Category: Industry

Nigeria is asking the global community to allow the continent to prioritise responsible crude oil exploration even as the upstream exploration and production activities are projected to remain challenging in 2024.

Across the world, exploration and production are at record low despite the bumped harvest being made by oil companies even as some stakeholders have insisted that decreasing investment in crude oil exploration could create demand uncertainty and expose the world to crisis in the face of the challenges in accelerating cleaner energy.

With Nigeria’s crude oil reserves stagnating at about 37 billion barrels for the last years and daily declining from an oil time high of 2.2 million barrels per day about a decade ago to 1.3 million barrels, coupled with climate issues, Nigeria has, in recent years, seen $21 billion worth of assets divested even as the country’s total yearly upstream capital expenditure nosedived from $27 billion in 2014 to less than $6 billion in 2022, translating to a 74 per cent decline.

Minister of State for Petroleum Resources (Oil), Heneiken Lokpobiri, said energy transitioning should not be a rushed process but a carefully orchestrated collaboration between nations and industries.

As such, Lokpobiri, in a release, noted that the global community must invest in Nigeria to enable it to use hydrocarbon resources to improve the economy and guarantee energy security.

To facilitate future expansion in drilling and exploration, oil and gas companies are dependent on higher commodity prices, as highlighted by surveys conducted by the Kansas City Federal Reserve and released earlier in the week.

Oil and gas firms have shifted their capital allocation plans to a maintenance mode for 2024. Although oil prices are profitable, they aren’t at levels justifying increased capital expenditure for E&P activities.

Gas-focused companies, facing insufficient returns, are cutting back to minimize losses. To trigger renewed capital allocation for drilling, a significant improvement in pricing is crucial. While shale production continues to rise or approach balance, the market is expected to discount WTI and Brent.

Some stakeholders had projected that E&P investors may have a glimmer of hope ahead. In a year or two, a price signal could prompt the industry to resume expansion. This would lead to increased revenues and cash flow, ultimately driving share prices significantly higher.

The International Energy Agency had predicted an 11 per cent rise in global upstream oil and gas investments, reaching $528 billion in 2023. This projection marks the highest level since 2015.

Lokpobiri, in a summary of his activities at the World Economic Forum, emphasised Africa’s measured stance on the global transition from fossil fuels to renewable energy.

The Minister highlighted that Africa’s contributions to global emissions stand at a modest three per cent, as such, he urged against precipitous actions that could impede the continent’s economic growth.

“Africa, including Nigeria, cannot hastily transition with aid or grants. What we need is strategic investment in our fossil fuels sector to bolster our economy and ensure energy security.”

While speaking on the importance of financial independence in the energy transition, the Minister insisted that fostering investment and partnerships rather than deadlines remained sacrosanct.

“The conversation should be about fostering strategic partnerships and attracting investment, not enforcing timelines that could undermine our economic stability.” The Minister’s words echoed the sentiment that transitioning should not be a rushed process but a carefully orchestrated collaboration between nations and industries.

Acknowledging Nigeria’s significant role in the global discourse, Lokpobiri shed light on the country’s ambitious plans of a projected transition plan and renewable energy investment of $1.9 trillion and $1.2 trillion by 2060, respectively.

He said Nigeria recognises the need to rely on its fossil fuels to finance the transition, adding that there is a need for repositioned exploration to balance economic growth with environmental responsibility.

Highlighting the urgency for international cooperation, he said: “We need to shift the focus from deadlines to meaningful investment and collaboration. This is not just about Nigeria; it’s about global partnerships that benefit everyone involved.”

The divestment story in Nigeria’s petroleum upstream sector has been a success in terms of value creation, realisation and retention for the economy, the Chief Operating Officer, Seplat Energy Plc, Samson Ezugworie has said.

According to him, whilst the International Oil Companies (IOCs) put their focus on deep water activities courtesy of their divestment programmes, the indigenous oil companies should be supported to grow onshore shallow water assets.

