In the four years since the Nigerian Oil and Gas Industry Content Development Act 2010 has been in force, a growing number of indigenous companies have begun playing more active roles in the Nigerian oil and gas industry. This feature looks at some of the notable highlights the Act has achieved thus far.
The Nigerian Oil and Gas Industry Content Development Act 2010 (popularly known as the Nigerian Content Act) was signed into law on April 22, 2010 and has so far aided several indigenous companies to build the capacity and competence with which to execute major projects that were the exclusive preserve of expatriates before the legislation was put in place. At the same time there have been an increasing number of multinational companies that have also been compelled by the legislation to perform a certain amount of their operations in-country. Below are some notable highlights.
Indigenous Asset Ownership
The Nigerian Content Development and Monitoring Board (NCDMB) noted recently that it has been able to save the country about $2.5billion through its promotion of indigenous marine vessel and rig ownership. In 2012, Chevron provided support to an indigenous company; Seabulk Offshore Operations Nigeria Limited to acquire its first DP-2 PSV (The Al-KAT) valued at over US$30million. The Al-KAT is currently supporting Chevron’s joint venture drilling campaigns as a liquid mud cuttings vessel combined with gravel pack operations.
Another indigenous company, CNS Marine Nigeria Limited, which has already worked with several international oil companies in Nigeria, recently acquired three vessels to facilitate its offshore projects in Nigeria. The offshore diving vessels, Adessa Ocean King, Adessa Legend and Adessa Sea Protector, worth over $50 million, have an intensive capacity of 50 tonnes and can accommodate about 90 workers on offshore projects.
Another example of indigenous ownership is provided by Oando Energy Services Limited (OESL), which has invested over US$300 million in the acquisition, refurbishment and upgrade of swamp rigs since its inception. In 2007 OESL commenced its drilling rigs business by acquiring two swamp rigs namely; OES Teamwork and OES Respect. Since then, the company has acquired an additional 3 swamp rigs and drilling equipment to be utilized in the Niger Delta swamps. These 5 rigs which are wholly owned by OESL are at various stages of being deployed to work for major oil companies operating in country.
In 2010, Shell supported Caverton Helicopters an indigenous provider of aviation services to upgrade its fleet with more advanced aircrafts. Notably, Shell awarded a 5-year contract worth about $694million to provide aviation services to Caverton Helicopters; this also represented the biggest aviation contract to a Nigerian Company.
The NCDMB has stated that between $2-$5 billion worth of investments have been made in the development of new fabrication yards and the upgrade of existing yards and facilities. In line with this, Kaztec Engineering Limited, an indigenous oil service company and a subsidiary of the Chrome Group stated that it is building a fabrication yard at the Snake Island in Lagos. The fabrication yard is to be utilised for fabricating jackets, topsides, equipment as well as skills development and will be handled in tandem with Kaztec’s technical partners, Addax Petroleum Limited.
Section 53 of the Nigerian Content Act provides that all operators and investors engaged in the Nigerian oil and gas industry must carry out all fabrication and welding activities in the country. As such, NCDMB efforts have resulted in several projects being executed in local fabrication yards. Mobil Producing Nigeria (MPN), operator of the NNPC/MPN joint venture (JV) built three wellhead platforms locally for the development of 20 new oil fields in the country. MPN contracted Nigerdock Plc. to fabricate the Abang and Itut wellhead platforms while another leading indigenous service company; Dorman Long Engineering Limited handled the fabrication of the Oyot wellhead platform.
An offshore living quarters platform was fabricated in Nigeria for the Ofon Phase II project developed by Total and was the first of such to be done in Nigeria. The completion/load-out of the platform was carried out at the Snake Island Integrated Free Zone Lagos base of Nigerdock Plc by Eiffel Nigeria Limited, a local subsidiary of Eiffage Construction Metallique of France, contractors to the project. The Ofon Phase II living quarters platform and topside was built for Total by Eiffage Construction Metallic of France, with OOP Engineering Limited as its local content partner.
In a bid to develop local capacity, part of Chevron’s Agbami Project also entailed the fabrication of two FPSO topsides modules (1,100 tons), the Agbami offloading buoy (1,080 tons) and 21 suction piles (2,460 tons) for the buoy and FPSO locally by Nigerdock Plc. In addition, Aveon Offshore fabricated the manifolds and associated suction piles (1,200 tons) in Port Harcourt. Two additional modules and flare bloom were also constructed at Daewoo Nigeria Ltd’s yard in Warri.
The Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI) in their Report; “Local Content Strides in the Oil and Gas Industry” state that at various times, selected OPTS members partnered with SCC Pipe Mill to provide technical support, upgrade its pipe mill operations and place multiple orders to encourage development of line pipe manufacturing in country.
A notable highlight is the use of made-in-Nigeria pipes for the first time in the nation’s oil and gas industry by ExxonMobil. The company deployed Helical Submerged Arc Welded (HSAW) pipes fabricated locally by SCC Pipe Mill for its Usari-Idoho pipeline replacement project in Akwa Ibom State.
The NCDMB has also stated that construction work has commenced for two steel pipe mills in Bayelsa and Edo states. These mills are to produce about 400,000MT per annum of steel pipes for the oil and gas industry by 2016 and create more than 10,000 direct and indirect jobs during the construction and operating phases of the mills.
