Following the inauguration of the new management of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in 2021 by President Muhammadu Buhari, one key priorities ahead of its management was to fully establish strong collaboration with stakeholders to enable the country to achieve higher productivity and attract the desired investments.
This explains why after eight months after Buhari signed the Petroleum Industry Act (PIA), the Presidential Steering Committee on the PIA and the NUPRC immediately unveiled six draft regulations for the oil industry.
The NUPRC, said the PIA had introduced incentives to grow reserves, with the aim to increase Nigeria’s daily production toward attaining 40 billion barrels and 220 trillion cubic feet, tcf, of oil and gas reserves.
The Commission said the incentives would also enable the country attain production target of three million barrel per day (3mb/d).
Mr Gbenga Komolafe, the Commission Chief Executive (CCE), said that Nigerians craved a legal regulatory framework for the oil and gas industry, one robust enough to effectively regulate the sector for optimum productivity and efficiency.
The PIA equally provided for administrative, institutional governance, attractive fiscal regimes, mechanisms for improved environment and peaceful co-existence between operators and host communities.
According to him the Act empowers the Commission on technical and commercial regulation of the Upstream Petroleum activities in a manner to ensure sustainable hydrocarbon exploration and production at optimum cost.
He said the Act also dealt on issues of environmental remediation, decommissioning, and abandonment, and setting up of Host Community Development Trust (HCDT).
Komolafe said that the sixth schedule of the Act specifically provided for production allowance wherein performance in terms of production milestone was rewarded.
He said it introduced a mandatory Decommissioning and Abandonment Fund prescribed under Section 232 and 233, adoption of Grid System for Acreages under Section 69, HCDT under Chapter three which replaced MOUs and GMOUs.
These, he said were aimed at achieving operational efficiency, higher productivity, cost optimisation, cleaner and safe upstream environment.
According to him, the PIA 2021 under Chapter four and the seventh schedule provided attractive fiscal terms for the Petroleum Industry which included Progressive royalty rates compared to pre-PIA royalty rates for all terrains.
Others, he listed are Reduced Royalties (to 2.5 per cent) for gas produced and utilised locally, introduction of hydrocarbon tax and company income tax that are cumulatively lower than Petroleum Profit Tax Pre-PIA
“Zero hydrocarbon tax for deep offshore operations, consolidated taxation on lease- and company-basis and other fiscal incentives.
“These sweeping reforms are geared toward creating additional opportunities for new investments and higher revenue for both government and investors,’’ he said.
The Commission at the same time gave itself the big task of closing out on the 2020 marginal oilfield bid round in a manner that is consistent with the rules guiding approvals and issuance of licenses in the upstream sector of the nation’s oil and gas industry.
The NUPRC is saddled with the responsibility of regulating the technical and commercial activities of the upstream petroleum sector and to get things going the right direction.
Komolafe, has consistently re-emphasized the need to ensure that law and due process are followed in the award of licenses to operators.
That was even as he assured that under his leadership, no marginal field operator would be allowed to “trade” in papers issued by the organisation as the rule of law would be strictly followed in the issuance of final licences to the winners.
As an ardent believer in due process, Komolafe has given his word to Nigerians and all oil and gas stakeholders that under his watch, no amount of pressure would make the NUPRC award final documents without due process.
In line with the critical and significant role of the oil and gas sector in the nation’s economy, especially amidst the call for divestments in the sector, “The best and only option opened to us to maximise the benefits from fossil fuels is to improve the welfare of those who are saddled with the responsibilities of managing the sector.”
The first set of industry regulations, according to Komolafe, when fully implemented, will help in no small measure in the smooth take-off of the day-to-day operations of the NUPRC.
Listing the six draft regulations the Commission Chief Executive (CCE), said they are: the Nigerian Upstream Fee and Rent Regulations, the Petroleum Licensing Round Regulations, the Domestic Gas Delivery Obligations Regulations, the Nigeria Conversion Regulations, the Nigeria Royalty Regulations, and the Nigeria Host Community (Commission) Regulations.
The Commission, has escalated engagements with both Domestic Oil Companies, DOCs and International Oil Companies, IOCs on how to increase producibility and address oil theft in the country.
Engaging Indigenous Operators
During a stakeholder’ engagement with the Independent Petroleum Producers Group (IPPG) held in Lagos,Komolafe said President Muhammadu Buhari, has provided robust fiscal provisions in the PIA, to enable investments in the upstream sector, but specifically stressed that this can only be achieved through various partnerships.
He explained that the industry was facing critical challenges and with discussions at the Glasgow (COP26), it was understood that the outcome of the deliberations there will equally impact the industry due to the fact that they (stakeholders) are setting the global warming standard at 1.5 degrees Celsius as they target at impacting financing in the energy transition regime.
He told them, “I want to assure your members (IPPG) that we will not because of energy transition abandon our hydrocarbon and so we really need to think outside the box and also we want to get feed-back from our stakeholders to see how we can get a structural financing group to commit on financing critical projects in our upstream sector. I know that financing is a critical issue posed by energy transition and I know that if we sit down to think together, there will be results.