Ezugworie said this during a panel discussion at the 12th Practical Nigerian Content Forum at Nigerian Content Development and Monitoring Board (NCDMB) Headquarters, Yenagoa, Bayelsa State, themed ‘Deepening Nigerian Content Amidst Divestments, Domestication & Decarbonisation’. The panel discussion was centered on the topic ‘Upstream Divestments: Outlining the Pathway to Success’.

“So, we need to enable the divestment opportunities that abound in the country today because that is the catalyst that will propel Nigeria to grow as have been set out by the current government.”

The Seplat Energy COO explained that Seplat Energy has been part of the divestment journey in the petroleum upstream sector of Nigeria, and remains committed to driving excellence and advancing the fortunes of the Nigerian entity whilst impacting more lives and promoting national prosperity. “Seplat Energy started this drive in 2009 leading to the acquisition of the Western Asset blocks in 2010, and today, Seplat Energy’s operations cover seven onshore blocks.”

Ezugworie attributed the successes recorded by his company and other indigenous players to the potency of the local content advocacy, urging Nigerians to be proud of the advancements and achievements thus far.

According to him, divestments activities do not only grow local potentials in the Nigerian energy landscape, but also tremendously boost capital development in-country, expand governments’ revenue base in the area of taxes and create jobs for Nigerian businesses and Nigerians.

Ezugworie said: “Governance and ethics are also critical to getting the right funding. There should be a clear and transparent commitment to ESG (Environment, Social and Governance); and shareholders in the business should get the right dividend, which retains existing investors and attracts new ones.

“The future looks bright for Nigeria as we have quite a number of divestment opportunities in-country. Let’s enable those and allow the country to achieve organic growth.”

Five leading indigenous oil and gas companies have posted N625.08 billion revenues in the half year (H1) of 2022, 40.7 per cent higher than their performance in the corresponding period of 2021 when they recorded N444.25 billion.

Although the revenue of these firms rose by 40.7 per cent, from 2021 figure data obtained from the Nigerian Exchange Limited (NGX) showed that their performances were negatively affected by both endogenous and exogenous challenges currently impeding the country’s business environment.

Ardova Plc posted revenue of N126.6 billion for the first half of the year 2022 up from N86.770 billion recorded in 2021, accounting for an increase of 45.96 per cent. Ardova closed its last trading day on August 10, 2022, at N13 per share on the (NGX). The company is the 76th most traded stock on the Nigerian Stock Exchange over the past three months (May 10 to Aug 9, 2022).

Also, Seplat Energy Plc sustained a rising profile during the half year ended June 30, 2022, as revenue rose by 82 per cent. The company reported a revenue of N219.203 billion in its half-year 2022 from N120.44 billion achieved in the previous year.

Seplat closed its last trading day on August 10, 2022, at N1, 430.5 per share on the (NGX). The oil firm started the year with a share price of N650 and has since gained 120 per cent on that price valuation.

However, following financial and operational headwinds in the first half of the year, Caverton Offshore Support Group Plc, a provider of marine, aviation and logistics services to local and international oil and gas companies in Nigeria reported a 22.74 per cent drop in revenue for the first half of the year 2022 to N13.96 billion against N18.069 billion achieved in 2021.

The company closed its last trading day (Wednesday, August 10, 2022) at N1.05 per share on the (NGX). The Offshore Support firm began the year with a share price of N1.72 but has since lost 36.6 per cent off that price valuation, ranking it 154th on the NGX in terms of year-to-date performance.

Similarly, Conoil Plc also reported a decline of 16.83 per cent in revenue during the half year as the oil and gas firm battled to remain afloat in the operational environment amid volatility in the economy. Conoil reported revenue of N56.248 billion during the half year of 2022 as against N67.638 billion representing a drop of 16.83 per cent.

Conoil closed its last trading day on August 10, 2022, at N25.95 per share on the Nigerian Stock Exchange (NGX). It started the year with a share price of N22 and has since gained 18 per cent on that price valuation, ranking 32nd on the NGX in terms of year-to-date performance.

