Framework shift in Nigeria

How have trends changed over the last several decades in Nigeria’s oil and gas industry?
The evolution of the industry has moved towards its mature phase. Initially, the industry was primarily driven by IOCs in joint ventures with NNPC and deep offshore PSCs, which were first assigned in 1993. At that time, we barely had Nigerian independent companies. However, all that is now changing as we have a good number of Nigerian indigenous players that are active in the business and these players are gaining more sophistication and industry respect over time.
Related to that, the Local Content Act is in full play, as is the Cabotage Act. Besides ownership of acreages, there is a drive to have the Nigerian people be part of the industry, and this has recorded tremendous success. The market is getting a lot more diversified.
Furthermore, although not fully matured, we have also seen a movement where industry players are paying greater attention to the development of their gas reserves – both as a result of government policies and in a bid to take advantage of the power sector revolution, and also tap into industries that are heavily reliant on gas for their operations.
Lastly, oil companies worldwide are beginning to consider their role and existential future where oil will lose its sheen while clean and renewable energy takes centre place. Even amongst Nigerian players in the industry, discussions are already being had, and business models being developed around that future.
Where is the local oil and gas industry currently heading?
First of all, I think we will see more competition, even among the local players, which will drive the price of production lower. Before now, everything was decided in Oslo, Hague or Houston, now there is a push for all that to happen in Abuja, Lagos and Yenegoa.
The second factor I see concerns the transfer of skills. For instance, the Egina FPSO is the largest in the world, and the topsides are being fabricated locally.
The third thing that we see happening in the local oil and gas industry is going to be consolidation. With the price of oil coming back up, there are going to be mergers and acquisitions amongst players. It is a good thing because we will start seeing more scale.
I also see the industry moving towards increased gas production, not just for exports but for local consumption. This would be challenged by the usual perennial problems of lack of infrastructure, poor fiscal terms and so on, but ultimately, the industry will overcome those challenges in the next few years.
In the downstream sector, opportunities exist in refining, distribution and marketing of petroleum products, byproducts and derivatives, and I foresee that market industry increasingly moving in this direction in the near future.

What do you think are the main risks and advantages for potential investors?
One key risk for investors is the flux in the regulatory landscape. There is a lot of instability in regulations, policies and laws. We see a lot of arbitrary changes in the rules.
An example that comes to mind is the renewal of leases, which should ordinarily be a straightforward process if the leaseholder has complied with the terms of the original lease. We have seen a lot of investors struggle with this impediment to funding and financing which is due is the government’s undue delay in the renewal of leases, and the regulator gives no assurances that the lease will be renewed. There needs to be more certainty about rules with regards to lease renewals and the applicable timelines by which the renewals will be granted. They should be specific and strictly complied with by regulators, thereby giving confidence to investors in the regulatory process.
Another risk is civil unrest and insecurity in the oil-rich areas, but one must mention that things have largely stabilised in those regions for a while now, and we must commend those responsible for such sustained peace and hope that things will continue that way or even improve.
In terms of advantages, there is plenty of flexibility in the Nigerian market different from what you see elsewhere. The government has also offered incentives to encourage further developments in the sector, especially in the area of gas development. The requisite skills and manpower are also available, and at very competitive pricing. The size of the Nigerian market is also a key factor. The in-country demand is enormous and any investor who focuses on servicing even the Nigerian market alone, for instance, in the area of refined products, will be in a break-even position in no distant time. With proper planning and structuring, an investor in the Nigerian oil and gas sector can hardly go wrong.
What impact do you think the Petroleum Industry Governance Bill (PIGB) will have?
From the unbundled PIB, the Petroleum Industry Governance Bill is the first in a series of long awaited petroleum industry laws designed to reform the Nigerian oil and gas industry. It currently awaits the presidential assent (which has been the status for a long while now).
The PIGB on its own is commendable. Whilst there is still uncertainty on whether or when the president will give his assent to the PIGB, the harmonised governance bill in its current state serves as a springboard for the much-awaited dispensation of non-discriminatory allocation of acreages and curbing of abuse of dominant power by the regulator. With the introduction of a single and independent petroleum regulator, operators within the sector and potential investors will no longer have to contend with similar requirements from multiple agencies. A single petroleum regulatory agency will assist greatly to streamline the regulatory process, introduce clarity and reduce the several layers of bureaucracy in a sector that is already notorious for unnecessary regulatory processes and hurdles.
An endemic problem in the management and operation of the nation’s petroleum assets has been the absence of transparency. If the proposal to restructure the NNPC for transparency, accountability and value addition scales the outstanding regulatory and executive hurdles, the nation’s asset-holding vehicles will, for the first time in Nigeria’s history, become positioned to compete globally and attract funding for resource exploitation. The bill will create efficient regulatory agencies and further encourage the development of Nigerian local content in the oil industry.

What are your thoughts on gas development in Nigeria?
Gas development has been at the core of the latest fiscal incentives that the government has given. However, we have not been able to commercialise gas in Nigeria to the level that is required because gas prices are tracked with crude. We have never done exploration to produce gas as such. In most cases, it is simply an offshoot of oil exploration. For a country with enormous gas reserves as Nigeria, we can certainly do better.
People are not keen about doing local gas development. There is too much of a disparity between the price of gas locally and in the international market. Everyone wants to build an LNG plant because the international offtake price is significantly better than the local gas price. Why take the gas outside when you can sell it here? The problem is that the price does not correlate with the required investment.
We need gas to develop our power plants and to industrialise Nigeria. It is something we must do, and the gas policy must be taken very seriously. The government is trying to encourage the development of more gas-fired power plants, but they need to liberalise and fully support the gas market for that to happen. Every day, we are flaring gas and flaring billions of dollars of it. The government should declare a national emergency on the development of gas and its associated infrastructure and put in place a commercially driven and acceptable framework for investment in gas. Although efforts are being made in this regard, the consensus is that we are not doing enough as a nation to make sure that people develop it. We are not giving the incentives that are necessary. Everyone just goes for crude and gas is ancillary. We need people in there to make it happen. We are not sophisticated gas-wise because we lack sufficient experience in gas exploration and development.

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