Continuing he said, “The PIA had not only made the commission a technical regulator but a commercial regulator. We will upgrade to being a business enabler and other different regulatory culture and this is the prescription of the law and the law has made the commission a technical and commercial regulator and so in that wise, we will be concerned equally as to how we will facilitate financing for stakeholders in the industry and we will not do that in isolation of the members”.
The CCE added that if initiatives will be spearheaded by the regulator in terms of attracting financing for IPPG members, it will empower the members to be able to leverage on the divestment day by day, IOCs for them to enhance their capacity in the onshore and shallow water aspect of the investment in the upstream.
“We can look at ways to optimise production in the upstream and thereby enhancing federation’s revenue”, he added.
Chairman, IPPG, Abdulrazaq Isa, in response noted that the FG’s support for indigeneous E&P companies’ participation in the ongoing IOC divestment was critical as it will provide a solid avenue for securing the country’s energy future.
He also expressed concerns that IPPG members who had a proven track record and demonstrated operational and financial capacity to manage marginal field assets were not given consideration in the last marginal round and added that significant upfront costs for marginal field assets may impede the ability of investors to attain production in a timely manner.
Isa, who is also the chief executive officer of Waltersmith, disclosed that in the last two decades, the number and contribution of indigenous players, largely due to Government’s initiatives and IOC divestments, has significantly increased.
Isa, stated further that the enactment of the Nigerian Oil and Gas Industry Content Development Act (NOGICD Act) in 2010 has further supported the emergence of stronger indigenous oil & gas companies and complemented the Government’s empowerment agenda.
“This trend must be further supported and sustainably nurtured. It is the sure way to achieve energy availability, affordability and security for all Nigerians” he said adding that the IOC divestments in 2010 ushered in a period of significant growth both for the
Nigerian Petroleum industry and for the indigenous players in terms of overall contribution to the nation’s oil and gas production – translating to a net contribution from as low as 3 per cent in 2007 to about 16 per cent within a decade.
He said, “Today, we are in the thrust of another wave of IOC divestments with industry commentators and stakeholders alike expressing concerns and raising a pertinent question – “are indigenous players equipped and able to fill the void post IOC divestments?”
Isa, stated that the first phase of divestments demonstrated that indigenous E & P companies are capable of stepping up and performing at the highest level. I believe the current exercise will even be more successful considering the size of responsibility on the indigenous players and the determination to sustainable growth of the sector and the country.
He assured that the onshore and shallow water assets being transferred in the course of these divestments by the IOCs are in safe hands with the indigenous Exploration & Production, E&P, companies.
To date, he said IPPG members have a proven track record of performance and remain best placed to guarantee a steady flow of investments in adding value to these divested assets.
“An aggregate of over $20 billion has been spent on acquisition plus capital expenditures in the past ten (10) years to grow the divested assets. In addition, some of our members have demonstrated an appetite for supporting the Government’s energy security vision by building a broader value-adding midstream and downstream business.
“Overall, our members have deployed unique capabilities in operations which have minimised incidences of community disruptions and enhanced impactful community engagement models. IPPG strongly believes indigenous players have the technical and financial capability to realise the Government’s aspirations for the sustainable growth of our industry.” added Isa.
He noted that the Government’s support of indigenous E & P companies’ participation in the ongoing IOC divestment is critical and shall provide a solid avenue for securing the country’s energy future. It is therefore imperative that targeted policies are formulated to support, empower and consolidate the position of the indigenous players.
He therefore solicited for a high level dialogue between Government, its institutions and Indigenous Operators that have demonstrated capacity and strength as they must be the timely catalyst needed, and the safe hands to be trusted with these emerging opportunities.
He comnended President Muhammadu Buhari for his continuous support for the survival and growth of the industry as well as the Minister of State for Petroleum Resources for his constant support and interest in the progress of his members.
He stated further that the operating leadership, understanding and support of the NNPC is also most appreciated in addition to NCDMB’s dogged support for the promotion of indigenous companies is highly applauded.
He reaffirmed the groups continuous commitment and support to the policies and programmes of Government, the NNPC Limited, industry regulators and other relevant stakeholders for the benefit of the industry as well as Nigeria.
Responding to the concerns raised by IPPG, Komolafe said the presentation will serve as a working document for policy formulation as the commission commences the implementation of the PIA and added that the FG will make improvements in challenges included in the presentation.
“We understand that part of the challenges you are having is bureaucracies, cost of operations, crude oil theft and so on but we promise a different culture completely and we intend to leave a legacy of 21st century upstream regulatory commission. We enjoin you to reciprocate by being very compliant with the provisions of the Act. Pay your royalties as at when due and on our part we will ensure a very good efficient and partnership between the NUPRC and other oil and gas stakeholders,” he said.
