Komolafe: We’ve Nearly Concluded Process for Marginal Field Awards Winners

Interview

Mr. Gbenga Komolafe is the Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). He was a guest on ARISE NEWS Channel, where he spoke on a wide range of issues affecting the oil and gas industry. Particularly, he took on  those taking Nigeria’s oil illegally, describing them as mere criminals. Besides, while assuring the concerns of the 2020 marginal field award winners, Komolafe craved their understanding and patience, confirming that the process was nearing completion. Emmanuel Addeh, who monitored the interview, brings the excerpts

When do you think oil production output will increase or recover for Nigeria to gain from high prices?

 Mr. President gave a specific order that that the relevant agencies of government should put an end to the malaise and tragedy of crude oil theft in Nigeria. And let me say that indeed that order is not specific to the commission since the commission does not regulate criminals.

The mandate of the agency does not actually extend to dealing with criminals or crude oil thieves in the sense that we do not have the abrasive and coercive machinery to subdue criminals.

Our mandate actually covers technical and commercial regulatory functions. The issue of crude oil theft in Nigeria has assumed a very horrific level, very condemnable level and very tragic levels, in the sense that Nigeria is an oil economy, and whatever affects the oil sector affects the health of the nation.

Let me just refresh our memory about this progression to the tragic level we are in the upstream industry at the moment. Suffice to say that the Nigerian oil and gas industry is actually facing a very challenging moment, and that is from the upstream to the downstream. The situation is really very, very challenging.

Up until the late 90s, the issue of crude oil theft was basically being battled by the NNPC in those days of system 2C, which is the product line that was really the subject of attack. So what I’m saying in effect is that at that point, it had not escalated to crude oil pipelines.

 But now what we’re witnessing has reached a very alarming situation, a very horrific one. I recall that recently the commission led by myself and on the entourage of the Minister of State for Petroleum, Timipre Sylva, Chief of Defence Staff and the GMD himself, we had a fly over across creeks.

And I want to tell Nigeria that what we saw was very terrible and very alarming that indeed one could not believe the level of sheer act of criminality that we saw, which was clearly very terrible.

Aside the stealing, is the huge environmental pollution and degradation of the environment. When these criminals have finished taking the oil, they just leave the environment heavily degraded and that poses a different issue that the nation will have to be dealing with. In terms of the figure (of value of stolen oil)  like it was actually reeled out, at the moment, based on the 2021 figure alone, collated by the commission,  it’s in the region of about $2.2 billion , not to talk of when the figure is collated till the first quarter.

That alone has gone beyond $3 billion, but now the issue of concern is the fact that we are equally monitoring the different figures equally being bandied by the different operators and that in itself is of huge concern to us as a regulator.

 And arising from that, joined with the regulatory powers of the commission under Section 7G of the Petroleum Industry Act (PIA) which vests powers on the agency to conduct audits and special investigation of activities in the upstream sector or any act of criminality, we feel that it is very critical that different operators, whether the regulator or any of the operators should have a common figure. That is very key to the nation.

The essence of the investigative audit that the commission has ordered and embarked upon is very critical to the federation revenue, because at the end of the day, the nation takes its royalties and taxes from the net pool.

So if we cannot establish the absolute figures of crude theft forensically, then it means the nation will be short-changed. So that is the essence of the audit.

Another reason for the depressed oil output is lack of investment by international oil companies, which are exiting Nigeria and turning to countries like Mozambique and Namibia. What is your agency doing to reverse this trend and make the investment climate in Nigeria more attractive to the IOCs?

It is worrisome that the Nigerian upstream environment has become very hostile due to activities of these criminals and issues of the oil communities, especially crude oil theft that has made the upstream sector very unattractive for investment at the moment. And then the issue of energy transition is also there.

But we are cooperating with the security agencies to ensure that this act of criminality is brought to the barest minimum, if not completely stopped.

Even with the Petroleum Industry Act, there appears to be little or no progress being made. Could you react to this?

I don’t really share the point of view that on the petroleum industry act we have not made any progress. The Act was signed into law by Mr. President last year. At the moment, the industry is in transitional stage and the implementation of the petroleum industry act has commenced seamlessly.

 In implementing the act, Mr. President set up a presidential steering  committee under the leadership of the honourable minister and the relevant agencies in the ministry , that is, the commission, mid and the downstream petroleum regulatory authority, are members of this committee along with other relevant agencies of government.

The implementation has really commenced but whenever a law is made, it’s expected that there’ll be a regulation that would give meaning to the intent of the law. So at the moment, as part of the activities, we are working assiduously in ensuring that the regulations that will give meaning to the intent of the law are in the process of being finalised.

The regulations have been drafted and the stakeholders’ engagement that will lead to finalisation of that act has been scheduled. As a matter of fact for the month of April, we expect that to take place and with that, Nigerians will begin to see improvement.

But we understand that the transition arrangements for the implementation of the PIA has been bogged down mainly by bureaucracy, and the overbearing attitude of the steering committee that was set up by the president to implement it.

