Interview: Emmanuel Ibe Kachikwu
How do you expect the Organisation of the Petroleum Exporting Countries (OPEC) agreement from 2016 to impact oil revenues?
EMMANUEL IBE KACHIKWU: The OPEC agreement has been instrumental in guaranteeing price stability. In fact, we came from an average of $38-40 per barrel in 2016 to an average of $55 per barrel and growing in 2017. The resurgence in prices is a fundamental driver behind a new push for investments in Nigeria, as international oil companies are planning new projects in the country.
This shows us that there is more external confidence concerning investments, and that the business environment in Nigeria is improving. We are combining this with a new vision, migrating from a year-to-year business approach to the realisation of five- to 10-year plans. Such plans will enable us to specialise and cover areas the market requires, particularly regarding product placements and areas of investment.
How can Nigeria maintain a competitive environment for investment in the oil sector?
KACHIKWU: The fiscal environment isn’t so much the problem; the certainty of the environment itself is. There is a significant amount of instability arising from problems as diverse as militancy and corruption to multi-taxation points that keep on placing a heavy burden on companies that want to invest in Nigeria. From the contracting itself to the lack of seriousness, these issues have important costs in terms of doing business.
We are focusing on these matters very seriously in order to reduce contracting times to between three and four months and ease governance issues. We are working very hard to reduce militant disputes within the Delta communities to create stability and possibilities for investment in the region. These are the major trends you will witness in 2017.
We are focusing on all these specific issues that need to be solved, and proving that we are more commercially viable than in the past. Once we are able to do that and stabilise the situation, we can achieve the final goal of increasing government income; an increase that will contribute to the stabilisation of the foreign exchange and the conversion rate of the dollar to the naira. We can see the results from our efforts to create a more open environment, and this increase in stability has been noticed by national and international investors.
In terms of costs, our cheapest oil production is still onshore in the shallow fields, with a cost of around $10-15 per barrel as opposed to $30-35 per barrel offshore. However, the contracting costs for offshore investments are now down 40-50%, and we expect this will significantly boost investment. We are focusing on enabling investing companies to see more immediate revenues from offshore investments, and we predict a big boom in the sector by early 2018.
What sort of benefits will the restructuring of the Nigerian National Petroleum Corporation (NNPC) provide to the economy?
KACHIKWU: The restructuring has been fundamental in cutting costs and improving efficiency. Prior to the restructuring 20-30% of expenses arose from internal management, which constituted a fundamental obstacle to conducting business. We also repositioned the NNPC so that its sheer size is not actually harming it. We divided the company into four segments — upstream, downstream, midstream and refineries — and each segment is now working independently to achieve self-sufficiency. With this new restructuring, we have been able to increase overall efficiency. For example, we are activating all the refineries, and we are working to get them to run at 90%. When we reach that target, we will be able to stop importing refined products. With an increase in specificity and focus, profitability is the keyword, as all four segments need to be self-productive. For the first time, we are making business completely transparent, as in the past we transmitted an inaccurate perception of our reality and efficiency in the market.
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