Amid renewed attacks on infrastructure in the Niger Delta, the Managing Director of The Shell Petroleum Development Company of Nigeria Ltd and Country Chair, Shell Companies in Nigeria, Mr. Osagie Okunbor, speaks with ‘FEMI ASU about the Nigerian oil and gas industry and the company’s operations and plans in Nigeria
As the oldest and largest oil producer in Nigeria, how do you currently see the country’s oil and gas industry and the business climate?
You are right; we have been around for some time. Shell has a history of over 50 years in Nigeria and the largest footprint of all the international oil and gas companies operating here. I’m pleased to say that Shell companies and investments in Nigeria have played a pioneering role in onshore, shallow and deep water oil exploration and production. Shell has also been at the forefront of gas development, producing and delivering gas to domestic consumers and export markets for more than 40 years.
We can all see that the business climate is challenging both in terms of local and international pressure points such as the collapse of crude oil price, insecurity and related issues. But I remain an optimist that these challenges also present enormous opportunities for the industry to think and act imaginatively and lay the foundation for a more sustainable future.
What is the thinking of Shell Nigeria with respect to the renewed attacks on oil and gas facilities in the Niger Delta?
The sabotage of oil and gas infrastructure, other illegal activities such as theft of crude oil and artisanal refining have contributed to a significant decline in production levels, delays to projects and loss of government revenue. These illegal acts also have severe environmental consequences. In addition, security threats mean both our development and operating costs are higher than in many other operating environments globally. Ultimately, it means that available funds for the industry don’t stretch as far as they would, if we had a safer operating environment.
It is clear that security of our assets and people is key to our operations and the Federal Government has rightly said it will work to ensure a safe and secure working environment for everyone, not just International Oil Companies.
In February, Shell’s Forcados export terminal was shut as a result of damage to a subsea export line, when should we expect the Forcados terminal to come back on stream?
I have been asked this question several times and my response is that we are working to bring the line as quickly as humanly and technically possible. However, the repair is by no means a straight forward affair.
The work is a delicate exercise that requires temporary wrapping of the damaged section of the line with a special material prior to safe evacuation of the residual crude oil currently trapped in the line. The damaged pipeline is in 4-6 metres of water depth in open seas and it requires damming the water to hold the sea back so that repairs can be safely done. The scope of work therefore,requires detailed planning and consideration of appropriate contingencies for potential emergencies in an environmentally sensitive area.
When you take all these factors into consideration, it would be really difficult for me to give precise timing on the completion of repairs. But I can assure you that we are working very hard to safely repair and reopen the line as quickly as possible.
This will be disappointing news for companies that produce into the line who have not earned any revenue since February 14.
We understand how everyone feels, and that is why we are keeping all stakeholders updated of our plans, actions and projections. Don’t forget that the SPDC also has a significant amount of production that passes through the same line.
We’ve heard repair completion dates of May ending and so on; the Vice President recently visited Forcados and stressed the need for the line to be up and running shortly. Are we likely to have it back online this month?
Differentdates have, indeed, been reported in the media but I cannot comment on them at this time. What I can say is we are deploying Shell’s global and in-country expertise to undertake the repairs in a safe and efficient manner towards restoration of production into the terminal within the shortest possible time.
I received the Vice President, Prof. Yemi Osinbajo when he visited the SPDC’s Forcados Terminal on April 22, and we explained the repair process in detail to him. He was quite appreciative of our challenges and efforts, whilst at the same time urging us to do our utmost to bring the line back as quickly as possible, of course, safely.
As you work to repair the line, are there any alternative crude export routes you can explore?
We are engaging the Nigerian National Petroleum Corporation and the third party producers on viable alternatives of crude exports, as well as domestic gas evacuation.
We will lift the force majeure on Forcados exports once the line is repaired and production resumes.
Following the recent attacks on Chevron Okan platform, among others, Shell was reported to have evacuated some of its workers. Can you give us a clear picture of what was actually done and what informed the decision?
Our operations are continuing. We are constantly monitoring the security situation in our operating areas in the Niger Delta and are taking all possible steps to ensure the safety of staff and contractors. For obvious reasons, I cannot go into details.
Tell us more about the force majeure you declared on Bonny Light exports last Tuesday.
Well, I think that is very clear. The SPDC was informed of a leak on the Nembe Creek Trunk Line by the operator of the line, Aiteo, who shut it down for repairs. That affected the SPDC’s ability to meet contractual obligations; so, the logical option was to declare force majeure.
Some reports had it that you actually shut Bonny Terminal, fearing an attack; is that true?
Not at all; that was a very wrong interpretation of force majeure.
Some people will be tempted to think that a day will come when Shell or any other IOC will say enough is enough and leave. What is your take on this?
Well, I can only speak for Shell, and we’ve made it clear that we are here for the long haul. Shell is not leaving Nigeria. Our strategy in Nigeria is to optimise our onshore oil footprint while making further investments in other growth areas, particularly in deep water and the gas value chain, including domestic gas.
Can you give a sense of Shell’s production in Nigeria that has been shut in this year as a result of the security problem?
