Text of a keynote address delivered by Nigeria’s Minister of Petroleum Resources, Ms. Diezani Alison-Madueke, at the venue of the Nigerian Oil and Gas Conference in Abuja, on Tuesday, February 21, 2012.

It gives me great pleasure to participate in this annual event that showcases topical issues in the Nigerian oil and gas industry. As I welcome you all to the annual Nigerian Oil and Gas conference, I am particularly mindful of the strategic position of the industry, not just regarding the economy but also the lives of the ordinary Nigerian, particularly given the events that have taken place in our country over the last few weeks.

Without rekindling any debates, my task today is to take an in-depth look at the State of our Industry. In doing so, I will review key highlights of the past year, bring some clarity to the challenges we currently, face with particular references to how we are tackling them with the actions we are taking in the difficult but inspiring journey of transformation, and lastly, I will share what our take is on the outlook for the future.

To get everyone on the same page, let me begin with some notable highlights since the last 12 months.

Performance Highlights

Since the assumption into office of President Goodluck Ebele Jonathan GCFR on May 29, 2011, the oil and gas sector has witnessed a renewed wave of activities and performance levels which have placed the industry on a renewed path of growth and sustained development.

In the upstream sub-sector;

• The nation’s actual crude oil (+condensate) production rose to an average of 2.39 million barrels per day, consistently maintained above the budgeted production level of 2.30 million barrels per day. In fact, today, we are even seeing production records of 2.5 million barrels of oil and condensate per day!
• Similarly, gas sales rose by more than 70% to an average 4 billion standard cubic feet per day in 2011 and for the fisrt time, industry supplied more domestic gas than was consumed by the power and industrial sector. The Nigerian Liquefied Natural Gas company (NLNG) had one of its most successful years, with production peaking at 21.2 Million metric tons in 2011 alone. Thanks, in no small part, to the amnesty programme which allowed unhindered access to oil and gas operations and activities.
• Exploration efforts continued in the Chad and other frontier inland basins. At this time, the Nigerian National Petroleum Corporation and the Federal Ministry of Petroleum Resources are concluding arrangements for contract awards for advanced seismic data acquisition and processing, to enhance subsurface imaging and evaluation of prospectivity.
• A major enhancement of deepwater oil production was achieved as a result of the arrival of FPSO Usan into the Nigerian waters. On completion of the subsea wells and facilities tie-in, in a few weeks, oil production will increase by about 180,000 barrels per day.

• We witnessed active portfolio actions by Shell Petroleum Development Company of Nigeria Limited (SPDC) with the divestment of IOC equities in 8 Oil Mining Leases (OMLs). Just as importantly, as part of the effort to grow the capacity of our National Oil Company, NNPC, with the special support of President Goodluck Ebele Jonathan GCFR, we assigned equities and operatorship in these producing blocks to NNPC’s subsidiary, The Nigerian Petroleum Development Company (NPDC). The impact has been tremendous, with their current production peaking at 111,000 barrels per day and 230 million standard cubic feet of fully utilized gas, a far cry from the 30,000 bbls per day that we met it producing just over a year ago.

In the gas sub-sector;

• Gas supply for power generation and industrial use has been sustained with supply outstripping demand both in the Western and Eastern axes. Available records indicate that the volume of gas available for power generation is unprecedented in the history of oil and gas in Nigeria.  Having attained a peak in gas supply towards the end of last year, we have recently experienced some technical challenges in supply resulting in a shortfall which we are working aggressively to bridge.

• Renewed efforts at ensuring relevant Gas Supply Purchase Agreements were executed in order to encourage upstream gas development. By the end of 2011, three Gas Supply Purchase Agreements (GSPAs) have been signed amongst buyers, gas suppliers (Egbin/Shell/Chevron/PanOcean) and the Aggregator Company.

• Contracts for the critical pipeline infrastructure for gas supply to Alaoji and Olorunsongo power plants were awarded.

• We secured approval to change the contracting strategy for OB3 gas pipeline, in order to expedite project execution.

• The Brass LNG project was fast-tracked including accelerating the commercial bid evaluation for the EPC contract. In addition, the gas supply challenges were successfully resolved.

• The implementation of the critical gas projects as encapsulated in the ‘Gas Revolution’ was kick started with the visit of the investors (Xenel of Saudi Arabia and Nagajurna of India) to the proposed site at Koko, Delta State for the 1.3 metric tonnes per annum Petrochemical and 1.3 MTPA fertilizer plants.

• As an offshoot of this, we enhanced investor confidence in the ‘Gas Revolution’ that led to maturing agreements for new gas utilization projects. These include: Brass Fertilizer plant in Bayelsa State; Indorama Fertilizer and methanol plants at Eleme, Rivers State.

Aspects of the Gas Master Plan were pulled out of the PIB and various gas pricing regimes were reworked:

• Gas to Power
• Gas to Industry
• Robust Commercial Framework including Securitization/partial risk guarantees along with the World Bank

• Gas Aggregator Company of Nigeria was established.

