How good government policies can reposition Nigeria’s oil and gas sector

OPEC to boost output by 1m bpd
United Bank for Africa

For over half a century since it began operations, the Nigerian oil and gas sector has witnessed a decent level of activities. The industry has witnessed twists and turns as a result of policies or lack of it. It has equally not been spared the volatility that has characterised the global oil industry in recent times. Industry experts as well as players believe that despite what could be happening in the oil industry globally, the responsibility for giving direction to the Nigerian oil and gas sector rests on the government. Its actions or inactions will ultimately determine how well the industry fares.

According to energy experts, there is an urgent need for government to resolve with speed and finality, lingering issues that have slowed down investment in the sector. Oil revenue has over the years become a major source of funds for the country’s budgets. Despite being a major revenue source for the country, the sector according to experts is being driven by outdated laws and regulations that need to be overhauled. For the oil and gas sector to become attractive and profitable to investors, its antiquated framework has to be updated to address current industry realities.

“The current law and regulatory framework is not responsive enough. The sector is being governed by outdated legal and regulatory framework. We have to re-examine the continued relevance of existing framework”, said an energy analyst.

Expressing support for the need for urgent reforms in the sector, another expert and Chairman Africa, Schlumberger, Mr. Sola Oyinlola said the present government should put in place or implement policies that would spur growth in the industry.

He said; “The Buhari administration has its work cut out for it and the industry awaits with bated breath any new policy directions, but we are all optimistic that challenges would be tackled expeditiously to provide a new dynamic investment destination”.

However, despite uncertainties in the operating environment, recent accomplishments by some operators in the oil and gas industry has further demonstrated that there are still untapped opportunities in the sector.

Erha North Phase II Successes

Erha North Phase II project is one of the flagship projects executed by US oil giant ExxonMobil. The project is a deepwater subsea development located 60 miles offshore Nigeria in 3,300 feet of water and four miles north of the Erha field. The field has been producing since 2006. According to the oil firm, the project which was completed five months ahead of schedule and under its initial budget was a clear demonstration of its disciplined project management approach and expertise.

“Executing successful projects such as Erha North Phase 2 ahead of schedule and under budget results from ExxonMobil’s disciplined project management approach and expertise,” said Neil W. Duffin, president of ExxonMobil Development Company. “We are able to create additional shareholder value by optimizing existing infrastructure, which reduces capital spending requirements and improves capital efficiency.”

More than N50 billion has been invested in Nigeria for Erha North Phase 2, bringing direct and indirect benefits to the Nigerian economy through project spending and employment, consistent with project objectives.

Since completion, Erha North Phase II project has delivered additional 165 million barrels per day of crude to Nigeria with a peak production of 65,000 barrels per day.

Equally, the project was delivered with 63% Nigerian content translating to 74% Nigerian content man-hours which accounted for over $2 billion of project investment for goods and services. According to ExxonMobil, the project further demonstrates its contribution to and support for Nigeria’s long-term goal of increasing its oil production volumes.

Energy experts believe the successes recorded by ExxonMobil on the project  could be replicated on its recent oil find in Owowo field given the right operating environment. For such a huge project as Erha North Phase II to be completed despite the harsh operating environment, the Owowo oil field exploration could be a monumental success with the right policies in place.

The company last October announced the discovery of Owowo oil field which it projected to hold over 1 billion barrels of crude oil reserves and over N3 trillion in potential revenue to Nigeria. Experts reckon that the oil field discovery has brought new hopes to the Nigerian economy especially at a time when new investments in upstream operations were shrinking. The discovery came as a morale booster for the industry especially as Nigeria’s reserve replacement ratio has been on the downward trend.

The Owowo oil field has the potential to provide new employment opportunities for Nigerians once production starts. The implication of this is enhanced living standards for some households and revenue to government in form of taxes and royalties. But this can only be accomplished in a business-friendly environment.

In recognition of its contributions to the development of Nigeria’s economy, ExxonMobil won the award of ‘Excellence in Oil and Gas Industry’ at the just concluded Nigeria Oil and Gas Conference and Exhibition (NOG) in Abuja. The award was given during a dinner event hosted by the Nigerian National Petroleum Corporation (NNPC). The oil firm was commended for its commitment to growing the nation’s economy as well as improving the living standard of its people.

In his opinion, Ildar Davletshin, Head of oil & gas research, Renaissance Capital tasked the new government in the country to use its mandate to implement much-needed reforms in the oil and gas sector, which continues to be the driving force behind the economy.

“While it is unlikely that Nigeria will escape its dependence on the sector, there is clear potential for the country to strengthen its oil and gas industry and develop a more diversified and balanced economy, following the successful models of resource-rich countries such as Canada, Norway and Australia”, he said.

He added; “It is essential that the new administration avoids making the same mistakes as most other emerging nations and does not launch a complete overhaul. Nigerian taxes for onshore production are in the highest quartile globally, so some easing could make sense, especially in the weaker oil price environment”.

Equally, the International Association for Energy Economics (IAEE) while supporting reforms in the sector however, warned that the rationale for such reforms should be to enhance the sustainability of petroleum wealth that would impact all stakeholders.

In a paper titled “An Appraisal of Oil and Gas Industry Reform and Institutional Restructuring in Nigeria”, the Association said; “The rationale for restructuring the oil and gas sector in a petroleum dependent economy like Nigeria should be to enhance the sustainability of petroleum wealth and its impact on all stakeholders. Undergoing such reforms presupposes that the current state of the industry is inefficient in service deliveries and ineffective at promoting society’s welfare objectives. This notwithstanding, such reforms or restructuring must not only focus on enhancing industry effectiveness and efficiency, it must be mindful of equity issues with respect to wealth distribution among all stakeholders—governments, communities, and operators”.

To begin with, a prompt passage of the Petroleum Industry Bill (PIB), provision of infrastructure and security for oil installations across the country would be a good start. And these are what government can do to support the industry.