Enhancing indigenous participation in the Nigerian oil and gas sector
In the last nine years, investment in the Nigerian petroleum industry has continued to grow steadily with over $67bn of new investments recorded up till June this year. This was boosted by the enactment of the Nigeria Local Content Policy initiative, which guaranteed that significant portion of new investments in the industry were being retained in the country.
With the upstream oil industry being the single most important sector in the economy, Nigeria’s oil wealth makes it more attractive to the major oil-multinationals, most of whom are represented in Nigeria.
The acquisition of major stakes by Nigerian Petroleum Development Company (NPDC) in OMLs 26, 30, 34, 42 is in line with the plan to ensure that local capacity is built. With this development, the need for indigenous oil companies to enter into partnership with other interest groups who can help them achieve both financial and technical competency has become obvious.
Between 2010 and 2020, it is projected that there will be a cumulative growth of 49.6 percent in Nigerian oil and gas liquids production, with volumes rising steadily to 3.5 million b/d by the end of the 10-year forecast period. Oil consumption is set to increase by 96.6 percent, with growth slowing to an assumed 7.5 percent per annum towards the end of the period and the country using 567,000b/d by 2020.
One big problems associated with this and which has remained unresolved has been the unwillingness of the governments to hand over its control of the strategic industry, despite consistent inability to meet its financial obligations to the joint venture partners. If not properly handled, this would cause problems for the growth of indigenous capacities in the industry, especially as it has to do with exploration and production by indigenous companies.
When NPDC realised that it would not be able to get the required fund to execute the activities that would lead it to its planned production of 250,000 barrels of oil daily in 2015 from the government, it decided to enter into partnership with Atlantic Energy and this has contributed tremendously to the technological experts required to achieve this target and also the cash required for the capital expenditure. This partnership has led to an investment of over $500m in NPDC operations by its partner, Atlantic Energy.
This investment has made possible the replacement and upgrade of the Utorogu Gas Plant to a 360 million standard cubic feet per day facility. This all-important plant is the single largest gas supply facility for the Escravos-Lagos pipeline system which distributes critical gas feedstock to power plants in South East Nigeria and to a number of countries in the West African region.
Observers of the industry anticipated that oil and gas production should grow significantly by 2015, on account of local participation by Nigerian companies.
The companies like Seplat, Pillar oil, Energier and lately Oando, that are striving to ensure that they make their marks in the upstream sector of the oil industry.
These companies have capacity to boost local production significantly. The growth target of meeting the over 20 percent daily national oil production in the nearest future is what the management of the new equity holders in some of the assets, NNPC and NPDC should be looking to meet and improve upon.
However, the enactment of the Petroleum Industry Bill (PIB) into law is very important if the desired growth in the oil and gas must be reached and local capacity enhanced. It is apparent that most multinational companies operating in the upstream sub-sector of the Nigerian petroleum industry have raised an alarm over some of the provisions of the yet to be promulgated Petroleum Industry Bill (PIB), but the importance of passing the bill into law should not be overlooked.
From inception, the Petroleum Industry Bill was designed to address the NNPC’s perennial financing difficulties for its share of joint venture operations with IOCs operating in Nigeria and to plug the pervasive culture of corruption while creating industry incentives for sustainable investment in gas production and processing, both for export and domestic consumption.
The strategic alliance between Atlantic Energy and NPDC which owns 55 percent oil mining assets has improved the crude oil production of NPDC. Atlantic Energy demonstrated capacity by helping NPDC (a subsidiary of Nigerian National Petroleum Corporation (NNPC) increase production.
NPDC’s production has increased tremendously, overshooting its production target for the year 2014 by 10,000bpd and its contribution to the gas domestic market is presently over 570 million standard cubic feet per day (mmscf/d). NPDC was expected to increase its oil production from the 140,000 bpd to 160,000 bpd by end of the year but by end of July 2014, production had reached 170,000bpd.
Central Bank of Nigeria (CBN) Governor Godwin Emefiele has also affirmed in his agenda that the CBN will support efforts at domesticating the country’s oil and gas resources to ensure that much more of these resources are produced and used here in Nigeria. This he argued, will stimulate inclusive growth, create jobs and reduce the pressure on the exchange rate occasioned by demand for imports of finished petroleum products.
Emefiele posited that these initiatives will be pursued in collaboration with the Ministry of Petroleum and Natural Resources, who set the core priorities for the sector. Also, any initiatives proposed, will need to be aligned with the policy intent of the PIB, adding that, with this in mind, at the CBN “we will recognise that there is a significant requirement for investment in the upstream sector especially for the Federal Government owned component of Upstream Joint Ventures. They currently struggle to match the investment in infrastructure provided by the IOC partners.
“Alongside the Ministry of Finance and the Ministry of Petroleum and Natural Resources, we will support efforts to secure these investments. We will explore how this can be done through international capital markets. This will require looking at the current JV structures and ensuring that our proposals sit alongside the PIB proposals,” he added.
Nigeria’s home-grown oil companies, a number of which are independents, are set to account for about 25 percent of oil production in five years from 10 percent in 2014.
Wumi Iledare, president of International Association for Energy Economics (IAEE), said: “If you look at the history of oil production in the United States, you will see that independents played an important role as the industry was maturing.”
He said the divestment by the IOCs is not necessarily bad. “It is an opportunity for indigenous players. As the IOCs go to more difficult terrain like deep offshore, then it is left for the indigenous companies to take over the onshore assets. They just need to take advantage of the migration of the IOCs to the deep offshore.”
Also Ambrosie Orjiako, chairman of Seplat Petroleum Development Company, stated that, “the future of the Nigerian oil and gas industry is closely tied to the emergence and continuing growth of Nigerian independents.”
In his presentation at the Nigerian Oil and Gas Week 2014 in Abuja, Scott Aitken, Atlantic Energy co-CEO, said that there were a lot of untapped potentials in the country’s oil and gas sector that can help boost production.
Aitken explained that there were several underdeveloped discoveries onshore Nigeria and if harnessed will significantly boost production of crude oil for the country. He, however, stated that funding is one of the major problems facing the industry. To reduce over-dependence on bank loans, Aitken suggested fast-track solutions that deliver early results and funding is required.
More opportunities have opened in recent years as the playing field has become more level and indigenous companies like Atlantic Energy are stepping up to fill needs met by international companies.