Boosting Nigeria’s revenue earnings from oil and gas sector requires hard work, determination and expertise on the part of the operators and other stakeholders. With billions of dollar revenue waiting to be fully harnessed through sustainable gas utilisation and development, the benefits of tapping into this goldmine cannot be overemphasised as the economy continues to grapple with revenue shortages.
Available data on key macroeconomic variables indicate the likelihood of a subdued output growth for the Nigerian economy in 2022. This is hinged on ongoing and expected shocks from the global economy, particularly from supply blockages of essential exports from both Russia and Ukraine; the impact of high crude oil prices, given Nigeria’s position as an oil exporter and importer of refined petroleum products; and the aggressive normalization by some advanced economies.
Report on oil earnings showed that N208.20 billion, oil revenue in February, was lower than collections in the preceding month and the proportionate budget benchmark by 36.9 per cent and 58.8 per cent, respectively. All components of oil revenue fell short of their prorated budget benchmark, reflecting the effects of operational constraints. These developments call for more investment inflows across key sectors of the Nigeria economy to boost income streams.
That is where the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) steps in to see that Nigeria earns more income by maximising opportunities in the oil and gas sector. Recently, NUPRC completed the 2020 marginal oilfields bid round two years after the process commenced. The N200 billion plus $7 million signature bonuses raised. Also, the passage of the Petroleum Industry Act (PIA) 2021 was aimed at eliminating bottlenecks in the oil and gas sector and attracting more investments for sustainable growth of the oil and gas sector.
NUPRC has, therefore, announced its four cardinal areas of focus: gas reserves growth, optimised gas production, domestic gas utilisation and gas flare elimination. This move is seen by stakeholders as major progress in the agency’s quest for improved revenue to the economy and continued development of the oil and gas sector. Such investment is expected to support millions of Nigerian jobs, provide lower energy costs for consumers, and ensures energy security.
Already, the oil and gas sector, which accounts for about 5.8 per cent of Nigeria’s real Gross Domestic Product, is responsible for 95 per cent of Nigeria’s foreign exchange earnings and 80 per cent of its budget revenues.
Speaking during the 2022 Society of Petroleum Engineers (SPE) Nigeria Annual International Conference and Exhibition (NAICE) in Lagos, Chief Executive Officer, NUPRC, Gbenga Komolafe, urged other African countries to adopt suitable anchor points and roadmaps similar to what had been outlined by the commission. According to him, such step would enable them to achieve the right energy mix while de-carbonising their oil and gas development. He noted that Nigeria had huge abundant gas resources, which had been adopted by the country as its energy transition fuel.
Komolafe said the passage of the Petroleum Industry Act (PIA) 2021 was aimed at eliminating bottlenecks in the oil and gas sector to attract more investments. “We are positioning gas as our transition fuel; while adopting phased down approach in our energy transition quest geared toward paying greater attention to the development of untapped gas resources. This energy source with low carbon footprint would serve as the transition fuel in meeting our energy security as a nation.
“Fortunately, several African countries including Nigeria, Algeria, Mozambique, Egypt and Libya, among others are blessed with huge gas reserves. With a total of over 620 trillion cubic feet of natural gas reserves and 125.3 billion barrels of crude oil, the future of upstream oil and gas in Africa is promising.”
Komolafe, however, noted that it required the right legislative framework and a change in policy direction for maximum economic recovery and energy sustenance. He added that the PIA had generous fiscal provisions aimed toward attracting investment not just for oil development but for harnessing of the rich gas potential of the nation, which was among the highest in the world.
Chairman, Society of Petroleum Engineers (SPE) Nigeria Council, Prof. Olalekan Olafuyi, said the world was facing the challenges of balancing the urgency of transition to cleaner energy with the obvious energy deficit and economic challenges experienced in recent times. “It is expected that the adaptive strategies for energy transition should be adopted in Africa. The status quo in the African energy supply is very obvious. Africa and Nigeria in particular, are still struggling with endemic energy poverty as compared to the developed regions of the world,” Olafuyi said.
