Tominyi Owolabi, partner in charge of the oil and gas group at Olaniwun Ajayi

The government also needs to realise that it does not have to be a player in the space. Until government understands that it needs to be more of an enabler than a player, we will not move forward.

Tominyi OWOLABI Partner OLANIWUN AJAYI

Local companies in Nigeria’s gas and downstream

November 23, 2018

Tominyi Owolabi, partner in charge of the oil and gas group at Olaniwun Ajayi, talks to TOGY about the development of policy in the Nigerian oil and gas industry, regulation of the downstream sector and the stronger role being played by local companies. Olaniwun Ajayi is a Nigerian law firm advising players across the entire value chain.

• On local operators in Nigeria: “The ability of local champions to grow their reserves is key, and we should expect to see increased M&A activity in that respect. Another important factor besides reserves is what kind of diversification they can do with what they have: Can they monetise their gas, can they do other things apart from just exporting crude? Bringing more value to what they currently have is very important.”

• On the legal framework: “Regulation has been a major issue historically. You need to bring clarity to regulation for investors to get into that space. Regulation deals with ease of entry and the ability to set up, get your licences and get going. It also affects ease of attraction of capital.”

• On government participation: “The government also needs to realise that it does not have to be a player in the space. Until government understands that it needs to be more of an enabler than a player, we will not move forward.”

• On infrastructure: “A major determinant for the future is not investing in developing reserves or exploration activities but in infrastructure. That is going to have a multiplier effect in the economy, as it would not only create jobs and attract capital to the country, but would also change the way the economy is.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Tominyi Owolabi below.

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What lessons have been learned in the past five years in the Nigerian oil and gas industry?
The industry today is different from how it was then. Firstly, indigenous companies are actively participating. That is a major change in the sector. We did not have local participants 10 years ago and now there are many, largely on the services side. We still need a lot more local champions on the upstream side; whilst we have a few now, we just need more. Five years ago, some of the champions were not as big as they are today. Many of them have ramped up from different activities. Seplat Petroleum Development Company, for instance, is a major champion in the sector, so we have seen the emergence of local independent champions, and those people have taught us that we can have many more local champions developing projects in the upstream sector with the right strategy, structuring and assistance.
Secondly, we have seen a lot of discussion on policy matters. What is lacking, however, is a move from policy to implementation. For example, there are many discussions around gas policy, but transiting from policy to implementation is still a major challenge.
In any case, the recession forced Nigerians to be more creative about how they attract and deploy capital and the kind of structures they utilise. As the country is gradually getting out of the recession, we have seen a lot more people wanting to do things that they were not thinking of doing five or six years ago. Gas processing plant projects are a good example.

What are the key challenges ahead for Nigeria’s downstream sector?
Regulation has been a major issue historically. You need to bring clarity to regulation for investors to get into that space. Regulation deals with ease of entry and the ability to set up, get your licences and get going. It also affects ease of attraction of capital. Thirdly, regulation around pricing is a key factor when it comes to business. We need clarity with the regulations that affect these three things that continue to be a challenge.
The government also needs to realise that it does not have to be a player in the space. Until government understands that it needs to be more of an enabler than a player, we will not move forward. Some of the proposed refining structures, for example, still involve NNPC doing things with the existing refineries or some new refineries. This affects not just the refining space but other things in the country. For us to achieve the accelerated growth that we need in the downstream sector, the government must begin to assume its proper role as an enabler, rather than a key player. As long as we keep subsidising imports, then we would only be paying lip service to our professed goal of opening up or developing the refining sector in Nigeria.

How do you think the share of local companies in the E&P sector is going to evolve?
The ability of local champions to grow their reserves is key, and we should expect to see increased M&A activity in that respect. Another important factor besides reserves is what kind of diversification they can do with what they have: Can they monetise their gas, can they do other things apart from just exporting crude? Bringing more value to what they currently have is very important. Given the opportunities that exist in the midstream sector, gas projects, for example, can be a game-changer in the country.
The third key factor is corporate governance. You cannot be a champion if you are not properly governed. The champion is signalling to the whole world that they are a well-run and best-practices company. We have a number of corporate governance codes in the country, but it is not only about codes of law but about self-regulation. It is about what kind of company you want to be and the image you want to portray. That has an impact on your attraction to the public and affects your attraction to capital. Many companies are looking for good deals in Nigeria, and the deals have to demonstrate not only the bankability but also the people behind the deal. It is about governance, the structure you put in place and who you are.

What are the key advantages and opportunities that investors see in Nigeria for the next 10 years?
Infrastructure is going to be the key growth enabler. There is currently a massive infrastructure deficit. We have significant crude oil reserves, but with minimal refining capacity compared to other countries. Whilst we have the largest gas reserves in Africa, we have been unable to utilise our gas resources adequately, because without infrastructure, we cannot do anything. We need to be able to take the gas and transport it to where it is needed. A major determinant for the future is not investing in developing reserves or exploration activities but in infrastructure. That is going to have a multiplier effect in the economy, as it would not only create jobs and attract capital to the country, but would also change the way the economy is.

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