Could you give us a background to Chevron in Nigeria?
Chevron Nigeria Limited is Operator of our joint venture with the Nigerian National Petroleum Corporation (NNPC). We have affiliate companies that run our deep-water operations. For our Joint Venture (JV) operations with NNPC, we have a large onshore operation of oil and gas fields and our shallow offshore fields in both oil and gas. We have our main terminal in Escravos, where all the oil and gas is processed and enters the domestic market on the gas side, while the oil gets sent to the Warri Refinery and also to tankers offshore. We also have our Escravos Gas-to-Liquids (EGTL) plant that takes natural gas produced from the fields and turns it into diesel and naphtha. It is a high-tech operation and one of only two in the world. EGTL is interconnected with our Escravos gas plant. We have the Agbami field where we are the operators, and we are partnered with Petrobras, Statoil and the indigenous company Famfa Oil and NNPC. That field has the largest floating production storage and offloading (FPSO) facility in the country, with a capacity of 250,000bpd and has been in production for 10 years. We are also partners in certain non-operated fields. We heavily invest here and spend about USD2 billion annually in operating cost and capital. We have three drilling rigs running; two of which are in our JV operations.
What is the importance of Nigeria within Chevron's global portfolio?
Chevron has been here since 1961, and Nigeria is critical to our global operations, constituting about 10% of our global production. There is great potential here for additional fields and investment if the investment environment is right for us. We want to help the country grow the oil and gas industry as well as the overall economy. We work closely with our stakeholders to help the country prosper.
What is Chevron's role in developing Nigeria's natural gas resources?
Chevron is the largest producer of domestic gas, and we focus on high-quality gas. We make up about 41% of the domestic market and are focused on keeping our gas facilities and levels full to maintain our gas supply. We are also working with the Nigerian Gas Processing & Transportation Company Ltd, and the Nigerian Gas Marketing Company to bring a new onshore field into the market. We are partners in the West African Gas Pipeline (WAGP) and have always been committed to help not only Nigeria but also West Africa utilize gas more efficiently and effectively.
How has localizing the supply chain helped Chevron?
It has helped us reduce some costs, by utilizing local suppliers. We must work with them to make sure every dollar we spend is the most effective; hence, we work closely with our local contractors. A great example is one of our partners Marine Platforms, which supplied us with a vessel for our subsea operations. We initially planned to use an international company but decided to work with Marine Platforms after they proved they had the capabilities to do the work. We ended up paying half of what we were quoted by international companies. If companies work with the right partners, they can add value and reduce cost.
Has a weak naira been able to reduce costs for IOCs and grow the industry through localizing the supply chain?
It has caused the local companies some challenges, and we have had to work with them on importing products into the country at competitive prices. We work hard to keep our costs competitive within Chevron and work with our contractors to keep our contractors competitive as well.
What is your assessment of the exploration environment in Nigeria?
We see opportunities for additional discoveries in Nigeria. On the JV side, most companies have not drillled below 12,000ft, as the shallower formations have been prolific. We have plans for two new seismic acquisitions to give us better data on deeper opportunities. There is a great deal of robust potential. From a government standpoint, Petroleum Industry Bill (PIB) needs to have globally competitive fiscal terms for investment in exploration in the deep-water and JV. Looking at the current draft of the bill, the JV oil side looks extremely competitive, and that will lead to additional projects on the JV for oil. The terms for deep-water and JV gas are not that competitive. It will reduce the number of deep-water projects to almost none if the fiscal bill passes as currently written.
What is the issue with the JV gas terms of the PIB?
The tax credits have been eliminated. In terms of the way production-sharing contracts (PSC) are structured, where 60% go to the concessionaire and IOCs only receive 40%, not having the tax credits really hurts oil and gas companies. It is the same thing on the JV gas side. It makes it challenging to do any gas projects. We have been engaging with the consultants that put that together as well as the National Assembly to make them understand what the potential outcomes could be based on their fiscal terms. On the JV gas side, there are attempts to make it a fair playing field. In reality, this will not benefit anyone; many indigenous companies have made that point publicly. On the deep-water side, the government wants more take upfront on projects, so IOCs and partners pay for exploration, development and facilities upfront, and we recover our costs through oil as we produce it.
What does Nigeria need to do to harness its potential in gas?
It comes down to the pricing mechanism. The right price is needed to make an investment. We need a better structure around marketing, and the cost of gas is an area that needs to be improved.
What is your outlook for the year ahead?
We want to be here for many more years. Getting the JV arrears resolved has helped boost investor confidence. From a Chevron perspective, we are actively drilling because we have confidence in the funding mechanism. The industry is also working with the NNPC to streamline the contracting process. Anything it can do to boost investor confidence will be helpful. It hinges on what comes out with the PIB, if it gets passed, and what the terms are. If it passes something that is globally competitive and is implemented well, then there is a bright future for additional activity in Nigeria in the oil and gas sector.