18-10-05 Nigeria's joint venture oil partners said meeting the Federal Government's target of raising crude oil production and reserves to 4.0 mm bpd and 40 bn barrels respectively, by 2010, would require a total investment of $ 40 bn (N 5.2 tn).
The Federal Government, however, said a review in the current level of funding of the joint ventures as well as the fiscal terms, would not be effected until the multinational companies begin publication of their expenditure and earnings in compliance with the Extractive Industry Transparency Initiative (EITI) procedure.

As part of the National Oil and Gas Objectives, the present administration in 2000 set the target of achieving 40 bn barrels of oil reserves from the then 25 bn barrels, raise oil production to 4.0 mm bpd from 2.0 mm bpd and planned to lave as revenue equal income from crude oil exports.
Outlining the financial implications of achieving these targets in Lagos, Chairman of the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry, Mr John Chaplin, said that to grow oil production capacity, the industry will need to develop about five bn barrels of crude between now and 2010.

Chaplin, in a position paper titled "Factors Impacting Resource Additions: An Operator's Perspective" at a Pre-Conference Workshop of the Nigerian Association of Petroleum Explorationists (NAPE), said that the industry will also need to develop additional 3.0 bn barrels in existing field if the country must maintain its current oil output of 2.4 mm bpd. At an average development cost of $ 5 per barrel, the industry will require "about $ 40 bn from now until 2010."
According to him, the target is realizable given the fact that the country still has undiscovered potential of about 62 bn barrels of oil equivalent (crude and gas). This is made up 25 bn barrels of oil equivalent in the onshore and 37 bn barrels of untapped reserves in the offshore region.

"This suggests that we will need to increase the spending rate significantly to meet production goals and then maintain these at higher levels than now if we wish to sustain production," said Chaplin, who is also the Managing Director of Mobil Producing Nigeria.
"The oil companies have shown a willingness to meet their share of funding. The challenge comes in the government being able to balance priorities to meet their share," he added.

Apart from providing the necessary funding, the oil majors namely Shell, ExxonMobil, Chevron, Agip, Elf and Pan Ocean are demanding better fiscal terms, which they said, would give them necessary incentives to take bigger risks in finding more oil.
Chaplin said finding more oil comes with higher risk as operators will be going into deeper horizons which posed both technical and economic challenges.
"A government has a clear duty to optimise its economic return on its mineral resources, however, it also needs to ensure the fiscal regime is not a hurdle so that fiscal terms need to be commensurate with both risks and cost of developments to provide the appropriate stimulus to reserve addition," he stated.

Nigeria holds an average 57 % shares in the joint venture, which account for more than 90 % of the country's 2.4 mm bpd production. Chaplin said that increased spending by both parties in the past led to discovery of over 90 bn barrels of oil equivalent since exploration began in the country in 1930s, with 7 bn barrels discovered in the last 10 years alone.
Oil exports account for 90 % of Nigeria's foreign exchange earnings. The country has earned $ 9.3 bn in excess income from oil as at August this year due to high oil prices, which are now being utilized to build power plants. However, the Federal Government said that on going review in the fiscal terms for operators as well as funding for oil projects would take into cognisance, the companies' readiness to comply with the EITI rules.

The government's position was espoused by the Director, Department of Petroleum Resources (DPR), Mr Tony Chukwueke, and the Group Managing Director ofthe Nigerian National Petroleum Corporation (NNPC), Engineer Funsho Kupolokun.
According to Chukwueke, the Federal Government is redefining its aspiration to go in line with revenue generation. The government, he added, was taking very seriously the non disclosure of the expenditure and earnings by the oil companies.

"Government must know what the companies pay and earn. It is not fair to the industry where the Federal Inland Revenue, the Ministry of Finance, the Central Bank of Nigeria, the NNPC, and the DPR all having different figures on the same issue because the industry don't say how much they pay."
"I was shocked the find in one instance, a joint venture firm posting drilling cost for onshore well for $ 24 per barrel. I never knew such cost could be incurred. Something must be done about this cost issue because every dollar invested in operation, Nigeria accounts for 98 cents. If we did not manage this cost issue very well it is going to drive everything we are discussing out of the window,"said Chukwueke.

Kupolokun, said that the time has come for the industry to evolve a mechanism for limiting technical cost even for the deep offshore, based on global industry benchmark.
The NNPC GMD pointed out that there is a limit to the amount of resources that the government can commit to the oil industry on account of competing national needs. He noted that the joint venture partners had cashed in on the decline in funding on the part of the Nigerian government to skew operation in favour of production, "while compromising on exploration activities."

"This limited allocation to new exploration programmes within the conventional terrain has, over the years, impacted the rapid development of new reserves," said Kupolokun. To address this issue, he said that some innovative measures would need to be adopted by government to encourage operators to maximally increase their exploration programmes.
The Nigerian Extractive Industry Transparency Initiative (NEITI) which is currently auditing the oilindustry he added, is also expected to come up with recommendation on how to curtail cost in oil exploration in a new Memorandum of Understanding (MoU) for the Production Sharing Contract (PSC) agreement.