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FG Challenges Indigenous Oil Firms To Fill Gap Created By Divesting IOCs

The federal government has challenged the Indigenous Petroleum Producers Group (IPPG) to take advantage of the ongoing divestments by International Oil Companies (IOCs) to significantly increase their investments in oil and gas assets in the country.

The Minister of State, Petroleum Resources, Chief Timipre Sylva, speaking as chairman and special guest at the Nigerian Association of Petroleum Explorationists (NAPE) divestment workshop in Lagos, urged the group to see the exit by IOCs as an opportunity to step in to fill the vacuum in the sector.

The event was themed: “The Big Sale: Opportunities in the Nigerian Oil and Gas Industry from Asset Divestments.”
Also, the Chairman of AA Holdings and former Chief Executive Officer of Seplat Energy Plc, Dr. Austin Avuru, who spoke at the workshop, blamed the drop in Nigeria’s oil production to just a little above one million barrels per day to the decline in capital spending in the industry from $20 billion to a paltry $6 billion per annum.

Speaking further, Sylva said: “The IPPG and other potential investors should therefore perceive the IOCs’ divestments in some of the upstream assets as opportunities, rather than a threats, to become more involved in the development of the Nigerian upstream petroleum sector.”

Sylva urged the IPPG members to strive to move their present contribution in production and reserves to at least 50 per cent, from about 30 per cent for crude oil and 20 per cent for gas production, as well as 40 per cent andcen per cent for oil and gas reserves, respectively.
The minister who spoke virtually, stated that the federal government was desirous to create the enabling environment for indigenous producers and other interested parties to play big in the ongoing divestments in the sector.

“To facilitate this, the Ministry of Petroleum Resources, in fulfilment of its mandate to promote an enabling environment for investment in the Nigerian petroleum industry as enshrined in section 3 (e) of the Petroleum Industry Act (PIA), is setting up a one-stop oil and gas investment centre to create an enabling business environment for would-be investors,” he said.
He assured potential investors that divestments would be adequately managed to ensure that Nigeria remains a prime destination for competitive oil and gas business.

“We will continue to listen to our stakeholders to ensure the right steer for our industry,” he added.
Sylva noted that despite the worldwide clamour for transition to renewable energy sources, it was certain that anticipated economic growth and rising global population, especially in Asia and Africa, would significantly push energy demand upward to a level that renewable energy sources only cannot meet by 2050.
“As global energy consumption grows, it is apparent that oil and gas will remain significant components of future energy mix.

“Therefore, there is ample opportunity for profitable investments into the Nigerian petroleum industry, with its enormous oil and gas reserves of over 37 billion barrels and about 209 trillion cubic feet (TCF) respectively,” he stated
He stressed that the passage and signing into law of the Petroleum Industry Act in 2021 (PIA) has cleared the path of every possible obstacle that would have hitherto hindered investment in the oil and gas sector.
Sylva traced divestment in Nigeria’s upstream oil and gas sector by IOCs to 2006, adding that it increased in 2010 mainly due to the hostile environment arising from the menace of crude oil theft.

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In his contribution, Avuru said to reverse the trend of decline in the sector and play catch-up, the industry needs to raise the capital spending to as much as close to $30 billion annually in the next 10 years.
He declared that the Nigerian oil and gas industry was in dire need of a competent and powerful regulator to manage the current divestments challenge on the sector and the nation at large.

Dispelling the impressions by government and many industry stakeholders that the current decline in Nigeria’s oil production was due to oil theft, Avuru said a combination of factors contributed to the poor production performance.
He explained that the oil production declined started around 2012 when the six big IOCs including Shell, ConocoPhillips, TotalEnergies, ExxonMobil, Chevron and Eni started contemplating of divesting from Nigeria, resulting in their withdrawal from further spending in the Nigerian oil and gas industry.

According to him, that led to a 70 per cent year-on-year drop in the capital spending, adding that it went down from the $20 billion average spending year-on-year over a decade ago to the current $6 billion annually.
As a result of this drop in spending, Avuru said oil production correspondingly plummeted from a high of 2.6 million barrels per day in the last 20 to 30 years to now one million barrels.

He said, “Year-on-year, we recorded 70 per cent reduction in spending to a point where we have gone from an average of $20 billion a year to $6 billion a year. That corresponds to the production drop I showed you.
“And we have to reverse this $6 billion spend, and to play catch-up, we will not be doing $20 billion a year. We will be doing something closer to $30 billion a year over the next 10 years to play catch-up.

“So, I’m situating the current decline in production to the date that the big spenders in the industry almost all decided that we are going to leave and because we are planning to leave, we will no longer spend.
“And when they (IOCs) don’t spend, that’s what you see. So that’s when it all started and that’s why we are talking about these divestments.

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“So, what really should have happened if the big operators were leaving and therefore stopping the spend that kept the industry going? There arose a critical transition in our industry that should have been managed properly by a forward-looking regulator that will ask itself: while this people are leaving, who is coming in? What is the process?”

To manage the current transition from the IOCs to the independent companies, which he described as a critical industry transition, Avuru stressed the need to strengthen the regulatory arm in order to reestablish industry efficiency.

He said at this critical time in the Nigerian oil and gas sector, there was need for a competent and capable regulator that will not be cowered by any force, pointing out that such regulator should have the kind of power and authority as obtained in the nation’s banking and communications sectors.

He decried a situation where the number of indigenous producers has grown from 10 to 40 and yet producing half of what the 10 producers were producing, stating there was the need to sieve the grains from the chaff.

According to him, “the larger the number, the smaller the production.

“This is how we have managed the transition. More players, less activities, less production, no business continuity thinking.  It’s like asking, what would have happened to our banking industry if central bank did not step in.

“If you go back to NCC, when Ernest Ndukwe was the Executive Vice Chairman and late Ahmed Joda was the Chairman, that was when this GSM revolution came.  They could not even be challenged in what they were doing by the Minister of Communications.  So that’s how powerful the regulator was. That’s the regulator we are looking for today.”

He added that Nigeria has to reestablish transparency and international confidence in the industry in managing the transition and divestments, pointing out that divestments was a global thing.

In his remarks, the Chairman of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Isa Modibbo, said divestments by the IOCs was creating opportunities and possibilities for Nigeria’s educated youth.

Noting that he was happy about the ongoing divestments, Modibbo said no country in the world keeps its national patrimony in the hands of a third party.

Admitting that oil remains a very important tool for national development, in diplomacy and power, he said the world had reached a stage where oil was no longer what it used to be and that technology was becoming the next big thing.

The NUPRC board chair also warned those, who have no other reason to be in the oil industry except to trade with papers obtained from the organisation to stay away from the industry as no such act would be condoned.

Source: Thisday

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