petroleum-industry-billThe late President Umar Yar’Adua was full of optimism when he sent the first edition of the Petroleum Industry Bill, PIB to the National Assembly in 2008 for a reason. He was optimistic that the bill would be passed into law as part of the Federal Government’s measures to accomplish set objectives, especially boosting investment, and by extension various activities in the oil and gas industry.

This was not to be. Unfortunately, the PIB was not passed throughout his lifetime. The bill which has outlived many legislators at the National Assembly has not been passed despite the renewed efforts of President Goodluck Jonathan’s administration. Consequently, the development was feared to have made negative impact on the nation. Specifically, most people believed that it has discouraged investment, leading to reduced exploration and limited additional reserves in the industry.

However, the negative impact may not be serious as a recent report indicated that many companies, including Addax Nigeria Limited, Afren Plc and Nigeria Agip Oil Company and Agip Energy & Natural Resources Ltd are still active in oil and gas exploration. In other words, despite the delay in the passage of the PIB expected to encourage aggressive oil and gas exploration, Nigeria still leads other African nations in the search for petroleum. The nation’s rig count of 43 in August 2013 accounts for more than a third of Africa’s total rig count of 125 for the month.

The Nigerian chapter of the International Association of Drilling Contractors, Shell stated that Shell, the country’s largest operator, utilised nine rigs in all, with eight (8) on onshore locations (three in swamp, five on land) and one drilling a deepwater well. Bloomberg, which made this known, stated Agip companies in Nigeria the local subsidiaries of the Italian ENI group were collectively next to Shell in size of drilling activity, with six rigs deployed on four onshore and two deepwater wells.

It stated that ExxonMobil was active on four shallow offshore locations with four rigs while Total had four rigs on duty in four locations, with two completing and two drilling ahead; three of these locations were in deepwater and one was on land. The agency said that Addax utilised two rigs in the month, on two offshore locations. It had access to two more rigs, one in maintenance and the other just arriving on location. Nigerian indigenous companies deployed 15 rigs on 15 locations with Seplat and Conoil each with three rigs, Pan Ocean on two rigs, and Energia, Frontier, Network, Newcross, NPDC and NDPR were each on one location.

The figure however differed from that of OPEC’s monthly oil market report whose September 2013 edition puts Nigeria’s August 2013 rig count at 33 without providing details. Stakeholders in the nation’s oil and gas industry expect the rig count to be higher when the PIB becomes a reality. For instance, the National President of the Oil and Gas Service Providers Association of Nigeria, Mr. Colman Obasi stated that: This is actually the level that Nigeria should be in terms of exploration. There is a great need for the legislators to pass the Bill into law so as to encourage operators to invest in more exploration and production.”

Meanwhile, there are fears that the important bill may not be passed into law this year because of some reasons. First, the remaining three months (October-December) seem to be too short to complete outstanding legislative processes on the PIB. Second, the PIB is still haunted by some disagreements. For instance, the International Oil Companies, IOCs think the deep offshore is the place to be if commercial finds are to be made.

The Managing Director of Total E&P Nigeria Limited, Mr. Guy Maurice remarked that there is need to focus on the deep offshore because the IOCs have many pending projects in the area. He said that the deep offshore has the promise of yielding more finds and by extension, output in the future, which had become more certain as a result of new technologies. The Vice President and Managing Director of Addax Petroleum Nigeria, Mr. Cornelis Zegelaar remarked that the PIB should encourage increased funding of projects.

The Country Chair/Managing Director of Shell Petroleum Development Company, Mr. Mutiu Sunmonu stated that the government needed to ensure that the PIB provided increased air of freedom for operators to concentrate on core operations with minimum interference. He maintained that: “All we need is for the government to replicate what it has done in the telecoms industry, which allows investors, including MTN, to run operations as seamlessly as possible in order to fast track the development of the industry.

Sunmonu remarked that the nation had great potential, which should be harnessed to maximise value for all stakeholders, including operators, communities and the entire nation. He said the slag in exploration and production as a result of the PIB had impacted in many negative ways on the industry and government which needed more funds to catch up in the coming years.

