Emmanuel Ibe Kachikwu, Minister of State, Petroleum Resources and Chairman of the Board, Nigerian National Petroleum Corporation (NNPC): Interview

Emmanuel Ibe Kachikwu, Minister of State, Petroleum Resources and Chairman of the Board, Nigerian National Petroleum Corporation (NNPC)

Interview: Emmanuel Ibe Kachikwu

What has been the impact of the global drop in oil prices on upstream investment?

EMMANUEL IBE KACHIKWU: Globally, the drop in crude oil prices has resulted in a tremendous reduction in upstream investment, and Nigeria’s upstream sector is not immune to this. Nevertheless, the present administration’s anti-corruption campaign and improved security is restoring confidence in the Nigerian economy, thereby creating a new wave of interest in the upstream sector of the oil industry. In the midst of the slump in oil prices, the NNPC and its joint venture partner, Chevron, have secured offshore funding for the $1.2bn required to develop 36 wells – 23 onshore and 13 offshore – to add an incremental 41,000 barrels of oil equivalent per day (boepd) and 127m standard cu feet per day. This investment was an integral part of the Accelerated Upstream Financing Programme, meant to address the federal government’s perennial challenge of funding upstream activities.

What sorts of measures are being taken to help mitigate the impact of global price volatility?

KACHIKWU: First, this administration is fully committed to the diversification of the Nigerian economy, and reducing the reliance on a single product. In the oil and gas industry we are changing our current status from being a crude oil exporting country to one that exports both crude oil and derivative products. We are looking inwards to develop our refining capacity to yield more value from the several different crack spreads we have, and to sustain ourselves as a nation and to export the balance. Ultimately, our profit margins will increase as we become more efficient selling added-value products. To achieve this, our refineries are undergoing a phased “turnaround maintenance” initiative, and we are repairing our crude supply lines to the refineries. The three existing refineries today, even at maximum efficiency, cannot meet the daily requirements of petrol in Nigeria. In order to reduce fuel importation, we have embarked on a novel initiative of leveraging existing facilities, termed “co-located refineries”. Our target is to increase our current capacity of 445,000 boepd to 650,000 boepd through this initiative.

We are also concentrating our efforts on gas, as we are blessed with more gas resources than oil and are keen to develop them. It is now the ideal time to invest in gas supply for domestic utilisation in power, industrialisation, fertilisers, petrochemicals and other related industries. This will catalyse development in other sectors of the economy through job creation and import substitution. The current incentives for gas production are in line with global standards. Generally, upstream producers are able to offset their gas project costs against crude oil tax liabilities, yet there is little enthusiasm for such projects. Several third-party investors have indicated an interest in accessing our reserves for purposes of producing power, fertiliser and other gas-based products.

How successful have local content policies been?

KACHIKWU: The Nigerian Content Policy was borne out of the need to refocus the Nigerian oil and gas industry as a vehicle for developing the domestic economy and increasing participation of Nigerians in the energy value chain. The Nigerian Content Development Management Board, our dedicated local agency, drives the country’s local content policy. We have achieved stakeholder buy-in as international oil companies have embraced Nigerian content as a philosophy in their project execution strategies.

With over 80% of contracts awarded going to Nigerian companies, we have seen progress in greater indigenous participation. Local firms are now acquiring marine vessels and rigs, thereby creating a class of domestic asset owners, and the contribution of local Nigerian producers has grown from less than 3% to 10% of oil and gas production in recent years.

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Emmanuel Ibe Kachikwu

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The Report: Nigeria 2016

Energy chapter from The Report: Nigeria 2016

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