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Contract approval cycles threatens oil projects

By BusinessNews Staff on January 25, 2015

As competition for crude oil and investments in Africa grows amid the plunge in global oil prices, the time it takes for projects to be approved in the country as well as rising insecurity have been identified as factors affecting project costs.

Oil and energy experts said the development might worsen the economy of some oil-exporting countries.

The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Joseph Darwa, had at the 19th edition of the Offshore West Africa Conference in Lagos on Tuesday said politics, economics, technology and the environment had always been critical factors in the oil and gas business.

He said the challenge for the nation’s oil and gas industry was how to manage major projects through both price and fiscal uncertainty.

The Managing Director and Chief Executive Officer, Upstream Companies of Total in Nigeria, Mrs. Elisabeth Proust, stated that in terms of exploration, there was stiff competition in Africa, especially between West African producers and Mozambique, Tanzania and Kenya.

She said, “Exploration will preferably continue in countries offering attractive terms, incentives and facilitating the circulation of means and goods.”

She said in Nigeria, contractors integrated the cost of uncertainties and the time lag of contract approval cycles in their bid offers.

“If those approval cycles could be reduced, it would have a positive impact in reducing project costs. Other high expenditure uncertainties relate to the security cost of protecting people and installations as well as the time value of possible disruptions of the work,” Proust said.

She therefore said cost-efficiency was necessary to sustain their business, adding that it was one of the most critical challenges they would be called on to meet in the coming years.

“For example, we have sanctioned the development of Kaombo in Angola after saving $4bn in capital expenditure.”

The NNPC boss, who noted that the current slide in oil prices was caused by a combination of factors including lower-than-expected demand growth, continued strong supply growth, and an unexpected loss of OPEC discipline, said they meant significant implications for the industry.

He said, “Many companies have stretched cash flow statements and will have to reduce capital expenditures to maintain healthy balance sheets. This will result in delays in the development of (economically attractive) projects.

[Punch]

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