Addressing uncertainties in oil, gas sector via clear legislations

Notwithstanding exploration and production interests expressed by oil majors in Nigeria’s oil and gas sector, the lack of clarity on the legal regime, especially as it relates to royalties and renewal of several oil blocks, has stalled investors from making final investment decisions. While operators like Shell, are moving ahead, the country remains, to some extent, an uncertain investment destination, without a resolution for the Petroleum Industry Bill (PIB). Femi Adekoya writes.

Unbundling the long-stalled PIB by the eighth National Assembly was expected to reform the oil and gas sector and improve investment, until the presidency rejected the first piece of legislation, the Petroleum Industry Governance Bill, which would have paved the way for the NNPC to divest some of its stakes in the joint ventures and refineries, and brought in private investment.

President Muhammadu Buhari feared that privatization would put the assets of the NNPC in the hands of some businessmen, and instead hoped management changes, a bit of housecleaning and tightening the terms of crude for product swaps in NNPC’s favour would suffice to improve performance.

Though the Federal Government had expressed intentions to reduce its majority stakes in all joint ventures operating assets in onshore and shallow waters, there are concerns about the sincerity of that move, considering that the NNPC rarely paid its way on time, forcing partners to choose between slow-paced expansions or lending to NNPC by carrying its costs.

The deepwater sector, where NNPC is not a partner, has seen investment stall due to uncertainty over taxes and royalties since legislation to change investment terms was first proposed in a new Petroleum Industry Bill (PIB) in 2008.

For instance, Total’s 200,000 barrel per day Egina operation, which went on stream in January 2019, was the last big project approved before oil prices crashed in 2014, and the first of its kind for six years.

With the completion of its invitation to tender (ITT), Shell , earlier in May, said it was about to take a Final Investment Decision, FID on the $10 billion Bonga South West Aparo project.

The bulk of Bonga Southwest’s resources are located in an area referred to as OML 118, but it also extends into OMLs 132 and 140, areas operated by US company Chevron, where the field is called Aparo.

The former Minister of State for Petroleum Resources, Ibe Kachickwu, had stated that changes in the global oil and gas industry were challenging the present exploration and investment strategies as oil is fast becoming a degenerating asset with alternative sources of energy taking over and attracting new investments, hence, the need for Nigeria to double oil production to four million barrels per day as against the present daily turnover of between 1.9 to 2mbpd.

The Managing Director of Shell Nigeria Exploration and Production Company, SNEPCo, Bayo Ojulari urged the Federal Government to pass the Petroleum Industry Bill (PIB) and address cost competitiveness challenges in order to aid the flow of investments into the oil and gas sector

Just like its counterpart, Egina that was built by oil major, Total, Ojulari noted that Bonga southwest Akparo is expected to pave the way for other projects in the oil industry in Nigeria, while surpassing the former’s local content record to achieve 80 per cent Nigerian content.

He said the Total Egina project achieved 77% but Bonga aims for 80%.

According to him, the idea is to build on the successes that have been achieved. Thus, it is a collaborative journey being governed by the Department of Petroleum Resources, DPR, Nigerian Content Development Monitoring Board, NCDMB and NNPC. Successes of FPSO must be sustained.

Showcasing the Bonga South-west Akparo at the just concluded Nigeria Oil and Gas Conference, NOG19, Ojulari, made it known that projects should be done in the country such that it will be cost friendly and competitive.
“Projects should be competitive and if they are expensive due to different local conditions, it will be difficult to attract investments in Nigeria”, he said.

According to Ojulari, having competitive project will give room for others to thrive instead of being stagnant.
He averred that delay in the Bonga project has led to capital flight with billions of dollars lost. If Nigeria wants to attract capital to the country through investments, only collaboration can earn that right.

The SNEPCo MD made it clear that a new tender for the project has gone out since 2017 while Shell commenced a negotiation of Production Sharing Contract, PSC, terms after almost ten years of stagnation.

But early 2019, the company signed a term with the Nigerian National Petroleum Corporation, NNPC, which was done together with other International Oil Companies, IOCs, that have interest in the project. Stakeholders resolved dispute by agreeing on principles in which a new PSC will be put in place while unlocking the Deepwater in Nigeria.

He revealed that expectation of stakeholders is to sign dispute resolution agreement in 2019 while the new PSC is being signed as well.

This, according to him, will make Nigeria’s Deepwater to be active in future. The fiscal condition of the Bonga project is significant for its success.

A bill is at the National Assembly on adjustment of PSC in terms of royalty. Deliberations are ongoing between stakeholders and law makers and the outcome will rather make or mar the project.

Ojulari stated thus, “If the discussion goes in the wrong way, Bonga South-west and all the other seven FPSOs that are lined up to be developed in Nigeria will be frozen for some time. So, it is important that at the public hearing, we all stay alert and we don’t blame the regulators by just staying in our offices and complaining, we all need to join the debate.”

He emphasized that the basic economics of Exploration and Production, E&P, has to do with competitive pricing and it is not difficult to know what is possible and impossible. Therefore, if royalty is pegged at 50%, it will hamper the project.

For impact of the Bonga project, Ojulari was of the view that Nigeria should maintain continuity.

Besides, impact of FPSO projects is enormous leading to more than 1200 direct employment with 5000 indirect employment during four years of project execution.

Significantly, the SNEPCo boss disclosed that in terms of fabrication capacity, about 45000 metric tons of fabrications are to be executed in-country.

He bemoaned the fact that some fabrication yards in the country are empty because people have built capacities that were not utilized. Projects should be ongoing so that capacities that are developed will be sustained.
He advised that yards with huge investments that are idle should be utilized.

Ojulari reiterated that the only way FPSO projects can be sustainable is through a virile fiscal policy and that bills passed by legislators should be investor-friendly.

“On my count, I expect six other FPSOs behind Bonga South-west. Just imagine an environment where there are six FPSOs and there is continuity of work and activities, it is going to be a different place, he added.” The impact on the economy should be considered.

The dream of the Bonga project can only exist if there is confidence with thorough commercial terms and effective fiscal policy agreed by relevant regulators that will engender competition owing to reasonable cost of the project.

He noted that contractors have supported the project on the grounds that commercial frame work will be resolved.