The Emerging Oil and Gas Sector: An Opportunity for Creating Citizen Wealth

National Oil Company of Liberia

Christopher Neyor

3 June 2011

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Speech by Christopher Z. Neyor, President & CEO of the National Oil Company of Liberia At Quarterly Dinner of the Liberia Business Association.

Mr. President, Officers and members of the LBA; distinguished guests, ladies and gentlemen:

I would like to thank the LBA for the invitation extended me to keynote this dinner event. This is the second time being chief executive of a major national entity that I have been invited to speak to a major business group on the impact of our product, services or policy on business development and profitability. Over 20 years ago, when I served as Managing Director of the Liberia Electricity, I was invited by the Liberia Chamber of Commerce under the presidency of my friend Cllr Seward Cooper to speak on electricity availability, reliability and affordability. Today, as President and CEO of the National Oil Company of Liberia, I am invited here by you, the Liberia Business Association, to speak on the emerging petroleum sector and the indigenous business community.

In obedience to your kind invitation, I would like to seize this opportunity to speak to you on the topic, “The Emerging Liberian Oil and Gas Sector: An Opportunity for Creating Citizen Wealth”.

The foremost duty of a government is the welfare of its citizens, their safety, their health and economic wellbeing. It is a well accepted theory that no government creates wealth or at least no government can create wealth optimally. Wealth is created efficiently in a society when government provides the enabling environment for its citizens to create wealth. That enabling environment is created when a government through policy instrument provides the needed education and capital access to its citizens for private economic activities that create wealth among its citizen with much ripple effect contributing tremendously to social stability.

While a student at the University of Liberia in the 1970s, there was a national debate in the class rooms, the beer bars and street corners about the government procurement policy where 10% of the government procurement budget was set aside for Liberians. One economic professor commented that this was ludicrous and should have been the other way around where Liberians had the 90%.

But frankly, over the years, there have been two major hurdles to Liberian business development: training and access to capital. It is often said that Liberians do not take business to be a serious business both at the government policy level and at the individual business start up and operation level. In order to take citizens business development serious, we must establish or operationalize the Liberian equivalence of the US Small Business Administration. It is small and medium size businesses (SMEs) that create the jobs, the profits and some eventually become big businesses.

Another serious handicap Liberia and most developing countries have faced over the past decades is the extraction of rich natural resources which make millionaires of others but leave the citizens with not much to show after depletion of the resources. We have seen this with our iron ore mines and huge agriculture plantations. While I believe in fostering a healthy investment climate, this should not and must not be at the expense of creating the environment for citizens to create wealth or the country to develop some vital infrastructure.

Emerging Petroleum Sector

Now we have an emerging natural resource call hydrocarbon or petroleum or oil and gas with potential value in hundreds of billions of dollars, making the value of all the other resources with past or future exploitation paled in comparison.  The question being asked by many of you in this room and around the country is, “Will Liberians be bystanders again while others make millions and billions of their hydrocarbon resources?” President Ellen Johnson Sirleaf is determined for this not to occur.

Let me give you a few vital background information of this petroleum sector before delving into the wealth creation opportunity the industry brings. Upstream oil and gas is an emerging industry in our country and there is a lack of understanding of the intricacies of the oil business. First of all, we have to manage expectation. It seems to many that just because the news is out there that we will start drilling this year translate to having oil flowing and everybody made rich next year. It is not so.

There are three distinct periods in upstream oil and gas: the Exploration period which may take up to 9 years, the Development period which may take 5 to 7 years and then the Production period often over 25 years or so depending on the quantity of oil discovered.

Oil exploration or looking for oil is a very expensive and risky business. This is the source of the  basic premise underlying our petroleum sharing contracts called PSCs. We as a nation collectively own whatever hydrocarbon potential lies under our soil or beneath our ocean basin. As a developing country, we lack the finance, technical competence or management skills to do our own exploration, development and production. We therefore get into production sharing contracts with established oil companies through competitive tenders so that they bring in the necessary capital, technology and assume the risk.

I frequently hear the argument why are we giving these contractors tax and duty exemptions for importation of equipment and supplies used in their exploration activities. An oil contractor risks tens of millions of their money to drill in our water where the chance of discovery is often less than 20%. In addition, they have to pay certain annual fees to NOCAL for capacity building, social programs, education, rural energy and climate change. If an investor assumes all the high risk for exploration and pay to you hundreds of thousands of dollars, is it fair to ask him to pay import duties on his capital equipment?

The industry recognizes this risk taken by the investor and frontier country especially will find it difficult attracting quality companies, those with the integrity, financial strength and technical competence to perform if fiscal and other demands are beyond industry norms.

While the geology of our basin looks promising for oil discovery, until we actually drill, this cannot be confirmed and we remain a frontier country. We therefore must be careful not to want too much too soon or we risk the quality investors turning cold on us and we are left with the hustlers. We must be mindful not to be overzealous with good feeling of an impending oil find and begin to impose on contractors undertaking risky exploration conditions and charges unheard of in the region or global oil and gas business.

In my takeover remarks as President & CEO of NOCAL few months ago, I presented our strategic vision to achieve four objectives at the state owned oil company.

First is to work with all stakeholders to change the legal structure of NOCAL so that future oil revenues are not siphoned out of the company.

Second is the building of the needed human capacity in our emerging oil and gas industry. When NOCAL transforms itself into a real oil company with capability to operate a block and conduct exploration, it would add value and enhances the national revenue intake.

Third is ensuring our maritime boundaries with our Ivorian and Sierra Leonean neighbors are amicably established to avoid future conflict.

Fourth is our very vital objective that citizens of Liberia derive optimum benefits from current and future oil and gas revenues. It is President Sirleaf’s desire to create legitimate millionaires from the impending oil wealth. And this is the theme of this presentation to you, my friends and fellow citizens, creating national wealth from the emerging oil and gas business. Let me now spend a couple of minutes on how Liberian citizens can participate in this new national resource opportunity.

There are two kinds of opportunities whereby citizens can derive much wealth from our hydrocarbon business. The first is direct citizen equity participation in oil blocks. While the Petroleum Law allows for at least 10% citizen equity in oil blocks, this has been difficult to implement because of the huge cash requirement to meet the exploration work plan of a PSC. We have explored funding opportunity in the London capital market through an investment consultant to structure capital access for Liberians who win equity in oil blocks.

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