National Oil Company / International Oil Company
Cooperation in Oil and Gas Activities
OPEC International Seminar 2006 12th –13th September, 2006 Vienna, Austria Content
Global Industry Dynamics and Production Capacity Requirements
IOC/NOC Cooperation – The Nigerian Historical Perspective
New Challenges Defining Future NOC/IOC Cooperation
Framework For NOC/IOC Cooperation – The Nigerian Experience
Concluding Remarks Global Industry Dynamics and Production Capacity Requirements Rising Commodity Prices
Historical Crude Oil Price Natural Gas Spot Price
$16 $14 $12 $10 $8 $6 H enry$4 H ub $/mm btu $2 $0 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source : NNPC
Recent observations in global markets suggest a sustained shift in oil and gas prices to levels unprecedented in previous years. Global Industry Dynamics and Production Capacity Requirements Unrelenting Demand
About 4% Growth Annually in China, India, Korea Per Capita Income
Per Capita Oil Consumption (bbl/yr) Source : Economides MJ - UH
Unrelenting demand, particularly in Asia is likely to sustain the high prices. Significant production capacity growth is imperative if more moderate prices are to be realized. Global Industry Dynamics and Production Capacity Requirements OPEC Reserves
OPEC countries dominate the world’s remaining crude reserves, most of which are managed by NOCs. NOCs will therefore play a major role In meeting future capacity requirement. However, meeting this will require cooperation with IOCs. Content
Global Industry Dynamics and Production Capacity Requirements
IOC/NOC Cooperation – The Nigerian Historical Perspective
New Challenges Defining Future NOC/IOC Cooperation
Framework For NOC/IOC Cooperation – The Nigerian Experience
Concluding Remarks NOC IOC CO-OPERATION Overview of The Nigerian Experience – Reserves And Production
Source : NNPC Source : NNPC
Nigeria has seen a steady growth in oil reserves. This has also translated into a steady growth in production capacity. NOC IOC CO-OPERATION Overview of The Nigerian Experience – Production Growth
Specifically by the end of 2006 alone, over 500,000b/d will be added to global crude oil capacity from Nigeria NOC IOC CO-OPERATION The Nigerian Experience – Gas Capacity Growth
Similarly for gas, Nigeria’s capacity is set for growth to meet an unprecedented demand growth both from export and domestic markets. NOC IOC CO-OPERATION The Nigerian Experience – Structure for Cooperation
Stable and Enduring Agreements
Flexibility and Adaptability z Quick resolution of difficult issues – MOU etc.
Attractive fiscal and responsive regime
Attractive PSC contracts
The observed growth in oil, gas reserves and production growth is anchored mainly on historical cooperation between the NNPC and IOCs through 3 formal structures – JV, PSC, SC. This cooperation has been enabled by a few key factors, notably a stable and adaptable commercial environment Content
Global Industry Dynamics and Production Capacity Requirements
IOC/NOC Cooperation – The Nigerian Historical Perspective
New Challenges Defining Future NOC/IOC Cooperation
Framework For NOC/IOC Cooperation – The Nigerian Experience
Concluding Remarks THE NIGERIAN EXPERIENCE 4 New Challenges 1. Increasing focus in addressing economic empowerment and growth of host community to mitigate against disruptions 2. Increasing demand by the Nigerian people for visible contribution from the oil and gas sector to national economic growth 3. Increasing technological challenges associated with finding new oil / gas, particularly in difficult terrains e.g. deepwater, including the challenge of developing the requisite skills and capabilities to support the required capacities 4. Huge funding challenge associated with rapid capacity development Going forward, 4 new challenges confront the NNPC and IOCs in Nigeria. These challenges call for a revisit on the anchors of cooperation. A more strategic approach to the cooperation will be required to overcome some of the challenges NEW CHALLENGES Niger Delta Challenge Root Causes Manifestations Socio-economic Conditions Riots, protests z Unemployment Property destruction z Limited / inadequate infrastructure Militia assaults z Low literacy level Oil theft z Hostile terrain Perceived and actual Small Arms marginalisation Money laundering Poor Governance Social Disintegration Some occasional unprovoked Competition for oil company attacks on members of the attention and benefits security forces and hostage Lack of acceptable framework taking of oil workers for adjudication in claims Oil spills with criminal intent Availability of small Arms and Ammunitions Military engagement Production deferment NEW CHALLENGES The Economic Growth Challenge
In Nigeria the oil sector contribution to GDP is disproportionately small when compared with its contribution to earnings. NEW CHALLENGES The Technological Challenge & The Challenge of Skills and Capability Growth
Increasingly focus is shifting to deepwater. Over 7bn bbls and 19TCF of gas have been discovered recently which will underpin future production growth. However, technology and robust skills and capabilities will be required by NNPC to realise the full potential of the Nigerian deepwater. NEW CHALLENGES The Investment Level Challenge
Over $60bn investment is required by 2008
Govt. equity share is high, but there are challenges Costs are rising With increasing PSCs, govt. earns less
Current levels of funding by the govt. of NNPC equity may not match-up to the required investment level
Over $60bn is required by 2008 to deliver Nigeria’s capacity aspiration. This level of investment requires innovative and structurally more complex arrangements beyond traditional JV cash call Content
