The Nigerian Government’s inaction from 2011 till date towards resolving issues surrounding the multibillion dollar Bonga South-west oil and gas development is truncating the Final Investment Decision (FID) on the project.
Stakeholders tell BusinessDay that more serious engagement by Government with Shell, General Electric (GE), the U.K Trade and Investment Agency and its U.S counterpart agencies, will give the project have a better of chance of coming on stream.
The Bonga Southwest/Aparo (BSWA) project is one of the world’s largest deepwater oil and gas projects set to develop 800 million barrels (MMbbls) recoverable reserves and is being sponsored by Shell in joint venture with NNPC, NCDMB, DPR and other Nigeria stakeholders.
It includes the construction of a new Floating Production, Storage and Offloading facility with an expected peak production of 225,000 barrels of oil per day and 270 million standard cubic feet per day of gas.
The current direct investment impact is estimated at $15 b with complimentary investment between $2 b and $3 b by suppliers and subcontractors.
Stakeholders involved in the project say they want the Federal Government to invite Shell and midwife conclusive renegotiation of unresolved production sharing terms, including cost consolidation, fiscal terms with consequential impact on government take, and ownership of gas.
They are also calling on the Federal Government to moderate negotiations of aspects of Nigerian Content that are driving high capex and consider alternatives being put forward by the project team to achieve long-term sustainable development gains in the country’s economy.
“Government’s intervention should focus on salvaging loss of opportunities for significant increase of employment, training and technology transfer that would result from a deferment of the Bonga Project,” stakeholders tell BusinessDay.
“They should also proactively respond to advocacy intervention of British Prime Minster David Cameron and US Secetary of Commerce, Penny Pritzker, with a clear project mandate of the government’s intention and strategy for attracting investments for development of the country’s vast off-shore oil and gas resources,” Stakeholders said.
The Bonga SWA project when operational is set to deliver some $50 billion net revenue to the FGN when on stream and additional $3.5 billion revenue through contractor taxes over the 2016 – 2021 construction phase of the project.
Obadiah Mailafia, former deputy governor of the Central Bank of Nigeria said of the project, “While government reserves the right to review and or renegotiate such contracts, Bonga south-west project is too important to be treated with nonchalance.”
Significant Nigerian content and employment creation will result from the venture, including some 3,500 direct jobs and 15,000 indirect jobs during construction, while 150-200 MMscf/d of Bonga gas can be made available to the domestic market to boost electricity power generation.
Stakeholders say other interventions the Government should pursue include: rephrasing of Bonga SWA cost recovery, which would improve governments take in the early years and for government to consider alternatives to Nigerian content rules that are driving high project capex.
Tosin Yusuff, Country Director, Nigeria, African Energy Association, said, “What the government can do is to create a higher level of confidence in the system. We need to optimise our processes (licensing, contracting, approvals) with due reckoning of the time value of money to safeguard investments in the sector. Also it is important to create a regional market to secure production within the sub-region (Africa).”
The project was recently dealt a blow when Ben van Beurden, Chief Executive Officer of Royal Dutch Shell plc said the company plans to put off the deal on account of the acquisition of British oil giant BG Group.
“For 2016, we have exited the Bab sour gas project in Abu Dhabi, and are postponing final investment decisions on LNG Canada and Bonga South West in deep-water Nigeria,” van Beurden, said during a Feb. 4 conference call and presentation of the firm’s 2015 fourth quarter and full year results.
The oil giant’s decision was hinged on reduction of operating costs and capital investment, following the slump in oil prices that has impacted on earnings.
But promoters believe that an intervention by the Federal Government with a stronger sense of engagement and urgency may yet salvage the deal.
PATRICK ATUANYA & ISAAC ANYAOGU
