The Merits of Nigeria's Petroleum Industry Bill

Filed under: Business,Featured |

The Petroleum Industry Bill (PIB) combines 16 different Nigerian petroleum laws in a single transparent and coherent document. This is the first time that such a large-scale consolidation has happened anywhere in the world.

Prior to the coming of the PIB, the main laws governing the sector are the Petroleum Act 1969, the Petroleum Profits Tax Act 1959 and the Nigerian Petroleum Corporation Act of 1977.

These and practically every other law regulating the industry needed to be holistically updated to reflect the changing dynamics of the oil and gas industry worldwide.

The PIB, which establishes a new framework for good governance in the petroleum industry, will lead to increased petroleum revenues for Nigeria and new opportunities for Nigerians to participate at every level of new development in the sector.

The PIB, in essence, is a reform legislation, which aims to put in place an omnibus legislation that will cover the myriad of legislative and administrative instruments governing the petroleum industry.

It will establish clear rules, procedures and institutions for the administration of the sector. The PIB will also establish the legal and regulatory framework, institutions and regulatory authorities for the petroleum industry.

It also stipulates guidelines for the operations in the upstream, midstream and downstream sectors.

The bill promotes good governance, creates room for transparency and remove confidentiality which encourages corruption. The best way to fight corruption is to remove confidentiality from all procedures, contracts and payments.

Every Nigerian including all stakeholders should have the right to know what is going on. The bill removes confidentiality on a scale not seen in the world before.

Nigeria will move in one step from the most opaque petroleum nations in Africa to one of the most open and transparent in the world, when the PIB is passed and implemented.

This is a very pertinent reason for Nigerians and our partners to support timely passage of the PIB.

Prior to the PIB, the Federal Government made efforts to make activities in the oil and gas sector transparent. In March 2005, the government appointed Britain’s Hart Group to conduct a five-year audit of the activities in the oil and gas sector, in an effort to give effect to government’s commitment to the principles of Extractive Industry Transparency Initiative (NEITI).

The idea of NEITI is to have full disclosure of oil and gas sector, which is why NEITI appoints advisers to select competent companies to carry out the audit of the sector.

Basil Omiyi, country chairman, Shell Petroleum Development Company (SPDC), describes Nigeria’s journey in the oil and gas sector so far as twinkle in an eye.

Omiyi’s statement is instructive in looking at the contributions of the oil and gas sector to Nigeria in its 51 years of existence as an independent nation. This is because his company, Shell, made the first discovery in 1956 in Oloibiri and exported its first shipment in 1958, with production figure of 5,100bpd.

Since then, Nigeria has made appreciable progress in the oil and gas sector. The journey, which started with one company, has seen almost 50 companies operating in the sector today.

At the moment, there are 11 major oil corporations operating about 159 oil fields and 1,481 oil wells in the Niger Delta.

From inception to date, Nigeria has reaped about $600 billion from the sector. Apart from the money accruing to the government, there are other official statistics, which show that Nigeria is not doing badly in exploration and exploitation of oil.

Nigeria is the world’s 11th largest oil producer and the largest in Africa. It is the 10th world largest holder of proven reserves at 36 billion barrels and the second largest oil procuring country in Africa behind Libya.

Nigeria aims to raise proved reserves from 35 to 40 billion barrels and crude oil from 2.5 million barrels to four million barrels per day.

Oil exploration will be done more aggressively in deepwater fields than onshore, mainly due to security issues. Nigeria’s oil production is now 8.6 times larger than its oil consumption, making the country a major oil exporter and seventh largest oil exporter in the world.

On the gas front, Nigeria is one of the largest producer of gas, most of which are being flared for now. Nigeria’s gas production is about three times of local consumption. Natural gas is 25 percent of Nigeria’s primary energy consumption.