Global Industry Dynamics and Production Capacity Requirements
IOC/NOC Cooperation – The Nigerian Historical Perspective
New Challenges Defining Future NOC/IOC Cooperation
Framework For NOC/IOC Cooperation – The Nigerian Experience
Concluding Remarks FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Increased Economic Empowerment of Host Community Federal Government Intervention
Derivation Fund and Revenue Establishment of the Niger Delta z 13% derivation introduced at the Development Commission by the re-emergence of democracy in ACT of 2002 1999 z Focus on human development projects in the area of education, z Significant increase in the skills etc. with potential for revenue earnings of the oil impacting conflict resolution producing states compared to z Provision of critical infrastructure non-oil producing states Establishment of Gulf of Guinea Environmental House Cleaning - Energy Security Strategy Legislative Measures z Ensure security of energy supply z Establishment of the Federal whilst promoting sustainable Environmental Protection development of the region in a Agency (FEPA) in 1988 to control climate of peace rate and quality of effluent z Cooperating with foreign discharge governments in the areas of sustainable development, small z Establishment of the Ministry of arms control and maritime security Environment and money laundering FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Increased Economic Empowerment of Host Community Recent Presidential Initiative
Federal Government interventions span 9 areas: Employment generation; Transportation; Education; Health; Telecommunications; Environment; Agriculture; Power and Water Resources Development projects to be executed by Federal Government include: z Creation of 20,000 new jobs for indigenes in various sector of the economy (Army, Navy, Air Force, Police, Federal Civil Service, Teaching and Oil Sector of the economy) z N230 billion for dualisation of East-West Road. Project execution to start in May 2006 z River Niger to be dredged z NNPC to build 12 floating mega stations z Rural electrification for 396 communities z Take-off of a Federal Polytechnic in Bayelsa by September 2006 z Collaboration with GSM providers to extend coverage to major towns and communities z Empowerment of the National Spill Detection and Response Agency to eliminate water pollution These bold initiatives have already generated very positive response from all stakeholders FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Increased Economic Empowerment of Host Community Effort of Security Agencies and Maintaining Law & Order
Despite the constraints facing the operations, the Niger Delta situation is very much under control
Efforts of the Security Agencies include but not limited to the following: z The Joint Task Force (JTF), “Operation Restore Hope” has been in the region since August 2003 to restore law and order z Security Agencies have effectively curtailed the operations of illegal bunkerers/crude oil theft and to date, a number of vessels/barges have been arrested z Although “Operation Restore Hope” has enhanced the security situation of the area, there are a lot more to be achieved in checking the criminal activities of the militia z Disarmament, demobilisation, re-integration FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Increased Economic Empowerment of Host Community Intervention by Other Stakeholders
State Governments NNPC and IOCs z Coordinating the efforts and resources z Industry-wide community projects now of the various stakeholders (e.g. NNPC shifted towards Sustainable and JV Partners, NDDC, Governments Development with increased focus on of the USA and UK, Donor Agencies) so Economic Empowerment as to integrate them with on-going development activities of the State z The Niger Delta region is strategically Government positioned to take advantage of the NGOs and Donor Organisations development of large scale Bio-fuel (European Commision, World Bank, projects being initiated by NNPC. The USAID, UNDP, IFAD, DFID etc). Bio-fuel project will ensure rural Intervention include: development and increased direct and indirect jobs creating increased z Strengthening rule of law, fight against corruption and improve management household income annually z Supporting poverty reduction, HIV/AIDS, etc. z National capacity building in conflict analysis and resolution Need to accelerate and sustain current developmental efforts of the Oil and Gas industry FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Sustainable Economic Environment National Content Agenda
Objective – Domiciliation of Spend Enable linkage with economy Impact economy of Niger Delta Enable sustainable oil activity
Anchors – 3 Key Areas of Spend Procurement, Fabrication, Engineering & Construction
Critically dependent on cooperation between NNPC and IOCs to succeed
The National Content Agenda provides a framework for NNPC and IOCs to facilitate the development of an economic environment which can flourish and sustain continued capacity growth FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Sustainable Economic Environment National Content Agenda - Guidelines Issued to IOCs
Domiciliation of Engineering Design, Data Acquisition and Reservoir Studies
Maximize Local Fabrication Scope – Pressure Vessels etc. 16 Detailed Broad guidelines FPSO Integration To Be Done Within Country Guidelines From Mid 2006 have been Issued issued to the Specific Scope Defined for Indigenous industry Companies in Drilling etc.
