One million barrels daily crude production at risk

As NNPC, JV partners fail to implement 2013 business plan

The one million barrels daily crude oil production increase plan by the Nigerian National Petroleum Corporation (NNPC) and its Joint Venture partners by year 2020 is being threatened by the inability of the partners to fully commence the implementation of the 2013 business plan for the upstream of the oil and gas industry.

Lack of funding, arising from the consistent failure of the Federal Government to pay her cash calls which have run into over $13billion in arrears, among other things, has been cited as a major obstacle to the implementation to the business plan.

According to a document presented to President Muhammadu Buhari recently, the joint venture companies insisted that the Federal Government reduction in JV funding would exacerbate production decline, adding that funding and other challenges must be resolved in order to unlock Nigeria’s
full production potential.

The Joint Venture funding challenge has constrained the growth of the upstream sector of oil and gas.

The NNPC and its Joint Venture Partners had in 2013 projected that there would be a one million barrel (Mboed ) increase in oil production by 2020 if all the business plans of 2013 were fully funded.

The business plan makes provision for the reactivation of all the projects that have been put on hold, addressing the issues of oil theft, reducing the contract circle of projects and making available the necessary cash calls, so that those projects that have been suspended for lack of fund can be revisited.

Analysts say resolving problems associated with the Petroleum Industry Bill (PIB) is key to raising the volume of daily crude oil production because it has stalled investments in the sector.

The volume of crude oil from JVs has declined 53 per cent in the last ten years, while the Production Sharing Contract (PSC) volumes grew over 1,200 per cent over the same period.

The country is capable of producing more than three million barrels per day, if not for the many problems that have resulted in a halt to investment in the industry for over five years.

If the business plan which was prepared two years ago is fully funded, it means by 2020 contribution from the joint venture operation would hit 2.6 million barrels per day. The total daily production which would include volume from the PSC would hit above 3.3million barrels per day.

As at the time the document was presented to President, the production level from the joint venture operation had declined from 2.3 million barrels per day to 1.9 million barrels per day, while production from the Production Sharing Contract rose from 700,000 barrels per day to over 800,000 barrels per day. There has not been any significant improvement on the state of production from the JVs.

Eddy Wikina, former external relations manager for Shell Nigeria Exploration and Production Company, now managing director of Treasure Energy Resources, said under the former minister of petroleum resources,Diezani Alison-Madueke, no business plan was effected.

Wikina added that most times, the joint venture partners would prepare business plans and present them to government, but these plans were often frustrated by government itself.

He further said there had been no additional reserve increase in the last five years, and that that was why the industry had been comatose.

Industry analysts who spoke on condition of anonymity, said the key contributor to PSC growth has been unconstrained funding, adding that the international oil companies(IOCs) provide the funding and recover cost from production.

The Federal Government in this year’s budget, cut its cash call obligation by 40 per cent because of declining crude oil prices.