‘Non passage of PIB is stalling sector from moving forward’

The Petroleum Industry Bill (PIB) has dealt a devastating blow on operators in the Nigerian petroleum industry, which have experienced a wave of uncertainty that has frozen major exploration and development investments for nearly a decade.
Austin Avuru, managing director, Seplat Petroleum Development Company, said “there are too many contending issues that are lumped into one piece of legislation, including issues that were never in dispute; issues that we didn’t need to revisit.
“And in the process they have thrown the industry into an impasse. You can’t move forward because everybody, especially the multinationals operating in the deep offshore and who have to make multibillion-dollar investments, are in an uncertain business climate. Clearly, they have pulled back their pen and they are not taking FID.”
The protracted lull in the industry follows constant changes to bill. The changes are a product of unending disagreements over fiscal, policy and structural recommendations in the bill.
As the bill lingers in the legislative chambers, uncertainty hangs in the business environment, making investors freeze decisions that would have translated into activities that create vibrancy in the industry.
What is stopping the industry from moving forward is the uncertainty created by the possibility of a new legislation that is not clearly understood, Avuru said.
“This has therefore makes it impossible for operators to take the risk of making heavy investments, because you can’t be certain until that piece of legislation becomes law. And so, as long as there is suspense, there will be a lull. The entire industry is in suspense. Every month, you hear about dwindling revenues in the federation account. Yes, it will continue,” he said.
On the whole, our survey of oil industry challenges in the wake of the oil price fall exposed crippling challenges that are eroding profitability.
Industry wide, according to Avuru, “cost has gone up 10 fold from where we were 25 years ago. As a young well-site geologist in the 1980s, and if you recall those terms of the 1985 and 1987 MoUs, nominal technical cost was pegged at $3.50 per barrel.
“It was expected that average technical cost (operating expenditure and capital expenditure) was $3.50 per barrel. That means you have to be operating below $3.50 to be efficient. If you are doing above $3.50 you are considered expensive.
“Today, that cost has gone up to $30.50 per barrel. So, in the past 30 years, we have allowed a lot of things to creep in. There is the crisis in the Niger Delta, and then increase in the security apparatus to do the business, there is an increase in everything. All the costs have piled up onto the cost of production.
“And one of the biggest issues, why there appears to be a disagreement between government and operators over the PIB is because government believes that the fiscal regime cannot be predicated on $35 per barrel. And you can understand their frustration. They were there when the cost was $3.50 per barrel.
But the industry is saying, ‘the cost is the cost.’ If it is $35 per barrel then it is $35 per barrel. People don’t realise that this is where the disagreement resides. The debate is on the cost parameters used to model the fiscal regime. So, the industry has undergone a huge escalation in cost. Unfortunately, nobody has tried to stem that tide because it has escalated beyond control.”
Beyond the arguments is the bitter truth that the domestic operating environment appears to be losing the necessary conditions required for commercial investments to make appreciable returns and deliver profits to shareholders.