Harmonize International Codes and Standards to Support Locally Made Products
16 detailed guidelines have been issued to the industry by NNPC. Cooperation guided by these guidelines will help deliver the intent FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Sustainable Economic Environment National Content Agenda - Success Stories
NC FAB TONNAGE GROWTH TREND
NC ENGINEERING DESIGN M ANHOURS GROWTH TREND 25000 6,000
5,000 20000 4,000
15 0 0 0 TOTAL TONNAGE 3,000
TONNES NC TONNAGE 2,000 10 0 0 0 1, 0 0 0
500 0 0
2001 2003 2005 2007 2009 PROJECTS PROJECTS PROJECTS PROJECTS PROJECTS 0 BONGA (2002) ERHA (2003) AGBAMI (2005) USAN (2006) BOSI (2007) BONGA SW (2008) DATE
PROJECT AND DATE OVERALL MANHRSNC MANHOURS PERFORMED
Increasing evidence of success across all IOC JVs. The fabrication tonnage in-country has increased steadily since 2003 across Shell, Chevron and XOM projects. Similarly, the Engineering ManHrs in- country continues to increase steadily from less than 500,000 to almost 4m by 2009 FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Technology, Skills And Other Capacity Transfer Unlocking Deepwater Reserves
4 Key Areas for Technology Critical Skills and Capabilities Transfer Project Engineering, Project FPSO technologies Management
Subsea technologies Contract Management
Drilling technologies Project Finance
Offshore gas evacuation and Entrepreneurship utilisation
Unlocking the vast potential in the deepwater fields requires cooperation that enables effective transfer of technology from IOCs to NOCs in 4 key areas as above. Underlying the technology transfer are critical skills and capabilities which also have to be developed FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Technology, Skills And Other Capacity Transfer Realizing the Skills and Technology transfer
1. Secondments from NOCs to IOCs and vice versa
2. Training 1. Joint curriculum development for universities etc.
3. Innovative joint ventures and alliances with focused capacity development objectives
4. Transfer of operatorships e.g. NPDC / IOCs
Various approaches exist to enable the delivery of transfer of technology and skills. In NNPC, the transfer of operatorship of some fields from IOCs to NOCs provides a platform for direct technology and skills transfer FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Technology, Skills And Other Capacity Transfer Unlocking Deepwater Reserves - Floating LNG Concepts
NNPC and Statoil are evaluating the floating LNG concept for deepwater Nigeria
Concept (if successful) would unlock over 4 TCF of gas reserves in one of the largest gas fields deepwater Nigeria
Study in feasibility phase and ongoing
Advanced technologies such as floating LNG’s are being evaluated through collaboration between NNPC and Statoil to unlock significant gas reserves deepwater which otherwise would have been stranded FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Technology, Skills And Other Capacity Transfer Unlocking Other Stranded Resources - Collaboration in Gas Master-Plan Over 180TCF of gas monetisation opportunities exist in Nigeria’s portfolio However, the current infrastructure and structure of the sector may prevent optimisation of value NNPC in collaboration with IOCs are exploiting opportunities for synergy via the gas masterplan initiatives
Further cooperation between NNPC and the IOCs is ongoing in the area of the Nigerian gas masterplan development. Through this cooperation, concepts in the masterplan through which boundaries between JVs and IOCs are transcended for the greater benefit of all are being realized FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Partnering to Access Financing Alternative Funding Success Story
Adhoc mechanisms for securing alternative funding have been explored through cooperation between IOCs and NNPC. Through knowledge sharing, there’s been a continued improvement in finance terms and ease of access to these funds. FRAMEWORK FOR STRATEGIC NOC/IOC CO-OPERATION Partnering to Access Financing
Options for Funding PSC Conversion JV Project Incorporation Financ NNPC Time to e Implement Minor Commercialisation Equity Sell Carry by 3rd Party Joint Down IOCs Funding Company Short term Corporate Loan Temporary / AdhocImpact Structural /Permanent However, NNPC is now working with IOCs to develop even more structured ways of funding. Currently NNPC and IOCs are evaluating some proposals for a structured long term approach to funding the sector Content
Global Industry Dynamics and Production Capacity Requirements
IOC/NOC Cooperation – The Nigerian Historical Perspective
New Challenges Defining Future NOC/IOC Cooperation
Framework For NOC/IOC Cooperation – The Nigerian Experience
Concluding Remarks CONCLUDING REMARKS
Increasing concentration of reserves and production potential in NOCs, dwindling reserves and production capacity in IOCs Increasing dependence on complex sources for oil and gas in the NOC portfolio, imply need for IOC leading edge technologies Cooperation between IOCs and NOCs now have to be strategic rather than adhoc, if sustained capacity growth in the industry is to be realized Key levers of strategic cooperation include 1. securing the economic environment that enables sustained capacity growth 2. partnering to develop and transfer critical technologies that open up stranded resources 3. partnering to strategically reduce costs as well as access funding CONCLUDING REMARKS
! Work in Progress
Strategic NOC – IOC cooperation is a continuing journey for us in Nigeria. Significant learning lies ahead!!