Interview : Guido d’Aloisio
What impact has the drop in oil prices had on Nigeria’s upstream sector?
GUIDO D’ALOISIO: The upstream sector of the oil and gas industry has been hit by relative inactivity as a result of the drop in oil prices. This is normal, as it has made investment relatively unattractive. However, there has been a positive effect in the sense that it has led engineering, procurement and construction contractors to reappraise how to deliver projects at lower costs, while still ensuring the same safety standards and quality of output by optimising work processes and increasing cost savings.
Indeed, the price of oil is affected by a lot of factors beyond our control. A glut or cut in production by the Organisation of the Petroleum Exporting Countries (OPEC) or an increase in shale oil production are the primary determinants in the rise or fall of oil prices. Currently, OPEC is committed to capping the production capacities of its members in order to restore the market price. This is already having some effect, but we will have to wait to see if it will be sustained.
How are those involved in the upstream sector working to address security concerns?
D’ALOISIO: Security is now a major component in the execution of projects in the upstream sectors of Nigeria’s oil and gas industry. The security challenges in the sector are long thought to have been directly related to the neglect of communities where oil and gas was being extracted, along with the absence of basic infrastructure in these communities. To address these challenges, oil companies and their contractors have started negotiating and securing agreements that will define and ensure the involvement of local communities where exploration and production activities take place.
In cases where both parties have had the willingness to respect agreements, this approach has been relatively successful. But unrest in some communities has led to escalated or worsening security challenges, with the consequence being a sharp rise in the cost of production. However, to put the matter in perspective, no operation is undertaken in the industry without a security risk assessment.
Unfortunately, such challenges faced in the Niger Delta have resulted in the exodus of companies and personnel from the region. But as we have often emphasised, these concerns can be managed by continuing to invest in the area, employing local people and giving opportunities to local communities, subsequently providing a means of livelihood for families in regions of oil and gas extraction.
How have local content policies bolstered the supply of qualified labour?
D’ALOISIO: There is the need to go beyond the concept of local content and talk about a sustainable business model. Over the years we have succeeded in increasing awareness and participation of indigenous companies in the oil and gas business. In terms of labour supply, our experience is that a sustainable business model drives up the quality of local manpower. A clear example is the number of engineering companies now involved in both front-end and detailed engineering for major projects.
What factors have been driving increased demand in oilfield services in recent times?
D’ALOISIO: There has been a lull in oilfield services in Nigeria, which is due to numerous factors, including: the reluctance of oil companies to take risks during a period of low oil prices; a delay in the passage of the Petroleum Industry Bill; changes in government; a backlog of government debt to joint-venture partners; and security challenges. Recently, however, we have seen an interest in rejuvenating activities in the industry, mainly due to the fall in output from operators and rekindled confidence in oil price stability.
Read More from OBG