• Gas Network Code was established

• And of course, the Gas Supply Purchase aggrements

The downstream sector also witnessed a wave of activities have impacted the industry in a number of ways, namely:

1.       There were no major fuel crisis throughout 2011; this was achieved through a combination of offshore processing, swap arrangements and increased domestic refining by NNPC. For the first time in 8 years, the Fluid Catalytic Cracking Unit in Kaduna Refinery was commissioned. Other refineries in Port Harcourt and Warri were operated as much as availabilities were possible. As a result of this, taking PMS as an example, NNPC domestic refining contribution grew from a total of 795.72 million litres in 2009 to 1.14 billion litres as at August 2011. During the same period, domestic supply kerosene (HHK) supply grew from 408 million litres to 713 million litres. Unfortunately it was always a struggle to sustain operations because of incessant vandalism of both crude and products pipelines. In many instances NNPC had to implement alternative crude supply mechanisms to keep the plants productive.

2.       The integrity of key product pipeline infrastructure (Kaduna-Kano, Kaduna-Gusau, Kaduna-Suleja) was re-established. The impact of this is that more products are now available in inland depots enabling faster intervention when necessary.

3.       Contracts were awarded for the protection of major crude oil and products supply pipelines.

4.       Also plans are now in place to increase local refining capacity, through the following additional measures:

-We have concluded plans to revamp the existing refineries with a view to increasing domestic contribution to the national supply of petroleum products

-NNPC has engaged the original Engineering Procurement Construction contractors who built Port Harcourt, Warri and Kaduna refineries to ensure effective implementation of Turn-Around-Maintenance and Rehabilitation works. These contractors of our three major refineries were recently in the country to inspect and analyze how our refineries can be revamped with the hope of achieving 90% utilization capacity over the next 2 years.

-The greenfield refinery development project reached a significant milestone as detailed feasibility studies for three Greenfield Refineries were concluded.

In terms of broadening Nigerian Content and growing sustainable local capacity:

• We ensured the escalation of the historic use of made-in-Nigeria pipelines by ExxonMobil recently at its Edop - Idoho Offshore field.

• Secured placement of over 100 kilometers of pipeline orders in SCC Abuja, Nigeria’s only pipe manufacturing company.

• Advanced discussions and matured plans with Jiangsu Yulong of China to establish a 250,000 tons per annum Pipe mill in Nigeria.

• Developed the Nigerian Oil and Gas Employment and Training Strategy, which has resulted in the absorption of over 5000 engineers, geologists, welders and other skill sets into the industry and formed the basis of a national skill database.

• Launched the Nigerian Content Joint Qualification Standards, an electronic platform for the Board’s implementation of the NOGIC Act, especially its capacity Building & Monitoring functions.

• Established the Nigerian Content Development Fund, to be used for investment in Oil & Gas infrastructure, provide partial guarantee for service providers, manufacturers.

• Several scholarships were awarded to qualified Nigerians for various studies including MSc and PhD programmes in reputable Universities abroad.

In the Regulatory and Compliance enforcement areas, we:-

• Launched the “Offshore Safety Permit (OSP)” to manage safety capacities and competencies of personnel who embark on swamp, offshore and deep offshore operations in line with the expectations of the Nigerian Content Act.

• Completed the pilot scheme of The National Production and Monitoring system (NPMS) aimed at ensuring independent real time production monitoring, accurate production accounting and to enhance efficiency in Terminal Operations in the country.

• Drove the level of associated gas flaring to about 24%.

As we celebrate these successes, we must be mindful of the challenges within the sector, mostly characterized by sabotage, financial leakages, lack of structure and other deep-rooted inefficiencies.

In addition, the people of Nigeria have reinforced our desire for a change in priorities to make sure the doors of opportunity and the benefits therein open transparently and are available to all.

Tackling the Challenges

Ladies & Gentlemen, there is undoubtedly a need for change and we must rise up to the challenge!

This, I believe, should set the tone and indeed the theme for this conference.

At this conference, this year, we are called to assess our actions and commitments, to hold them up against the measuring pole of reality and give account to the faith reposed in us, by all key stakeholders in the industry – Investors, Financiers, Employees, Host Communities and the public at large.

As such; we must all sign-up to elimination of waste in the Oil and sector, whether by eliminating gas flaring, by preventing pipeline vandalization or by restoring the decaying infrastructure in the downstream.

We need to open the gates to true reform and fix the inefficiencies in our sector, open the gates to transparency and to accountability and to most certainly open the gates to greater investments into the sector to generate prosperity for all stakeholders.

These challenges are not new but it is our job as leaders to fix them and the time to act is now!

We have recently invited the EFCC into the PPPRA and NNPC to look into the management of petroleum products subsidies and prosecute anyone found culpable.