Nigeria maintains strong position in the liquefied natural gas business, which is still growing. Shell Nigeria operates the largest gas business (domestic and export) amongst all oil companies in Nigeria and holds 45 percent of the natural gas reserves. It also supplies 65 percent of gas going into the domestic sector and major supplier to the Nigeria Liquefied Natural Gas, NLNG.

After 1960, when Shell held sway, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies. In 1965, the EA field was discovered by Shell in shallow water southeast of Warri. In 1970, the end of the Biafran war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production.

Nigeria joined the Organisation of Petroleum Exporting Countries, OPEC, in 1971 and established the Nigeria National Petroleum Company, NNPC, in 1977, a state-owned and controlled company, which is a major player in both the upstream and downstream sectors. NNPC collaborates with other major oil companies such as Shell, ChevronTexaco, Agip, ExxonMobil, Total etc., in joint venture projects in oil exploration.

Despite major problems of civil unrest, political instability, border disputes, corruption and poor governance, international oil companies have always seen Nigeria as an attractive area for upstream investment.

Exploration has taken place in five major sedimentary basins, namely, the Niger Delta, the Anambra Basin, the Benue Trough, the Chad Basin and the Benin Basin. The most prospective basin is the Niger Delta which includes the continental shelf and which makes up most of the proven and possible reserves. All oil production to date has occurred in this basin.

Since the opening up of the deep offshore by allocation of 11 blocks in 1993, there has been a major growth in Nigerian oil and gas reserves. About six billion barrels of oil and over 10TCF of gas have been discovered from the province in water depths ranging from 500m to 2000m.

These discoveries translate to a compound annual growth rate of about five percent in the nation’s crude oil reserves, which now stand at about 35 billion barrels.

The growth in reserves has been rapidly followed with accelerated development activity. About $33 billion has been spent in the development of nine major deep water discoveries including (but not limited to) Agbami, Bonga Main, Erha, Nda, Okwori and Usan as at 2009. The province now contributes about 40 percent of Nigerian crude oil production following the commencement of production from Bonga, Erha, Nda Abho, Agbara fields and the more recent Agbami in July 2008.

The Akpo field is expected to come on stream in April 2009 with a further addition of about 175kb barrels per day of production.

Further development in the Nigerian deep offshore include about $12 billion being invested in the development of Bonga South West, Bonga Major, Usan and Bosi. With the completion of these projects, deepwater production capacity is likely to reach 1.3 million barrels per day.

The pace of activity is a testimony to the potential of deepwater province in Nigeria, and it shows the shifting demographic pattern of the Nigeria crude oil production capacity mix with increasing contribution from deep water.

This, no doubt, suggests that special focus needs to be given to the deepwater province to ensure that the nation’s strategic objectives are met through its exploitation.

That Nigeria has great oil potential is not in doubt. However, the ability of the government to manage its oil resources well to achieve optimum result has continued to improve over time. In the past 50 years, the management of oil resources in Nigeria has witnessed some shift in terms of control by government.

From the era where government controlled the prices of oil, it has shifted to deregulation. There was the debate on removal of oil subsidy.

The federal government insists that the subsidy it was paying on importation of oil is a strain on its resources; opponents say that government does not pay any subsidy.

The way out of the quagmire lies in the implementation of the reforms driven by PIB, which creates a new role for the NNPC.

The federal government has commenced one of the most sweeping reforms of the oil and gas sector.

Central to this restructuring is the separation of policy from regulation and commercial activities in the Nigerian oil and gas sector. Specifically, the NNPC is being restructured to be fully a commercial organisation with its own asset base against which it can raise money from the money and capital markets. It will also re-constitute the existing joint ventures, JVs, into incorporated JVs, enabling them to self- finance their projects.

The reform will address the challenge of funding that has threatened the sector growth.

With all the lessons learnt in the past 50 years, the leadership in the oil and gas sector is poised to take Nigeria to greater heights in the years ahead.

*Ajuonuma is the Group General Manager, Corporate Affairs of the NNPC.