Analysts Urge Caution as Lagos Joins Oil Producing States

Gboyega Akinsanmi

Following the news that broke that Lagos has joined the league of oil producing states, economic analysts and observers have advised the state government to exercise caution by remaining focus on the strategic sectors that have made the state what it is today.

Specifically, they implored the government to continue to enjoy the benefits and opportunities inherent in the strategic sectors, including fully developed banking, telecoms, manufacturing, maritime, and insurance sectors.

After 25 years of sustained exploratory, appraisal and development activities, Yinka Folawiyo Petroleum Company Limited last week said it had started producing crude oil from its Aje field located in Block OML 113 offshore Lagos. It is the first commercial production for Nigeria in Dahomey Basin.

Folawiyo, a purely indigenous oil company, developed the oil field together with five other partners. Its partners precisely comprise Panoro Energy ASA, First Hydrocarbon Nigeria (FHN) Limited, New Age Exploration Nigeria Limited, EER (Colobus) Nigeria Limited and PR Oil & Gas Nigeria Limited.

By estimate, the first two wells in Aje field are expected to produce 12,000 barrels per day.

The breakthrough simply shows that with the oil, which has started flowing from Aje field within the territory of Lagos it has joined the league of oil producing states in the country. By implication, the state will benefit from 13 per cent derivation fund meant for the development of oil communities.

Even though analysts in some quarters, cast pall on the economics of oil production from Aje field compared with other oil fields in the Niger Delta, a company source said the flow rate would increase as more oil wells are drilled.

The field is not only endowed with crude oil. It equally holds untapped reserves of about 650 billion standard cubic feet of gas. If harnessed in two to three years’ time, the field can supply Lagos, all the gas feedstock it needs for the thermal power stations and other manufacturing concerns domiciled in the state and its environs.

Aside the Front Puffin FPSO already commissioned with production capacity of 40,000 barrels per day and storage capacity of 750,000 barrels, the firm said the subsea installation activities had been underway at Aje since January and were completed in early March. It said it would be hooked up with FPSO.

But how can oil impact public life in Lagos. Can oil really help realise the state’s vision of Africa’s model megacity? For analysts, the beginning of oil production in the territory of Lagos represents a new dawn, not just for the state and the host communities, but also for the country at large.

But analysts, who spoke with THISDAY, told the state government not to lose focus on its current drive which is working well and making its economy thrive without oil.

One of them, the Senior Consultant/CEO in RTC Advisory Services Limited, Mr. Opeyemi Agbaje, advised the state, a ‘fully developed economy’ , not to be carried away and allow itself to be subjected to the volatility of oil earnings, when it already has sustained means of generating revenue. He emphasised the need to focus more on these strategic sectors than the volatile oil.

According to him, Lagos “has fully developed banking, telecoms, manufacturing, maritime, insurance and other strategic sectors.”

Agbaje was optimistic that oil syndromes would not infest Lagos like other oil-producing states in the country. He argued that Lagos “is a fully developed economy. So, it is not likely to witness the kind of oil syndromes,” which other analysts said, had become an albatross of development in the Niger Delta.

The former bank chief executive admitted that oil production in the territory of Lagos “is no doubt a beginning of another era.”

He noted that the feat was achieved with the deployment of private investment, though the firm would pay oil rents, royalties and taxes. On this ground, he pointed out that what the state “will get will be subject to 13 percent derivation. Due to the present volume of production, what the state will earn from oil production may not be huge for now. But as time goes on, flow rate will increase. And as a result, income will rise.”

He also pointed out that the discovery of oil off Lagos coast “is an indication that there is oil in the entire coast of Nigeria. If oil is found in Lagos, it can also be found in the coast of Ogun State and other coastal states in the South-west. It also means Niger Delta is not the only region endowed with oil in the country.”

Purely at the instance of earnings that will accrue to state’s coffers, the Group Managing Director of CFL Group of Companies, Mr. Lai Omotola, said the production of crude oil “is a welcome development.”

“It will help the state expand its sources through which it can generate more funds to execute people-oriented programmes,” he added.

Omotola, however, called for caution because information about the oil production “is just coming in bits and pieces.” Consequently, Omotola said there was need “to critically review information we have at our disposal.” But with the volume of oil discovery, he noted that the field “will definitely attract more investors.”