Innovations in Nigeria’s upstream sectorSeptember 6, 2022
Gbenga Komolafe, commission chief executive of Nigerian Upstream Petroleum Regulatory Commission, talks to The Energy Year about the steps the commission is taking to foster technological advancement and how it plans to support Nigeria’s energy transition. Nigerian Upstream Petroleum Regulatory Commission has the statutory responsibility of ensuring compliance with petroleum laws, regulations and guidelines in the oil and gas industry.
This interview is featured in The Energy Year Nigeria 2023
What is the role and agenda of NUPRC as a new regulatory agency?
The NUPRC (Commission) was created in response to the dire need to optimise public governance in the Nigerian petroleum industry and to enshrine separation of roles amongst the policy, regulatory and commercial activities which were hitherto not distinctly carried out by various instruments of the government. Similarly, there was an apparent need to enhance the competitiveness and attractiveness of the industry to investment and also to bring an end to the lingering oil and gas sector reform embarked upon by the federal government about two decades ago.
Specifically, the role of the Commission encompasses its objectives; technical, commercial and regulatory functions; as well as its powers as stipulated in Chapter 1, Part III of the PIA [Petroleum Industry Act] 2021.
The Commission is primarily responsible for regulating, monitoring, influencing and enabling all activities in the upstream sector of the industry to ensure compliance with applicable technical and commercial rules, laws, regulations, policies, codes, standards and other instruments to ensure that operations are not only carried out in an environmentally friendly manner but also safely and sustainably.
Broadly speaking, the Commission is statutorily designed to be a 21st-century regulator and an investment enabler in the upstream petroleum industry that would conduct its activities in a transparent, accountable, ethical, professional, customer-oriented and investment-friendly manner to ensure optimal value creation to Nigerians and our stakeholders for shared prosperity.
How is the PIA positioned to benefit the Nigerian energy industry?
You would recall that immediately after the assent of the PIA in August 2021, Mr President set up a Presidential Steering Committee (SteerCo) to drive and co-ordinate the implementation of the law under the able leadership of the Minister of State for Petroleum Resources as the Chairman with myself, chief executive, NMDPRA [Nigerian Midstream and Downstream Petroleum Regulatory Authority] (Authority), group managing director, NNPC, executive secretary, PTDF [Petroleum Technology Development Fund] and other high-ranking public officials as members. The Steering Committee set up an inter-agency working group with representatives drawn from all of the agencies impacted by the PIA, the two industry trade unions and other relevant MDAs to undertake the day-to-day coordination of the implementation in collaboration with the institutional implementation teams set up by the Commission, NNPC and the Authority.
It is against this backdrop that the Commission is actively collaborating with the SteerCo and other stakeholders like the OPTS [Oil Producers Trade Section], the IPPG [Independent Petroleum Producers Group], etc. to ensure seamless implementation of the law to achieve its intendment in line with the aspiration of Mr President.
We are assiduously progressing the implementation in a way that industry operations are not adversely disrupted while adhering to the timelines enshrined in the law. We are simultaneously in collaboration with the SteerCo carrying out major reforms necessary to crystallise the provisions of the law into reality, from governance issues, structural emplacement, designing processes and systems, human resources optimisation and realignment, change management, asset and liability determination, management of legacy matters and management of change, regulation making etc.
Similarly, it suffices to state that lots of planning and analytic work is at finalisation advanced stage across each of the areas mentioned. In the same light, processes are at an advanced stage to engage the services of globally renowned consulting firms to peer review, advise or benchmark all the various elements of the implementation programmes and processes in our quest to have world-class regulatory institutions and a commercially viable National Petroleum company.
Furthermore, enactment of regulations is also a critical area necessary to accelerate the operationalisation of the law to avoid disruption of industry operations due to the implementation process. Hence, we prioritised regulation-making as a major deliverable that would serve as a mitigant in this regard. Therefore, the Commission in collaboration with the Presidential Steering Committee have developed some key regulations for the upstream petroleum sector, including conversion and renewal (oil prospecting licences and oil mining leases) regulations, petroleum licensing round regulations, upstream petroleum fees and rent regulations, petroleum royalty regulations, domestic gas delivery obligation regulations and petroleum host community (upstream) regulations.
The Act also provides for a stakeholder consultation requirement for the review of input from all stakeholders in the upstream petroleum operations before the finalisation of regulations. Prior to the 3-day Stakeholders Consultation held in April 2022 at the Transcorp Hotel Abuja, notice of consultation with stakeholders and submission of inputs to the Commission was published in two national newspapers for 21 days as required by Section 216 (4) of the PIA, 2021.