That will be mere conjecture. But the reality is that the relevant agencies are actually collaborating effectively with the committee for the implementation of the Act. The committee is an expert committee and there’s effective collaboration to ensure we derive optimal value from the hydrocarbon resources.

The Exxon Mobil asset sale is supposed to get regulatory approval before it’s consummated. Could you brief us on that? And is NNPC going ahead to exercise its pre-emptive rights to acquire those assets as provided in the joint operating agreement?

With respect to the issue of assignment or transfer of the parties, interests of Exxon Mobil related to joint operating agreement between the Exxon Mobil and the NNPC, I can say that as a regulator, we are monitoring the position very closely and of course we have a role to play in the assignment as a regulator.

But at the moment what has happened is that ExxonMobil has actually put on the table a corporate sale where the shareholders of ExxonMobil intend to sell their shares and Seplat intends to acquire the share of Exxon Mobil through its offshore arm.

And in the same manner, the NNPC has equally expressed its intention to exercise its  pre-emptive right in that respect. The commission is expected to actually give a position. But as a regulatory body, it is not for us to actually give this position in the media.

 No judge comes to the media to give his judgment. But I want to assure Nigerians that as a regulator, we are very committed and will be advising government on our position in a very professional manner that will be anchored on a very profound legal reasoning in a way that would guide government adequately because both parties are maintaining a contentious position. So it is the job of the regulator to actually advise the government appropriately and I want to say this we have done and we believe that that will rest the case.

We understand NNPC signed a product sharing contract with a little known local firm. Could you also update us on the revocation of some OML licences like that of Addax Petroleum?

 As a regulator, I think what had happened was that in the case of addax, an award was made and the regulator realised that the awardee could not meet the terms of the award and in that respect, it behooves the regulator to actually invoke the relevant terms of the award.

But by the way, the issue at the moment is in the court, and I will not want to elaborate further on that in a manner that we don’t engage in subjudice. But we believe that by the time the case is decided by the court, the issue will be well rested, but the regulator has done what they actually need to do in this respect.

What is the situation with the marginal field bid rounds that started in 2020? Has your agency been able to resolve the issues that have been raised by the motley crew of investors that were clumsily cobbled together by the Department of Petroleum Resources, and how many of them have been able to pay their signature bonuses?

 As regards the issue of the 2020 marginal field award, it was an inherited situation when we assumed office. We have looked at it that it is a very critical issue.

One of our cardinal objectives is to ensure that we increase the national oil production and of course, we now realise that the marginal field could actually help in enhancing that.

For that reason we took the issue frontally. It has really been very challenging to handle the issue in the sense that the model used poses a serious challenge to bringing the matter to an end quickly. But I want to assure Nigerians and indeed, the awardees that we have been able to as I speak, bring the issue to a manageable state.

 We have been able to devise a strategy for bringing the challenges to a close at the moment. We’ve had over 80 per cent compliance in terms of payment.

In fact, one of the challenges we’ve had is that even in forming the SPVs, they are still having challenges working together because of the nature of the model used.

But by and large, I want to say that we as a commission, we will learn from this experience, and I want to assure Nigeria that the next marginal bid will definitely not be bogged down by these kind of challenges we experienced in managing the fallout of the 2020 marginal fields.

Before the first half of the year, we want to see a situation where some of the awardees will be proceeding to field development plan. At the moment again, we have recorded close to 90 per cent of the co-awardees forming their SPV and at that stage, it is the very comfortable stage when the commission can go ahead to issue Petroleum Prospecting Licences (PPLs).

I want to tell the co-awardees to be less apprehensive about the issue given that as a responsible regulator, we are very much concerned especially that the level of investment the co-awardees have made is very huge. We are very conscious of that, especially the cost of capital because investment is not charity.

We know that it has very negative impact, even for the financial institutions. So we have been able to face the issue. As a matter of fact that has been one of the most challenging situations we inherited since our assumption of office and we have dealt with it seriously.

The Russia Ukraine conflict presents a very big opportunity for Nigeria to harness massive gas resource and develop gas infrastructure, which provides LNG to Western Europe because they want gas now to wean themselves off from the dependence on Russia. What’s your agency doing in this respect?

 Honestly, Nigeria is indeed more of a gas nation than a crude oil nation. It has huge resources.  Let me say that the situation in Ukraine has actually presented a huge opportunity for Nigeria to occupy that market space in terms of gas supply and I believe that it is possible.

And as a regulator, we are doing everything possible to ensure that Nigeria is able to actually fulfill that obligation. We are reviewing the field development plans by operators at the moment to ensure that more gas is produced and pushed to the field.

You will recall that a local investor, that is UTM offshore, is in the process of completing the project. The commission encouraging the investor to actually get that project completed in collaboration with the NNPC.

That project has the capacity to put in the market more than 2.2 million tonnes of gas per annum. And equally the LNG will be able to push more gas into the market.

So in the long term, by the time the Train 7 is equally completed, we believe that Nigeria will be in a much better capacity to fill the market gap and optimise gas supply to the market.