He made it emphatic that the tax provisions in the PIB is ‘uncompetitive’ stressing that they are capable of stifling investment and making offshore oil and gas projects unviable. Sunmonu remarked that: “What we have seen of the draft PIB to date does not indicate a bill that fits these criteria. And this is the opinion not only of the major players in Nigeria’s oil and gas industry, but, as I mentioned earlier, industry analysts as well. What we have seen and what we know of the current draft PIB requires significant improvement to secure Nigeria’s competitiveness, and attract the required level of investment to enable exploration to increase Nigeria’s reserves and then foster development of the projects to monetise them.”

Sunmonu, who argued that an unbalanced bill could hinder investment stated: “The PIB will likely render all deepwater projects and all dry gas projects whether for domestic or export markets non-viable, added that many opportunities will be lost. The Country Chair who noted that the opportunity to monetise some of the world’s best gas reserves will be lost also stated that the opportunity to kick start the power sector “the key to economic growth using easily accessible gas will also be lost.”

The Shell boss remarked that the PIB needs to address long term industry issues, including funding, particularly as funding requirements have constrained production growth in the industry. He stressed that the nation needs a strong national oil company, capable of partnering with others to enhance its competitiveness. He stated that: “While the economy in general is on the path of diversification, it should not be denied that the oil and gas sector remains the driver of this process providing not only the funds to enable the diversification but also the gas that could and should be used to regenerate the power sector to provide reliable electricity which is the backbone of industrial growth.

The Chairman of Oil Producers Trade Section (OPTS), of Lagos Chamber of Commerce and Industry, Mr. Mark Ward observed that the fiscal terms in the PIB are not favourable to their operations. Ward stated that operators are presently working in line with government’s aspirations, targeted at achieving $104 billion (N15.6 trillion) for oil production between 2012 and 2015, another $30 billion (N4.5 trillion) for gas development in the next five years, including the establishment of construction of Afam and Okpai independent power plants.

He stated that operators are also working to accomplish a significant growth in crude oil capacity through investment of about $29 billion (N4.3 trillion) on the Production Sharing Contracts and $39 billion (N5.8 trillion) on the Joint Venture Projects over the next five years. The chairman observed that an unbalanced PIB would likely encouraged commercial oil and gas production without significant investments in the next 10 years.

The Chairman of the Indigenous Oil Producers, Abdul Razaq Fadahunsi, noted that the provisions of the bill would likely impact negatively on indigenous operations. Fadahunsi who observed that the PIB was partly planned to boost indigenous participation noted that: “the document negated that laudable motive, because there was no clause in the bill that sets aside any acreage category for indigenous participants.”

However, the Nigerian National Petroleum Corporation, NNPC, believes there is a great need to pay more attention to the offshore since it is cheaper to operate there. The Corporation ’s Group Executive Director, Exploration and Production, Mr. Abiye Membere who expressed these and other sentiments at the last Nigeria Oil and Gas Conference remarked that the offshore promises to hold more reserves. Consequently, he tasked operators to invest more of their resources targeted at making new finds in the area.

Also, participants at a recent e-conference of Spaces for Change in Lagos noted that the PIB is weak in the area of transparency and accountability. Consequently, the body documented that: “The new bill authorises the newly created regulatory agencies to receive gifts, including money or other property upon such terms and conditions as may be specified by the person or organisation making the gifts provided such gifts are not inconsistent with the objectives and functions of the Act.

It documented that there is no distinction between a gift and bribe in the PIB. Specifically, it stated that: “Because of the difficulty of drawing a line between a gift and a bribe, a blanket ban on receiving gift by any of the agencies is not only appropriate, but will go a long way in inspiring confidence in the proposed reforms. Independent studies and probes, such as the KPMG report, the Faruok Lawan, Aig Imokhuede fuel subsidy probes, the NEITI reports have shown, transparency and accountability are the core issues with the current set-up.

Spaces for Change faulted the proposed fund because there is presently no distinction between it and the Niger Delta Development Commission (NDDC). According to the report, “The bill does not indicate how this differs from NDDC, except in terms of source of funds. By also making provisions for communities to be punished by withholding their entitlements under the fund in case of disruptions, it negates the constitutional basis of criminal justice by dishing out collective punishment.”

It noted that the environmental laws as documented in the PIB are weak and not capable of making much impact in the industry. Specifically, it maintained that: “Asking operators in consultation with the Ministry of Environment to come up with an environmental plan does not deal with questions of the gap between the policies and practices which has been the problem. These and others notwithstanding, most stakeholders who perceive the PIB as a bold step in the right direction have called on the legislators to ensure it is passed into law without further delay.

 

Information from National Mirror was used in this report.

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