This is a major milestone achieved in terms of the implementation of the law as it is necessary to provide clarity in operations and facilitate ease of application of the PIA and enhance regulatory compliance in operations. Additionally, we are currently finalising the internal review of other draft regulations which would also be subjected to the stakeholder consultation process in compliance with section 216 of the PIA.
As regards the fiscal and governance framework as provided by the PIA, there is no doubt that it’s a major departure that recognised the need for a balanced fiscal system that would ensure optimal revenue to the government and attractive returns to investors in light of growing competition for capital, while strengthening the regulatory environment to optimal regulatory value proposition to facilitate shared prosperity amongst stakeholders.
How is NUPRC concluding the 2020 marginal field bidding round?
When we came on board, one of the lingering issues we were confronted with was the incomplete 2020 marginal field bid round. In recognition of its strategic importance to investment promotion and the need to remove barriers to entry, we swung into action, reviewed what we met on the ground and charted a stakeholder-oriented solution that would deliver a win-win end to the process in a manner to promote investments and re-engineer confidence in the system.
I am glad to inform you that we will be issuing petroleum prospecting licenses (PPL) as contemplated by the PIA to all qualified winners of the 2020 Marginal Field bid round that fulfiled the requirements of timely payment of the applicable signature bonus and established LCVs by the second week of June 2022. This would mark the end of the process and facilitate the development of the fields to oil and gas production within a reasonable window based on investor-friendly work programme obligations.
In terms of impact, it is our belief and expectation that concluding the marginal field bid process and the coming into effect of some of the critical regulations would not only accelerate the implementation of the law but would greatly promote investments in the upstream sector and facilitate ease of industry operations.
Which are the actions taken by NUPRC to foster technological advancements in its work processes?
Technology deployment is at the core of our commitment to enhance investment promotion, increase oil and gas production, grow our reserves, optimise revenue flows and enshrine transparency and accountability in our processes. To this end, we immediately embarked on optimisation of the inherited Enterprise Data Warehouse (EDW) from legacy DPR [Department of Petroleum Resources] and implemented automation of the following business workflow processes: the Revenue Ledger and Information System (RLIS) portal for companies to submit all local and foreign royalty payments; the National Balance of Payment portal for reporting inward and outward direct investment associated with crude oil export; Asset Management Web Portal (AMWP) for Marginal Fields and petroleum facilities; NUPRC e-library – providing access to all internal resources including checklists, SOPs, templates and reference materials.
Similarly, we are carrying out a value-for-money audit and assessment of fitness as well as readiness of all IT infrastructure and systems we inherited for optimality to ensure timely and adequate automation of all internal and regulatory processes of the Commission.
Operationally, we are embracing and adopting new technologies and advanced recovery techniques for unlocking some identified stranded or by-passed oil and gas resources to increase our reserves and ramp up production. Similarly, we are determined to frontally confront the menace of crude theft through technology deployment and engagement with stakeholders including operating companies, NNPC, security agencies, communities etc. It is in this regard that we commenced the following initiatives:
Advance Cargo Declaration Regime: The Commission obtained the necessary approvals to deploy technology for the advance cargo declaration regime in upstream petroleum operations to curtail the export of stolen crude oil by ensuring that crude oil and gas cargoes exported from Nigeria will have a unique identifier that confirms all documentation as regards the exported consignment. This implies that any cargo that does not have the unique identifier is not legitimately exported from the country.
Control of Lease Automatic Custody Transfer (LACT) units: Similarly, as a regulator with both technical and commercial responsibilities, the Commission obtained the necessary approvals to ensure installation of metering equipment (LACT units) in the upstream petroleum industry using original equipment manufacturers (OEMs) to avert potential manipulation of figures that could result in short-changing the Federation of oil and gas revenues or any other operating company in the process.
Validation of crude oil theft volumes and assessment of the integrity of upstream assets: We also have commenced a full-scale audit of crude oil theft and an assessment of upstream assets integrity audit to establish actual crude oil theft figures in the upstream petroleum industry. This is in view of recent controversial figures on theft volumes thrown up by some industry operators, which impacts negatively on Federation revenue. This is very important as the nation derives its royalty from net crude oil receipts.
In furtherance of our commitment to technology deployment and innovation as a catalyst for incremental value addition particularly in the current reality of cost optimisation, we are also strengthening the capacity of our standards, conformity assessment and technology adaption department to upgrade the competence of the staff and provide necessary tools to ensure conformance to global best practices in technology deployment in the industry. It is my commitment that we must leverage technological developments, ensure optimal deployment in all our processes and support industry players to enhance efficiency and value optimisation in upstream operations.
