Reform of Oil & Gas Sector Management in Nigeria

Transcription

1. Contents CurrentStateoftheNigerianOil &GasSectorandNNPC OilandGasIndustryReforms OngoingNNPCReforms TheFutureofNNPCandtheOil&GasSector 1
2. The Nigerian oil industry is faced with declining production and increasing cost … Proven Reserves (MMbbls) §  Declining JV reserves: -  In 2013, JV reserves had declined by 15% while PSC reserves grew by 9%. PSC JV 40,000 35,000 +9% 30,000 25,000 -15% 20,000 15,000 10,000 5,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average Daily Oil Production (‘000bpd) 2,450 2,476 2,327 2,142 581 PSC 873 842 2,194 2,369 2,166 871 JV 1,457 1,233 1,391 §  Other issues: -  Funding constraints, matured fields, ageing facilities, security! JV Technical Costs ($/bbl) 25 1,302 -62.0% 1,323 19 17 15 10 1,299 932 1,019 978 889 763 711 2009 2010 2011 2012 2013 2014 26 27 22 20 1,373 1,246 Technical Cost 26 2,013 1,868 1,455 §  JV production decline: -  62% within a 10yr period. 30 2,262 2,009 §  Increasing production cost: -  JV production cost has increased from sub $10/bbl to $27/bbl in 2014. 17 19 +248.2% 13 8 5 0 2005 2006 2007 2008 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2
3. Oil &GasRevenueProfile: Jan2013–Sep2015 Joint Venture Cash Calls Appropriated Joint Venture Cash Calls Funding 1,400 Oil & Gas Revenue 1,323.08 1,305.36 1,300 1,200 1,121.81 1,118.20 1,118.79 1,095.39 1,100 1,103.20 1,036.67 1,036.19 1,000 900 971.08 839.75 881.12 891.91 898.46 870.15 833.62 800 CalendarizedJVCC 831.91 772.21 767.00 720.62 761.08 700 669.40 667.00 600 505.67 500 505.78 502.39 491.62 419.41 400 387.93 376.64 338.10 300 271.99 225.74 200 100 0 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 Mar14 May14 3 Jul14 Sep14 Nov14 Jan15 Mar15 May15 Jul15 Sep15
4. NigeriaCrudeOilProducKon TrendbyBusinessArrangement :2006-2015 4
5. ComparisonofGovernmentRevenues JVvs .PSC–CrudeOilPriceof$60/bbl Govt.revas%oftotalrev–60.02% Operatorrevas%totalrev–39.98% Govt.revas%oftotalrev–35.87% Operatorrevas%totalrev–64.13% 60.00 60.00 1.67 2.30 OperatorsMargin NNPC’sMargin PPT 13.25 CostRecovery Royalty 3.31 22.51 All figures are in $/bbl 16.55 22.32 25.23 11.20 1.66 JV PSC 5
6. PriceIssues –NaKonalBenchmarkfor2015=$53/bbl DatedBrent:Jan2013–Oct2015…… 120.00 115.00 116 113 110.00 105.00 108 108 112 111112 111 109 108 108 109108 108110 Dated Brent $/bbl (Monthly Avg.) 107 102 102103 102 97 100.00 95.00 87 90.00 85.00 79 80.00 75.00 Benchmark Pricefor2015= $53/bbl 70.00 65.00 60.00 64 63 58 56 60 55.00 57 49 47 48 48 50.00 62 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 6 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
7. Low refinery capacity utilization and pipeline availability remains a great concern . §  L o w capacity utilization §  I n c e s s a n t p i p e l i n e s b r e a k a g e s nationwide 7
8. Over the years , NNPC had developed a reputation for poor performance and low accountability… Poor performance “The poor performance of the refineries in recent years (has been) due to inadequate Turn Around Maintenance” This Day Live “Nigeria losing 180,000 barrels of crude oil per day due to pipeline vandalism” Vanguard Nigeria “$20 Billion dollars missing in NNPC accounts” Low accountability Former CBN Governor Sanusi Lamido Sanusi 8
9. And as a result , NNPC has had cash flow challenges in the past 5 years, despite high oil prices. NNPC operating cash flow ₦ billion Average Brent oil price USD/ bbl Data source: NNPC financial report, EIA-STEO 9
10. In contrast , many other National Oil Companies (NOCs) achieved profitability during this period. Earnings before interest and taxes USD bn Petronas1 Malaysia 2 PTT Thailand 4 2 2 2 5 5 5 3 31 Statoil Norway 2 34 23 23 16 2010 2011 2012 2013 2014 Datasource:S&PCapitalIQ 1Gas,chemicalsandrefining 10