Total Energy Plc leveraged the higher oil prices to gain a 38.12 per cent increase in revenue during the review period. The company recorded a revenue of N209.014 billion in the half year 2022 from N151.33 billion in 2021, accounting for an increase of 38.12 per cent.

The growth in revenue reported by Total Energies Marketing Nigeria was driven by higher product prices and demand from consumers in the half year of 2022. The company closed its last trading day on August 10, 2022, at N234.50 per share on the (NGX). It commenced the year with a share price of N234.5 and has since gained more than 5.68 per cent in that price valuation, ranking 48th on the NGX in terms of year-to-date.

Reacting to the performance, the President of Investors Alternative Dispute Resolution Initiative (IADRI), Moses Igbrude, said: “It is a good performance and an excellent result.

This is despite the unfavorable economic environment where the government is a competitor and sole importer of petrol, coupled with forex shortage, kudos to them.

“To improve on this performance, the companies should focus more on their competitive advantage areas such as lubricant production, diesel import, insecticide production as well as car services business and any other areas where they can make good margins in their business operations. They should also manage their costs effectively,” he said.

Discordant voices yesterday hit harder in the nation’s oil and gas industry following indications that the National Assembly will, today, harmonise the Petroleum Industry Bill (PIB) ahead of a possible passage latest on Wednesday before the two chambers proceed on recess come Thursday.

Although the progress was expected to excite industry players and stakeholders, prevailing loopholes and new clauses allegedly framed into the bill continue to set fear in the minds of stakeholders, a development, which may erode projected benefits in the nation’s most critical economic sector.

The Senate and the House of Representatives last Thursday set up conference committees to harmonize both versions of the PIB. The committees are expected to meet today while the harmonized version is also expected to be passed by both chambers before the lawmakers proceed on their yearly break.

This development is coming 50 years after Nigeria joined the Organisation of the Petroleum Exporting Countries (OPEC), raising concerns about the country’s fiscal environment.

Nigeria is consistently regarded as one of the most admired and respected members of the OPEC family, particularly in the realm of consensus-building, but its capacity to take advantage of rise in oil prices remains undermined by subsidy and local production challenges.

 

After 22 years of unbroken democracy amid revenue losses estimated at about $200 billion, the National Assembly had two weeks ago, passed the bill amid rancor and stern opposition from various sections of the country and the industry.

While a 30 per cent revenue allocation to development of frontier inland basin mainly in the North as well as dismal allocation to host communities fuel opposition, concerns over possible ban or duopoly in the downstream sector and a 10 per cent management fee, issues of Production Sharing Contract (PSC) as well as Joint Venture obligations have set the industry apart.

Also, Senate’s decision to award just three per cent to oil-bearing communities may not be the only controversial clause in the PIB, as a closer check has shown that the upper chamber provided that petroleum products can only be imported by refinery owners in Nigeria. While the bill expectedly removed price controls on petroleum products, the Senate version of the bill has a clause that constrains market competition by restricting the importation of products to only players with local refining capacity.

The government had been waiting for the Bill to ease the burden of petrol subsidy, but the decision by the Senate to impose restrictions on what is supposed to be a deregulated downstream sector is raising eyebrows among experts, who are calling for the provisions to be expunged. With the new scenario, it may become illegal for most marketers to import petroleum products, including already deregulated products, especially PMS, diesel, aviation fuel, lubricants and base oil unless they have licence for a refinery.

Stated in Section 317(8) of the Senate version of the bill, “The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining. To support this, licence to import any product shortfalls shall be assigned only to companies with active local refining licences. Import volume to be allocated between participants based on their respective production in the preceding quarter.

“Such import to be done under NNPC Limited Direct Sale/Direct Purchase (DSDP) scheme. To safeguard the health of Nigerians, imported petroleum products shall conform to the Afri-5 specification (50ppm sulphur) as per the ECOWAS declaration of February 2020 on adoption of the Afri-Fuels Roadmap.”

Some industry stakeholders, who spoke with The Guardian noted that the development, though encourages local development, may force existing players out of the market leaving a monopolistic market for the national oil company and big refiners.

