the substitution of the IOCs. The space in Nigeria is mature. We have enough work for everybody.”

Lokpobiri stated that Nigerian firms would outsource contracts awarded to them to the foreign giants, making the cost of oil and gas production too high in Nigeria.

“No Nigerian company, as of today, can go and do any work deep offshore. No Nigerian service company can go and do drilling deep offshore. So if we misapply the local content law and we give drilling jobs to Nigerians — Lokpobiri Nigeria Limited (making an example), I have to look for those ‘big boys’ after taking my cut.

“And that makes our own pricing globally not competitive. These are some of the reasons why companies decided to leave Nigeria,” he said.

Lokpobiri explained that the reason why the NCDMB granted waivers for the award of some contracts to foreign companies was because the home-based ones lacked capacity.

“When you see waivers being given, as somebody who also participated in the local content law, I would never, under my chairmanship of the local content governing council, outsource Nigerian jobs to foreigners; but rather than giving a Nigerian a job that he will still outsource himself to foreigners, I take that cost and give it directly to that foreigner so that our pricing can be competitive.

“And that is the intention of the executive order that Mr President signed—to remove middlemenism. There is enough work in land, swamp, and shallow water for Nigerians. Could be better,” he added.

The oil minister stated that members of the Petroleum Technology Association of Nigeria did not like him because he would not give them jobs “they cannot do”.

“That is why PETAN members don’t like me because I have come to say, ‘Look, I’m not against you; I’m ready to protect you.’ PETAN has a representative in NCDMB. The chairman of PETAN is part of the governing council. But how do we remain competitive?

“The only way we can do that is to remove middlemen. We can’t give PETAN members jobs that they cannot do in the name of employing Nigerian companies. They will add up their 20 per cent, and they will still go to those ‘big boys’, he stressed.

Lokpobiri recalled how he was embarrassed by a foreign minister who said Nigeria’s cost of production was higher than that of countries fighting wars.

“One (foreign) minister once said Nigeria’s production is higher than countries that are at war. In countries that are fighting a war, Nigeria’s cost of production is higher than theirs. Assuming you are in my shoes, you will be embarrassed. I was thoroughly embarrassed. And I have a duty to ensure that we do what is necessary for us to address the concerns of the industry,” he stated.

The minister highlighted Nigeria’s energy potential and the steps taken by the current administration to boost oil and gas production. “Nigeria, just like other countries in the global south, has an enormous energy focus. But we are also blessed with the abundance of oil and gas resources. Unless we scale up production, we will not be able to satisfy both our domestic needs and our international obligations,” he said.

“Lokpobiri revealed that the number of rigs in the country had increased substantially since the current government assumed office. When this government came, we had perhaps about 14 rigs in the country. But today we have over 60 rigs, with over 40 active. I get weekly reports from NUPRC, and in most of the blocks, I see drilling.

“The way the oil sector works is that there is a natural decline per annum. That is why there is continuous and sustainable drilling as part of the protocols of the industry. But before this government came, since there were no investments, there was no drilling because drilling is an investment. It’s very expensive. It’s capital-intensive. So it will take companies to make decisions to invest in drilling with a view to scaling up production. So as we speak today, in Nigeria, we have rigs that are in excess of 60,” he said.

The minister highlighted Nigeria’s energy potential and the steps taken by the current administration to boost oil and gas production, saying, “Nigeria, just like other countries in the global south, has an enormous energy focus. But we are also blessed with the abundance of oil and gas resources. Unless we scale up production, we will not be able to satisfy both our domestic needs and our international obligations.”

However, the President of PETAN, Wole Ogunsanya, said the cost of providing services in Nigeria’s oil and gas industry is relatively the cheapest on the African continent.

During a town hall session at the same PNC conference, Ogunsanya insisted that a distinction must be made between the capital expenditures of the oil industry and operating expenditures, stressing that Nigeria’s CAPEX rates were arguably the lowest in Africa.

He attributed what some industry observers refer to as Nigeria’s uncompetitive costs of production to challenges of evacuation, security costs, and the activities of portfolio companies that habitually manipulate their clientele.

According to him, PETAN, the umbrella body of “reputable indigenous technical oilfield service companies”, has been analysing production costs in different countries over time, using capital expenditure and operating costs/expenditure, and, in the case of Nigeria, carefully identifying cost elements at successive stages of oil and gas production.

“The number one cost driver in Nigeria’s oil and gas industry operations is the evacuation of crude oil and gas. Our pipelines are vandalised, and some companies use vessels and barges to move crude oil, at a cost of $12 per barrel. Costs include payments to security agents as guards or escorts,” he said.

The PETAN boss, who is also Chairman/Chief Executive Officer of Geoplex Drillteq Limited, said that whereas contracting a land rig in India costs as much as $60,000 per day, the same services in Nigeria cost as low as $30,000 for the same duration.

Part of the explanation for the relatively lower costs in Nigeria, he noted, is that “Local content policy and practice in the industry here subsidises oil and gas production” in ways that might not be very apparent to some analysts, he said.

He lamented that some portfolio companies without the requisite operational assets often constitute another grievous dimension in the escalation of costs.

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