11. Major reforms are ongoing in the Oil and Gas Industry in line with the current administration ’s tripod agenda… Tripod Agenda “The New Agenda for the Oil and Gas Industry is centered around Having the right people, Doing the Ensure security of lives and properties Right things, At the Right time, For the Right purpose, to yield the Right results” Grow economy Managedcapacityexpansionisatthecoreof Nigeria’sresponsetotheweakeningoildemand growthandsupplyglut. Security Economy Anti – Corruption Growthinoilreservesandmanaged expansioninproducKoncapacity ReposiKonGasforrapiddomesKc, regionalandexportpenetraKon Achieve zero tolerance for corruption Revitalisedownstreamcapacityto supportdomesKcenergyneeds ReformkeyinsKtuKonstoanchor sustainedgrowthintheindustry 11
12. In reforming Nigeria ’s oil and gas sector, key areas have been identified… §  As market conditions become more challenging, transparent and profitable partnerships with globally recognised and experienced partners will bridge capability and funding gaps as needed §  Investment is needed in Nigeria’s oil sector: Upstream capex spending has increased only 2% since 2010 Attract investments from broad set of E&P players to increase production and bridge capability gap. 1 Running production acreages Encouraging investment inflow 2 to Nigeria’s oil and gas industry Engaging with local 3 communities 4 Improve Revenue generation drive to Federation. Driving regulation to develop 5 the sector income. §  §  §  §  §  §  §  All oil and gas companies should engage with communities to align objectives. Curb pipeline vandalism and theft and improve the integrity of all critical assets. Currently focusing on quick-win projects that would deliver barrels in the immediate/short-term. Invest in Refineries’ TAM to achieve 90% capacity utilization. Encouraging a fast-tracked PIB, to clarify direction and encourage long-term investment in the industry. Develop market based framework for the management of petroleum products subsidies. 12
13. In reforming Nigeria ’s oil and gas sector, key areas have been identified…/2 Promoting Transparency, 6 Integrity and Accountability 7 Embraced Commercial mindset. §  §  §  §  §  §  §  Optimizing deployment of 8 Human Capital 9 Driving cost efficiency for all our processes. PublishedmonthlyOperaKonsandFinancialReportofthe Corpora5on. ConductedTransparentCrudeOilTermContractbiddingprocess. Createasimple,robustandtransparentupstreamcontrac5ng process. Reviewedandcancelledallsub-CommercialAgreements. Ins5llingValue-for-MoneyapproachtonewContracts. OurSBUs/CSUsarebeingcommercializedforcostefficiency andprofitability.(NPDC,NGCandPPMCunbundling) Divestpoorperformingassets. §  IdenKfiedandplacedrightandqualifiedpeopleinrightplaces wheretheirskillscouldbeputtobestusefortheCorporaKon. §  §  Ourcostsarebeingbench-markedagainstindustrystandards. AggressivelyengagingourJVPartnerstodrivedowncostof crudeoilproducKonwithoutcompromisingGovernment aspiraKons. Decreasecosts,restructureorganizaKonsandunbundlePPMC andNGCandreducecostsacrossSBUs. §  13
