Oil
Nigeria’s oil contract cycle costs operators up to $700m annually
ABUJA – The pervasive influence of Government in the oil industry is leading to delay in oil contracting time, which is costing Nigerian companies operating in the sector up to $700 million a year.
The average contract cycle in Nigeria’s oil industry has been estimated to be six times longer than in peer countries like Angola.
BussinessDay gathered that it takes 36 months (three years) to get an oil contract signed in Nigeria, as against six months in Angola.
The delay in contracting time is mainly caused by overwhelming operational and bureaucratic bottlenecks, fuelled by government involvement in the sector, industry stakeholders speaking to BusinessDay said.
“There are numerous instances of Nigerian oil companies borrowing money to buy or lease oil rigs, who are then often subjected to delays of up to 6 months before the regulators (NAPIMS and DPR) inspect it,” said a source.
“Meanwhile the companies have Bank loans they are servicing and losses from lost production piling up.”
To this end, sector watchers say that for the industry to be competitive, the Petroleum Industry Bill (PIB) should minimize the Government influence on the oil sector or it risks becoming a failed reform effort.
The 200-plus page PIB currently before federal legislators includes plans to partly privatise and list the state oil firm (NNPC), tax oil company profits at up to 50 percent for deep offshore, and give the oil minister supervisory powers over all institutions in the industry.
“The NNPC as it is currently constituted has a non-commercial mind-set, which must be changed” said an ex-oil company executive, who spoke to BusinessDay off record.
“The PIB before the National Assembly still says the petroleum minister must sign off every assignment, merger and acquisition, as well as determine rentals and royalties, leaving a key revenue source subject to political manipulation.”
The evidence of government suffocating the growth of the oil sector can be seen in the declining crude production, low capacity utilization of government owned refineries, moribund products pipeline infrastructure, shortage of gas for power plants and industries, and poor Joint Venture (JV) funding.
The country produced an estimated 2.1 million barrels per day of oil (bpd) in 2012, a 42 percent shortfall from its production target of 3.6 million (bpd). There has also been an estimated loss of over $100 bn in government revenues since 2008.
The PIB uncertainty has also affected the private sector, with lost opportunities for investment and job creation, resulting in a loss of $37 bn in capital expenditure in the sector since 2006, six less active rigs and 30,000 less employed oil workers.
Government’s interference in the pricing of gas has also led to its shortage, which is putting the power sector reform at risk, stakeholders say.
In 2012 the amount of gas required for power plants in the western axis of Nigeria, amounted to 1.1 billion cubic feet (BCF) a day, compared to the 600 million BCF supplied.
“You cannot have low pricing and a high fiscal regime and expect to have gas,” Austin Avuru, MD Seplat Petroleum Development Ltd., said in a presentation made at the Kuramo conference in Lagos last year.
“Unfortunately, the current draft of the PIB falls short of this critical requirement.”
Stakeholders say that Nigeria’s aspiration to produce 3 – 4 billion cubic feet (BCF) a day by 2015 (from under 1 BCF today) will require a significant infrastructure spend of $30 billion, and it is unlikely the government alone can raise such an amount, meaning the private sector must play a significant role.
The complaint that the PIB as it is, does not establish a progressive fiscal framework that encourages further investment, may actually be the least of Nigeria’s problems, said another stakeholder. “If we get the fiscal part wrong, it can always be changed in the near future, when investments dry up, or oil prices fall,” he said.
“However the PIB as a whole, presents us with a rare opportunity to transform the Nigerian economy by removing government constraints and promoting competition.This may be a once-in-a-lifetime opportunity to rescue our nation.”
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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