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Nigerian Oil Industry: Beyond Chinese Largesse

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FESTUS OKOROMADU writes on the potential shift of investment from Nigeria due to the absence of legal framework regulating the industry, as China recently announced a $60billion loan support to Africa.

Many stakeholders in the Nigerian oil and gas industry have expressed worries over the decline in the sector’s ability to attract new investments in recent time. Such concerns are based on the emerging facts which suggest that other African countries were fast becoming oil producing nations.
Worst still, these new entrants have become wiser learning from Nigeria’s experience and subsequently creating the necessary environment to attract investors. This is even as Nigeria remains lukewarm on tackling the key issues bedeviling the sector. Acting this way from all indications has widened the prospect of investors seeking opportunities in other African countries.
For instance, the U.S. Geological Survey had in a research report two years ago estimated that there were at least 41 billion untapped barrels of crude oil in sub-Saharan Africa.
However, due to the global downturn in the industry a few multinational oil companies which saw the prospects in the new windows of opportunity bought licenses in some of these openings and waited for the price environment to improve to advance their drilling plans.
Independents such as Tullow Oil and Kosmos Oil expanded their investment on the continent within the last two years alongside supermajors such as BP. Interestingly, these drilling plans are gathering pace, while the Nigerian National Petroleum Corporation (NNPC) is left to use its own fund to embark on exploration in the hinterlands of the country.

Emerging Hotspots
According to various reports by international media organisations such as Bloomberg and Reuters, Uganda is fast becoming the hottest spot in terms of attraction of foreign investment in the continent. Although a newcomer on the oil scene, the landlocked country plans to build a pipeline to the Tanzanian coast and a refinery to jumpstart an oil industry, even though no oil is being produced in Uganda yet.
To actualise this vision, the country’s oil industry now has companies such as Tullow Oil, CNOOC, and Total sourcing for hydrocarbon in its oil-rich regions.
Senegal is another focus of attention. Specifically, the SNE project, which has Australian explorer FAR, as one of the partners developing it, is said to comprise three offshore blocks, and might contain up to 1.5 billion barrels of crude.
Report said the other partners involved in the SNE project include ConocoPhillips, Cairn Energy, the operator and Senegal’s oil company, Petrosen. The final investment decision on the project is expected next year. The first phase of the project would tap an estimated 240 million barrels.
Senegal is also a potential major gas producer. Kosmos and BP—partners in the offshore gas discovery Tortue that extends into Mauritania waters—expect a final investment decision (FID) for the Greater Tortue project around the end of 2018 and are aiming for first gas in 2021.
Kenya is another African oil hopeful. First oil in Kenya was found in 2012 by Tullow Oil and in June this year the east African country even started exporting crude under a pilot scheme that would see 2,000 bpd trucked to the port city of Mombasa and stored until there is enough to be loaded on tankers and shipped abroad.
Tullow Oil just announced that it was spudding a well off the Namibian shore, an example of another country that few would have associated with oil yet, is staking a claim in the industry. The Cormorant Prospect may hold crude oil resources of 124 million barrels. Tullow has partnered with India’s ONGC Videsh on the project.
The supermajors are also there. Shell earlier this year announced its first exploration rights acquisition in Mauritania. Senegal’s neighbour seems to be more promising in gas rather than oil, with its only producing oil field, Chingetti, currently being decommissioned. Yet gas is increasing in prominence, and if exploration results live up to expectations, Mauritania would garner further attention from the industry, in addition to BP, Exxon, Total, Tullow, and Petronas, which already have a presence there.
Exxon also recently entered Namibia last month, the supermajor bought a 30 per cent stake in an offshore exploration license. Although no oil has yet been discovered in Namibia, there is a theory that its offshore basins may share characteristics with Brazil’s Campos and Santos—Brazil and Namibia were part of one whole a few billion years ago.
A recent report by Bloomberg said there were indications that offshore drilling rigs around Africa were at a two-year high. This is even as Rystad has forecast that 30 offshore exploration wells would be drilled this year in Africa, compared to roughly half that in 2017.
The big question is where is the place of Nigeria, the country with the highest crude oil and gas reserves in the continent in terms of these investment flows. What is the volume of new funds coming into the country? What is making the country unattractive to new investors.

Absence of Regulation, Nigeria’s Undoing
Prior to the recent revelation that President Muhammadu Buhari, has refused to assent to the Petroleum Industry Governance Bill (PIGB) various stakeholders had expressed confidence that the implementation of the content of the bill was the recipe for the fresh investment apathy in the sector.
For instance, the Nigeria Extractive Industries Transparency Initiative (NEITI) in June this year emphasized what it called the urgent need for the federal government to put in place the necessary laws required to fix the numerous governance problems confronting the oil and gas sector.
Speaking at a symposium to set the agenda on the Petroleum Industry Governance Bill (PIGB) in Abuja, the executive secretary of NEITI, Mr. Waziri Adio , stated the protracted delays in passing laws governing the industry were responsible for the uncertainties and stagnation of investment opportunities in the sector.
“NEITI published a policy brief in October 2016, entitled: ‘The Urgency of a New Petroleum Sector Law.’ The paper estimated the cost of business uncertainty, lack of clarity and adequate transparency mechanism in eight years at more than $200billion. The paper showed how Nigeria is increasingly in competition for oil and gas investment with many other African countries, not to talk of other jurisdictions,” Adio stated.
Similarly, Mr. Israel Aye, senior partner, Energy & Commercial Transactions at Primera Energy, while speaking at a colloquium organised by Order Paper in Abuja stated that because Nigeria was weak in regulation and policy frameworks, especially within the past 17 years’ stalemate in the passage of the petroleum industry bill (PIB) , it had lost billions of dollars in investment to the country.
On his part, Dr. Adeoye Adefulu, energy partner, Odujinrin & Adefulu and managing editor, petroleumindustry.com expressed concern that without the proper regulatory framework in place, the nation’s oil and gas industry may soon become less attractive.
“The growing spate of discoveries within the African continent has heightened competition for investments and reinforces the need to enhance the competitiveness of Nigeria for sustainable value creation and addition to the economy,” he stated.
Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, is not left out of those who advocated for the bills. He has on several occasions underlined the importance of early passage of the relevant laws required to reposition the sector in view of the strategic implications for increasing revenue generation, investments, job creation and improved governance of the industry.
One cannot but therefore submit that while the loans secured by the NNPC during the just- concluded Forum for China-Africa Cooperation (FOCAC) Summit, in Beijing, China is a welcome development. There is the need to move beyond these largesse to creating a solid foundation that would not only grow investment into the oil and gas sector but would enable it play the key role of diversifying the economy.
This is why the presidency and the national assembly must work in harmony within the available time to pass and assent the four components of the PIB, doing so would be in the best interest ofw the country.



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