The NCDMB has stated that it has plans to establish world class industrial parks in strategic oil bearing communities through the Nigerian Oil and Gas Industrial Parks Scheme (NOGIPS). NOGIPS is a capacity development initiative to establish physical infrastructure and create enabling environments for low cost production of goods, domiciliation of capacity, technology acquisition, training, creation of employment opportunities and structured community participation.
To this end the NCDMB intimated that the Federal government recently concluded plans to set up nine industrial parks in the States of the Niger Delta as part of the agenda to boost the harnessing of hydrocarbon resources as well as the overall development of the economy. The industrial parks when established would be a significant milestone in the continued quest for achieving effective participation of the local supply chain in the oil and gas sector. The beneficiaries of the scheme would be operating companies, multinationals, small and medium enterprises (SMEs), original equipment manufacturers (OEMs) and oil producing States.
The NCDMB and Shell Petroleum Development Company (SPDC) also recently signed an agreement with six original equipment manufacturers (OEMs) that have committed to invest $62million (about N9.6billion) in the manufacture of local components in Nigeria.
Human Capital Development and Training
The NCDMB notes that its On the Job Training (OJT) scheme has been a success with over 5,000 employment/OJT slots created for Nigerian engineers and technicians on ongoing oil and gas projects.
Chevron and its partners have upgraded an existing facility – the Training and Conference Centre (TCC) located in Ogere, Ogun State and setup a world class – 1st of its kind simulation training facility for Operations & Maintenance (O&M) training. As at 2013, the $10million facility has graduated over 400 trainees, 98% of which have been absorbed into the Oil and Gas sector.
In a similar vein, an indigenous oil servicing company, PEM Offshore Limited has begun to test run its Offshore Simulation and Innovation Center. The first phase has been set up and once other facilities are put in place, the center will have a full suite of simulation systems which will support the training of local and foreign offshore personnel involved in Nigerian oil and gas operations. According to the company’s Vice President, PEM Offshore has secured a 5-year commitment from Chevron and Agip to utilize the facility in actualizing Chevron and Agip’s annual scholarship award programme to train Nigerian seafarers.
The OPTS also indicates that several of its members have been dedicated to supporting Nigerian-owned engineering companies and to ensuring that they develop their expertise and skilled resources through awards of contracts for provision of engineering services to local operators such as DeltaAfrik, NETCO, Amazon Energy, Point Engineering and Linkso Nigeria Limited to name but a few.
The Nigerian Content Development Fund
The Fund is pooled from 1% of all contracts awarded in the upstream sector of the oil and gas industry for use in developing the supply chain and building local capacity in the industry. 70% of the pool is to be used to provide guarantees for single digit and longer tenure lending by banks and funding institutions to Nigerian service companies seeking to acquire critical assets while 30% is to be applied for direct intervention by the Board in critical infrastructure development and training programs. Currently the Nigerian Content Development Fund has grown to around $350m and is now capable of being accessed by Nigerian service companies.
Admittedly, the fund has so far been accessed by only a handful of Nigerian service companies but the NCDMB and its Executive Secretary Ernest Nwapa have indicated that the Board is working to review the administration process and the conditions to be met for prospective beneficiary companies so as to make it more accessible. The current conditions require the benefitting company to tie-up an arrangement with its bank for a facility meant for financing the acquisition of assets and ensure that it draws down the loan and services it successfully. The Fund will then kick in to offset 50 per cent of the interest charged by the bank.
Finance and Insurance Nigerian Content Achievements
The OPTS notes that its members have deployed several initiatives to address the industry’s funding challenges by collaborating with Nigerian Banks. This has increased capacity of Nigerian Banks to service the financing needs of the industry’s contractors/vendors, led to an improvement in their understanding of the dynamics of the oil & gas sector; helped to develop their capabilities on project financing as well as the underwriting of project risks.
Examples include Total E&P Nigeria Limited and Total Upstream Nigeria Limited’s signing of a memorandum of understanding (MoU) with eight banks in 2013 to provide an estimated $7.5billion (N1.24trillion) in contract funding to local contractors. The fund tagged the Nigerian Contractors’ initiative (NCI) is to bridge the funding gap for the company’s local contractors including indigenous vendors and suppliers. The NNPC/MPN Joint Venture has also secured syndicated project facilities totaling $975million from Nigerian Banks over the last ten years to finance the NGLII ($435millon), Satellites Field Development Phase 1 ($90million) & 2012 Reserves Development Financing ($450million) projects. The financing capacity of Nigerian banks grew from less than 10% of financing commitments in 2004 to 50% in 2012. A total of fourteen Nigerian commercial banks apparently participated in the financing arrangements over the same period.
The OPTS also states that its members have supported the greater participation of Nigerian insurance and re-insurance firms in operations and project risk underwriting and provision of insurance cover for projects/ facilities. Some examples of this include; the NNPC/MPN JV which retained three (3) Nigerian insurers – Lasaco Assurance Plc., Sovereign Trust Insurance(STI) Plc and Royal Exchange General Insurance Company Ltd. – as Lead insurers for its operational insurance programs. Under this arrangement, NNPC/MPN JV paid about $13.7million and $36.2million in premiums, in 2010 and 2011 respectively. Shell (SNEPCo) also retained Sovereign Trust Insurance as the lead insurer in 2011 for the Bonga North West /Phase II/STIFO Construction All Risks (CAR) insurance with estimated premium of $45million paid.
*Noma Garrick is a lawyer and consultant with extensive experience in oil and gas and energy related matters.