We give such figures on a yearly basis. In 2015, theft of crude oil on the the SPDC JV pipeline network was 25,000 barrels of oil per day, which is less than the 37,000 bpd in 2014. The number of sabotage-related spills declined to 93 incidents compared with 139 in 2014. In 2015, the decrease in theft and spills was also in part due to divestments in the Niger Delta. However, theft and sabotage are still the cause of about 85 per cent of spills from the SPDC JV pipelines. I will leave you to work out the money involved in this shortfall.
What is Shell doing as a company and collectively with other IOCs in response to the resurgence in attacks on oil infrastructure in the Niger Delta?
I will answer this question by stating that, first and foremost, we are an oil and gas producing company. We do not have expertise in security and we depend on the government, which has the primary responsibility to ensure safety of lives and property. Having said that, the safety of our staff and contractors in Nigeria remains our highest priority. We continue to monitor the security situation and take all necessary steps to ensure their safety. Shell takes a precautionary approach and only carries out oil and gas operations where it is safe to do so. We will continue to liaise with host communities, governmental and non-governmental organisations to help promote peace and safe operations, but the overall responsibility for security lies with the government as is the case all over the world.
Are we likely to see more divestment of assets by Shell in the region as we saw in the past few years?
Portfolio review and optimisation is a continuous exercise for every business in our sector and Shell is no exception. The divestments in the past were part of the portfolio review and optimisation. We will continue to carry out portfolio assessments to remain a competitive player in Nigeria for the long term. Remember this also has seen the emergence of a new class of serious Nigerian indigenous players in the upstream landscape in Nigeria.
Shell recently said it was postponing the final investment decision on Bonga South West deepwater project. Hasn’t the increased insecurity in the country dimmed the prospect of investing in the project?
I would like to stress that the Final Investment Decision on the Bonga South West Aparo project was delayed to allow Shell Nigeria Exploration and Production Company, its co-venturers and government partners to explore more efficient and cost-effective ways of implementing the project. The project remains one of Shell’s options with a potential FID in the future.
Aside from the security challenge, what are your other concerns about the Nigerian oil and gas industry?
The Nigerian oil and gas industry requires fundamental actions to address the key challenges of perennial and severe funding shortfalls, which have significantly impacted the growth and development of the industry and consequently production and revenue to the government and industry operators. Other concerns include lack of a conducive business and operating environment which promotes overlaps and inefficient regulation, and imposition of multiplicity of fees and levies by government agencies; unduly long contracting processes and approval cycle times; security issues as well as crude theft and pipeline vandalism. But as I said earlier, there should be no cause for despair; we should rather seize the opportunity to lay the foundation for a solid future for the industry and the country.
How has the delay in the passage of the Petroleum Industry Bill affected your operations in the country?
We welcome efforts to improve the efficiency and functionality of the industry as envisioned in the objectives of the PIB. Shell has consistently advocated for effective and practical reform in this area and hopes that the final bill will be one that unlocks the additional investment that Nigeria’s oil and gas industry needs to sustain reserves and production. Shell looks forward to working with the present government and hopes that the final bill will be one that helps Nigeria realise the potential of its significant resource base.
Are you not worried that the bill has been delayed for too long?
I think the government has already taken the lead to quicken the process and is working out a new strategy to break the bill into manageable parts for the legislature’s consideration. I will advise that we wait and see how this plays out.
The Federal Government recently said it was looking to review the fiscal terms of Production Sharing Contracts in a bid to increase its take. What do you think about this?
The Federal Government has also said that it would not want to kill the oil and gas industry. So,we should be patient and not rush to judgement.
The inability of the NNPC to fund its share of cash call for JV assets is a major challenge for companies like yours, what has your experience been over the years and do you think the current administration is effectively addressing this?
I had earlier mentioned the issue of funding shortfall. Funding is key to an industry where investments run into billions of dollars. I’m pleased that the Minister of State for Petroleum Resources has acknowledged the scale of the challenge and has constituted a team to work with industry operators towards finding a sustainable solution to this endemic issue of funding. It clearly requires the commitment of all parties to put forward workable solutions.
What are Shell’s short, medium and long term plans for the Nigerian oil industry and economy at large?
We look forward to remaining a major contributor to the Nigerian economy, not only through the energy we produce and the revenues we generate for the country but also via our supply chains, local content implementation and social investment programmes.
Our strategy is intended to strengthen our position in Nigeria for the long term by optimising our onshore oil footprint while making investments in deep water and natural gas, particularly domestic gas. Deep water and gas projects present a combined potential investment for Shell and its joint venture partners of tens of billions of dollars in the coming years.
Natural gas is the cleanest burning fossil fuel and is abundantly available in Nigeria, which has the largest reserves in sub-Saharan Africa and ninth largest in the world. With reserves of this scale, it is possible for domestic gas opportunities and liquefied natural gas for export to be advanced in parallel, and Shell is working with the Nigerian government on these fronts.
We are committed to working with the government and our other partners to increase gas supply to the domestic market: the Assa North/Ohaji South project has the potential to be one of the largest domestic gas projects in the country, supplying some 500 million standard cubic feet per day. This translates into almost 2,000 megawatts of potential electricity generation when it comes to fruition. So, I mean every word when I say Shell is in Nigeria for the long haul.