He said this was further worsened by the divestment by major international operators and funding challenges for oil and gas businesses. “This leaves the indigenous stakeholder in a situation of choosing to continue with the oil and gas business or channelling the attention to renewable energy sources.”
IOCs’ divestments from upstream assets
Aside exploring opportunities in the gas sector, Komolafe is also advocating global backing for Nigeria’s oil and gas players in the face of widespread divestment in the sector. For him, the divestment of international oil companies (IOCs) in the sector should be an opportunity rather than a threat to their growth He said 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.RELATED POSTS
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 Independent Petroleum Producers Group (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 percent 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.
NUPRC and marginal oil fields
Analysts have lauded Komolafe for leading NURPC at this critical time, and having the courage to see the marginal oilfields award completed seamlessly. Some of the winners of the bid rounds included Matrix Energy, SunTrust Oil, PetroGas Energy, Genesis Hydrocarbons, Samora Oil & Gas, Ardova, Terra Energy and Mainland Energy. Energia, Bono, Calm Marine, Virgin Forest, Tempo, Deep Offshore, North Oil, Shepherd Oil, Hilltop Global, Duport, among others, made the winners’ list.
The process, which commenced in 2020, had been bogged down by bureaucratic challenges, meaning that the actual drilling for oil had yet to effectively take off after a long time, although 161 companies were eventually shortlisted to advance to the final stage from 591 entities that applied for pre-qualification. The then head of the defunct DPR, which has now transformed into the NUPRC, Sarki Auwalu, had said the exercise was worth roughly $500 million in signature bonuses.
However, Komolafe noted that the commission was faced with several constraints during the course of the exercise, which have now been surmounted. He listed some of them as the COVID-19 interruption, partial payment of signature bonuses by some of the awardees, and the unwillingness of co-awardees to work together in forming SPVs for field development.
According to experts, the project is expected to revive production of oil in fields that have been abandoned for at least 10 years from the date of first discovery. Also, they said that with the Oil Prospecting Licence (OPL), the winners can legally search for oil and operate on an oil field in Nigeria.
Prior to the enactment of the Petroleum Industry Act (PIA) 2021, the fields were classified as marginal when they were not considered by licence holders for immediate development due to assumed marginal economics under prevailing conditions or left unattended for more than 10 years. They also included assets that leaseholders considered for farm-out due to portfolio rationalisation or those, which the president may, from time to time, identify as such.
Komolafe, noted that the engagement with the marginal field awardees and leaseholders was for NUPRC to state the policy position on the 2020 Marginal Fields Bid Round (MFBR). Komolafe stated that this would enable successful awardees progress to field development phase in line with the PIA. He stated that the marginal field initiative was conceived to entrench the indigenisation policy of the government in the upstream sector of the oil and gas industry.
According to him, the objective is to promote indigenous participation, increase oil and gas reserves, as well as production, encourage capital inflow, generate employment, and build local capacity in the sector. Komolafe noted that relevant leaseholders had also been invited to the forum so that they could understand their roles and responsibilities as it affects the farm-out of the fields, which he said included facilitating the achievement of first oil in a collaborative manner.
In all, he reiterated that 57 fields were identified for the 2020 bid round exercise, and a total of 665 entities expressed interest, explaining that after extensive evaluation processes as laid down in the guidelines, 161 entities emerged as potential awardees. Komolafe explained that signature bonuses for 119 awards were fully paid, nine awards were partly paid for, and 33 awards had yet to be paid for, a situation he said had resulted in various challenges inhibiting the close-out of the exercise.
Notably, marginal fields have proven to be vital to Nigeria’s upstream local content development strategy. Preceding exercises produced some notable indigenous stakeholders in the industry such as Seplat Petroleum, Belema Oil?, and Shoreline Energy and it is expected that the current awards of marginal oil fields will lead to emergence of more oil giants in the economy.