Allaying Divestment Fears
NUPRC, which has assumed a strategic position of business enabler in one of its engagements with indigenous oil producers has encouraged them to consider the divestment of international oil companies (IOCs) in the sector as an opportunity rather than a threat to their growth.
Komolafe stated that the divestment by the IOCs has triggered the need to look inwards and prove the capability of the local content in value addition and optimising the development of the nation’s hydrocarbon resources.
According to him, there is a need for indigenous players across the value chain to deploy their ingenuity in promoting vibrancy and capacity utilisation in the industry
“As a regulator, the Commission is not oblivious of the threat posed to the development of the Nigerian hydrocarbon industry by the divestment of the IOCs.
“The impetus for divestment by the IOC is mainly attributable to the hostile upstream petroleum environment arising from crude oil theft and energy transition as a global response to the advocacy for reduction in carbon emissions.
“Our view as a Commission is that IPPG and other prospective indigenous players should perceive the IOCs’ divestment in some of the upstream assets as an opportunity rather than a threat to the development of the Nigerian upstream petroleum sector,” he said.
Speaking further, Komolafe noted that indigenous companies presently contribute about 30 per cent of the nation’s crude oil and 20 per cent of the gas production, as well as 40 per cent and 32 per cent of oil and gas reserves, respectively.
He also informed that seven indigenous companies are among the top 20 companies with the highest oil reserves in Nigeria.
He further disclosed that 57 fields were offered for awards in 2020 to indigenous operators, resulting in the issuance of 102 Petroleum Prospecting Licenses (PPLs) by the Commission on June 28, 2022.
“It is worthy to note that Nigeria has the largest participation of local independents in the domestic oil and gas industry activities of all petroleum-producing countries in Africa arising from the robust local content policy.
“It is estimated that the energy demand across Africa in 2040 would increase by about 30 per cent compared to the current level. Consequently, the divestment of the IOC away from our onshore and shallow water terrains presents a massive opportunity for new operators of those assets, which the IPPG is better positioned to take advantage of in order to meet the increasing energy demand.
“The Commission expects the IPPG to stay competitive, optimise future energy security and be resilient in our oil and gas extractive industry.
According to him, adopting decarbonisation and improvement in cost efficiency; creating of enabling environment with host communities, and utilisation of appropriate skills and capabilities will boost the ability of indigenous companies to take advantage of opportunities presented by the IOCs divestment.
He explained that in the new energy mix, the IPPG was expected to have an increased focus on natural gas exploitation and utilisation.
“As you position to take the opportunity being presented by the divestment, the need to be prepared to make the necessary investments for gas pipeline infrastructure, gas processing facilities, meeting domestic gas delivery obligations to strategic sectors of the economy, and global gas export requirements should be in focus.
“Again, on the part of the commission, we shall provide the requisite regulatory support in line with the provisions of the PIA 2021. It is encouraging that Section 52 of the PIA provides for the establishment of the midstream and downstream gas infrastructure fund,” he said.
Seeking IOCs Cooperation On PIA Implementation
To achieve an inclusive stakeholder collaboration especially on the PIA implementation the NUPRC had equally engaged the Oil Producers Trade Section (OPTS) of the Lagos Chambers of Commerce and Industries.
Komolafe, had at his maiden meeting with top OPTS members in Lagos asked for their support for effective implementation of PIA.
However, the oil producers on the other hand, demanded understanding of the agency in the implementation of key timelines in the Act.
“The implementation of the PIA is very germain to the president and this current administration and he has given us a period of six to 12 months to begin to deliver some of the key deliverables.
“It is against this backdrop that I have decided to host this meeting in Lagos to reinforce my acknowledgment of your association and to solicit your collaboration as industry stakeholders,” Komolafe said.
He noted that the meeting was coming at a critical time when the clamour from the global community was focused on energy transition from fossil fuels to cleaner energy.
According to him, this has resulted in funding challenges for exploration activities being faced by the companies.
He said the meeting was to familiarise the Commission with the OPTS members and listen to the challenges hindering optimisation of key areas in the upstream sector.
“Permit me also to say that this is the first in the series of engagements with you as our vision is to build a 21st century regulator that will be fair, just and be a critical business enabler in the upstream petroleum sector.
“It is in this wise that we urge you all to join hands with us in building confidence in the industry for robust investment,” Komolafe said.
Rick Kennedy, Chairman, OPTS and Managing Director, Chevron Nigeria Ltd, in his response assured him of the support and cooperation of the OPTS in achieving the mandate of the Commission.
Kennedy said the establishment of the Commission forms a major milestone in the reforms being made in Nigeria’s petroleum sector, especially the passage of the PIA.
He, however, noted that the OPTS would need collaboration with the Commission regarding some of the key timelines in the implementation of the PIA.
Kennedy said the areas included incorporation of development trusts for host communities, installation of flare meters as well as gas flare and monetisation plan.
He said the challenges faced by the companies were high operating cost, security, lengthy contract cycle, multiple levies and taxes, among others.
OPTS is comprised of 29 companies who are the major players in Nigeria’s oil and gas sector.