14. WeidenK fied20PriorityFixestoincreaseNNPC’sprofitabilityand improvegovernance… Objective Initiatives Reduce costs and stop waste 1 1.  2.  2 3.  3 4.  4 5.  5 Reduce and audit costs Restructure corporate centre and staffing Renegotiate existing contracts, including PSCs Streamline subsidy management Boost pipeline security Shine the light Ensure end-toend transparency 6.  6 7.  7 8.  8 Enhance transparency and accountability Achieve zero tolerance for corruption Rebrand NNPC’s image Increase efficiency Push for best practice efficiency in operations 9 9.  10.  10 11.  11 12.  12 13.  13 Unbundle PPMC Unbundle NGC Reduce contracting cycle Restructure refineries Centralise and reform information technology Drive delivery and execution 14 Embed staff and business performance management 14.  Maximise profitability 15 15.  16.  16 17.  17 18.  18 19.  19 20.  20 Stop the bleeding Manage performance Push profitability Facilitate JV funding and reduce cash call issues Improve retail profitability Deploy and attract focused investments Re-kit NPDC Expand crude marketing Generate power profitably 14
15. In twelve weeks at NNPC , the New Management have enhanced commercial value, increased productivity and improved governance. Enhanced commercial value $420 mn Increased productivity and efficiency 231 million scfd Due for recovery from legacy swap contracts Increase in gas supply to power plants 1 x Week Improved governance Weekly executive performance dialogues to improve performance Alternative Financing $7 bn $1.5 bn Tax amount to be covered from NNPC JV partners 10,000 – 20,000 bopd 20 fixes Increase in NPDC’s daily production Launched to increase revenues and reduce costs 1 x Month 2 x Month amount to restructure Monthly steering committees to ensure 20 Fixes success Biweekly performance dialogues at NPDC to improve production 15
16. The 5-year value potential for the 20 fixes is large and can restore NNPC to profitability BASED ON 2014 FINANCIALS Small bubble = 2020 impact of <50 bn Medium bubble = 2020 impact of 50 – 200 bn Large bubble = 2020 impact of > 200 bn Estimated 2016 operating income impact3 , NGN bn 400 Streamline subsidy management Increase revenues…. 3 350 Boost pipeline security 11 Reduce contracting cycle 12 Restructure refineries 300 250 15 Facilitate JV funding and reduce cash call issues 16 Improve retail profitability 200 18 Re-kit NPDC 19 Expand crude marketing 1 150 20 Generate power profitably 100 50 5 0 -50 9 12 2 4 18 15 10 13 … and decrease costs 11 16 19 Low Moderate Ease of implementation 1 Does not include the fixes associated with governance 3 Calculated pre-tax High Reduce and audit costs Restructure corporate centre and staffing Renegotiate existing contracts, including PSCs Unbundle PPMC 10 Unbundle NGC 13 Centralise and reform information technology 2 Preliminary analysis, based on 2014 financials 16
17. ThesereformspresentdiverseopportuniKesforInvestors … Exploration and Production activities Gas Infrastructure expansion project Power Retail Outlets Transport Haulage Manufacturing Refineries and Petrochemicals Off-take and Marketing Services of LNG LPG Storage, Distribution and Marketing Fertilizer and Agro Allied Chemicals
18. ...And will also impact positively on Nigeria’s economy Upstream ▪  Unlock more reserves ▪  Increased Production ▪  Increased Tax and Royalties accruing to FG ▪  Drive increase in domestic service providers ▪  Increased local content Midstream ▪  More Gas to the domestic economy that will kick start other industries. ▪  Increased Power Generation and Supply to the National Grid- Downstream ▪  Reduced Import Bills on Products ▪  Availability of petroleum products in the domestic Market ▪  Encourage 3rd Party investments ▪  Increased LPG incountry Others ▪  Transparency and accountability will enable increased revenue streams to Federation account. 18
19. As well as restore NNPC as a world-class National Oil Company . Return NNPC to 1 profitability in the next 18 months Install transparency and accountability 2 into the culture of the organization Instill a performance and commercial3 oriented mindset into all operations Rebuild the reputation of NNPC 4 and the Nigeria oil and gas industry 19
20. Thank You . 20