How is NUPRC planning to support Nigeria’s gas energy transition?Energy transition is a reality the world is facing and Nigeria as part of the global community has demonstrated significant commitments in this direction considering the declaration of Nationally Determined Contribution (NDC) by the president during the COP-25 in Paris, 2005 and his recent pronouncement of a revised NDC timeline to 2030 at the COP-26 in Scotland. However, energy transition means different things to different countries. For us in Nigeria endowed with proven national gas reserves of 208.62 tcf as of January 1, 2022, it’s simply logical that gas, which is also a cleaner fossil fuel should be used to support our energy transition aspirations. This is critical since beyond being a cleaner source of energy to fuel our economic activities, it can be produced and supplied at affordable prices which would facilitate deepening energy access in the country.
It is against this backdrop that the Honourable Minister of Petroleum Resources declared gas as a destination fuel to support Nigeria’s energy transition and to lower the Nation’s carbon emission footprint in line with our climate change commitment. Similarly, the Decade of Gas Initiative was also launched to accelerate the utilisation of gas in the domestic economy within the next decade. Similarly, the Petroleum Industry Act 2021 presents a gas-centric focus by providing for zero hydrocarbon tax, reduced royalty rates, tax consolidation to specifically incentivise deliberate investments in upstream gas exploration, development, production and supply to ensure availability of feedstock to support growing demand and utilisation of gas in the domestic market and increase Nigeria’s market share in the global gas supply market.
As a responsive regulator, the Commission has commenced the operationalisation of several provisions geared towards ending gas flaring and enhancing the development, production and supply of gas in Nigeria. Notable amongst which are the annual Domestic Gas Delivery Obligation (DGDO) to all lessees to ensure balancing the export appetite of producers with increasing domestic supply of gas. Implementation of the mandatory submission of the Gas Flare Elimination and Monetisation Plan by all operating companies which will put an end to routine flaring gas in upstream operations, unlock more gas availability to the market and reduce Nigeria’s carbon emission footprint from upstream operations.
Similarly, we are reviewing the Flare Gas (Prevention of Waste and Pollution) Regulations 2018 and its associated Guidelines to incorporate methane emissions capture, to ensure the elimination of gas flaring/venting and support third-party monetisation of gas resources in the country. The Commission also commenced mandatory conduct of gas well deliverability tests for all gas producers to establish operating limits to determine production potentials and guide the industry towards its maximum optimum capacity and several other similar initiatives to optimise gas development, production and supply in an optimal manner.
Which are the key objectives set by NUPRC for 2022-2023 to further develop the Nigerian upstream sector?
The key objectives of the Commission for the 2022–2023 period would aptly fall within our short-term strategic goals of optimising the upstream sector anchored around maturation of high-impact quick wins across the exploration, development and production value chains. To achieve this milestone, special focus is placed on section 6h of the PIA, which defines one of the cardinal objectives of the Commission in providing an enabling environment for investment in the upstream sector.
Against this backdrop, we prioritise removing barriers to entry by organising periodic licensing rounds. Hence, the Commission is planning to hold both mini and main licensing rounds within the 2022–2023 period to provide opportunity for potential investors to take advantage of the robust attractive and competitive fiscal provisions of the law and secure acreages through an open, transparent and competitive bid process with the aim of fast-tracking exploration, development, maturation and ultimately attainment of production.
The Commission has also commissioned an integrated field performance review study to analyse all shut-in oil wells, access the integrity of the flow systems and subsurface configurations for possible re-activation and immediate re-streaming of production. The study also encompasses a holistic review of well and reservoir surveillance assessments to identify poorly or sub-optimally performing wells and workover candidates for quick intervention. It would also identify candidate fields for enhanced or improved oil recovery schemes to guide investment and operational planning.
Similarly, we are embracing a framework to accelerate adaptation of new technologies and advanced recovery techniques to unlock and mature identified stranded oil and gas pools in collaboration with the industry players. Furthermore, optimisation of internal processes and integration of both technical and commercial regulatory enablers would not only ensure reduction of turnaround time in terms of approval processes for field development plans, well and drilling applications, production-related requests and all other operational regulatory requirements, but would also ensure alignment of commercial reality with regulatory decisions.
In terms of the prospect for Nigeria to re-occupy its position as the largest oil producer in Africa, all of the initiatives mentioned are geared towards facilitating short-term growth in oil production from existing assets while setting mechanisms for entry of new investors into the upstream sector with an investor-friendly regulatory enablement to ensure attainment of work programme obligations in a timely manner.
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