Also, in a bid to enhance our solutions to a number of targeted critical challenges, I have adopted an ‘out-of-the-box’ approach and reached out to patriotic Nigerians with undisputed integrity from outside the industry to enable us derive the benefits of a different and more varied perspective, but also to ensure that a broader spectrum of all stakeholders, not just the government, have the opportunity to provide input into the solutions. As such, we recently announced special committees headed by eminent Nigerians, namely:

1. The Special PIB Task Force headed by Senator Udoma Udo Udoma – a distinguished Senator, Lawyer and Businessman. This committee will work with the executive, and other stakeholders to review the provisions of the Petroleum Industry Bill, thereby and to assist in ensuring its quick passage into law;
2. The PIB Technical Committee headed by Engr. Osten Olorunsola, the Director, DPR, is charged with drafting a new bill;
3. The Special Task Force on Governance and Controls in the NNPC and other Parastatals, headed by Mr. Dotun Suleiman – astute management consultant, former Country Managing Director and Chairman of Accenture Nigeria. This committee is tasked with reviewing all existing controls within these Parastatals and developing a new corporate governance code for ensuring full transparency, good governance and global best practices across the sector;
4. The Petroleum Revenue Special Task Force, headed by Mallam Nuhu Ribadu – the pioneer Executive Chairman of the Economic and Financial Crimes Commission (EFCC) and a renowned crime fighter. This committee will review, verify and validate the collection of all revenues, specifically the outstanding taxes, royalties etc due and payable to the Federal Government of Nigeria; and
5. The National Refineries Special Task Force, headed by Dr. Kalu Idika Kalu, former Federal Minister of Finance and an astute economist, with Mallam Yusuf Alli as alternating chairman. This committee will review the current state of operational and commercial process capabilities of the refineries and develop a roadmap to grow the nation’s refining capacity, both new and existing, to meet domestic demand.

These committees are expected to submit their review reports over the next six to eight weeks and the recommendations thereof will be infused into the current administration’s broader transformation agenda. However, Report-Outs will be received and implemented on an ongoing basis.  I thank all of them for agreeing to serve this Nation in these critical times.

Outlook for the Future

These efforts are expected to compliment other reform actions we are taking, in particular the following practical steps:-

1.       Implementing the Petroleum Industry Bill, with focus on ensuring clarity of roles, fiscal terms, attracting sustainable investment into the sector, articulating incentives for growth in indigenous participation and establishing a clearer governance structure for industry. Already, the Nigerian Content Development Act recently signed into law by the Government has begun the process of growing in-country value within the sector.

2.      Concluding lease renewals already due or soon to become due. Tomorrow, we will be signing off the renewals for three JV leases operated by Mobil Producing Nigeria, and we expect others to follow immediately.

3.      Encouraging acceleration of Final Investment Decisions for major capital projects, including but not limited to the Brass and OK LNG projects.

4.      Refocusing exploration efforts in frontier inland basis in particular Anambra, Benue, Chad, Dahomey, Sokoto, Gongola/Yola and Bida. Consequently, close to $1 billion has been earmarked by this Government for seismic data gathering, surveys, exploration and appraisal drilling of these basins over the next 5 years.

5.      Intensifying effort on gas infrastructure development, by accelerating implementation of the Gas Master Plan and promoting investment in critical gas infrastructure to eliminate gas flaring and increase domestic gas utilization.

6.      Create an enabling environment and supporting framework for a sustainable deregulation of the downstream sector.

7.      Rehabilitation of the existing refineries, attraction of required investment into the existing refineries and the building of new greenfield refineries, with the aim of increasing local production to a minimum 60% of local requirement by 2013 and 100% by 2015.

8.      Driving the ‘LPG Revolution’ by directly promoting domestic utilization of Liquefied Petroleum Gas (LPG) and incentivizing new investment in LPG infrastructure. Already, we are in the process of setting up an “LPG Distribution Network” which includes largely indigenous operators, that will distribute LPG to various parts of the country, with supplies drawn from the proposed Gas Processing Facilities.

This sector will continue to innovate to generate growth and drive and entrepreneurship, whilst living up to its responsibilities to create jobs as, well as prioritize welfare of our workers and the communities in which we operate.

The promise of the President Goodluck Ebele Jonathan led administration is to ensure opportunity for everyone, through inclusive participation in harnessing the potentials of this nation’s resources in a defined, transparent manner. Also, the Jonathan administration will ensure the benefits are not only measureable in economic terms, but also in social development terms. That is the promise we aim to keep and that is the change we need to deliver!

As long as we are joined in common purpose, as long as we maintain our common resolve, our journey moves forward, and our collective future will be assured.

Let me conclude by reminding us all that this industry is actually derived from the natural hydrocarbon resources that forms the basis of God’s gift to Nigeria people and remains the bedrock of our economy.

I believe there are better days ahead in particular if we sincerely make the right choices to meet the challenges that face us.

Today, if you all feel the same energy, the same urgency and the same passion as I feel, then, I have no doubt that future generations will honor us for being bold enough to ensure the right foundation is established for the legacy of this industry.

I make this pledge today to work towards building this legacy and I ask you all to join me and do the same…

And on that note, I have the honour, pleasure and passion to formally declare NOG 2012 open.

Thank you and God bless.