Speaking on the condition of anonymity, a respected industry player said unless the clause is removed, there may not be a level playing field in the industry. “As price control is being removed, supply must be competitive, inclusive, transparent and seen to encourage efficiency,” he stated.

Former President of the Society of Petroleum Engineers Nigerian Council, Joseph Nwakwue, expressed concern that the provisions would create a duopoly in a price deregulated environment, thereby, destroying the Nigerian downstream industry.

According to him, “in the near term, only NNPC and Dangote will have domestic refining capacity for PMS for instance, so they will be the only importers. This takes the industry back and could not have been the intention of the Bill.

“Moving from a state-owned monopoly in a price regulated market to a duopoly in a price deregulated market is not what Nigeria needs now as it takes the industry backward and exposes Nigerians to exploitation and further hardship. This, in my humble view, is not reformatory.”

He pointed out that “rather than seek to protect refiners, we should seek to protect consumers by liberalising and expanding petroleum product supply sources. That is the only way prices will be ‘market-determined’ and consumers made to pay fair value for the products they buy. The viability of local refining is not determined or enhanced by locking out competition, it is rather achieved through price deregulation, which has been done in Section 205. This clause gives statutory unfair advantage to private players rather than through market competition,” he added.

Professor of Law and Director, Institute for Oil, Gas, Energy, Environment and Sustainable Development (OGEES Institute), Afe Babalola University, Damilola  Olawuyi, said matters of environmental justice could be threatened if the Bill is passed.

According to him, rotational fund may not grant environmental justice in pollution-impacted communities, stressing that unless there is anticipatory approach that integrates human rights impacts assessment into the project approval processes, so as to ensure that petroleum operations do not adversely impact the social, economic and political rights of local communities, projected objective may remain elusive.

“I would, therefore, like to see the introduction of a detailed business and human rights regulation under the new law, which will clearly and comprehensively spell out what responsible business enterprises should do to anticipate, mitigate and redress human rights and environmental harm in their operations,” Olawuyi said.

He also faulted the establishment of “too many institutions as contemplated under the bill,” noting that it could result in procedural challenges and red-tape in decision-making processes.

Renowned scholar and a Professor of Energy Economics, Wunmi Iledare, told The Guardian that the capacity in the Ministry of Petroleum under the Bill may not support the functions of the Office of the Minister, adding that the ministry needs a reconfiguration, restructuring and rebounding to support the PIB demand for policy sustainability beyond a one term Minister in office.

“The Bill seems to have settled for two regulatory institutions and I like the fact that some coordination among the institutions are envisaged, but I do not see where it is mandated. A mandatory coordination section may be appropriate. I also think the Board of the Authority, geo-political fulfillment beyond qualifications seems like jobs for the ‘boys,’” Iledare said.

Regarding administration, he noted that the size of oil blocks, especially onshore block area of 350 square km is about 18 times the 5,800 acre-size in the US GOM and shallow water is about 45 times higher, while the deep water block is about 60 times.

“The expected voluntary conversion clause impact has been significantly reduced with events prior to the passage of the bill. The rush of the so many uninformed renewals, renders the PIB less impacting on old leases. The renewal of terms as this passage was on course remains shocking,” Iledare said.

He also kicked against loopholes in JV funding, stressing that government should have used reform to exit the programme. Iledare said: “There is too much government involvement more than 60 years after oil was first discovered. The issues are beyond governance, regulatory, and administration control.”

Another energy expert, Ademola Adigun, pointed out that governments all over the world “do not create and encourage monopolies or duopolies and that is why anti-trust laws are enacted and enforced to protect industries and consumers. Nigeria should not be doing the reverse. A case can always be made about protectionist policies for nascent or pioneer industries, but this is not the case with a long-established, once-thriving Nigerian downstream sector.

“This clause needs to be expunged from the PIB. The downstream regulator – Authority should be left to develop regulations that are fair, inclusive and transparent for petroleum product importation that ensures open and diverse market supply and hence competition, only then would the objectives of the bill be achieved.”