The recent efforts by the Nigerian Content Development and Monitoring Board (NCDMB) and the Nigerian National Petroleum Company Limited (NNPC) to shorten the contracting cycle for upstream projects and enable the rapid development of major oil and gas assets have reportedly hit a snag, as Shell has reportedly withdrawn from the Memorandum of Understanding (MoU) signed by NNPC and NCDMB with international oil companies (IOCs).
Shell may have withdrawn out of the arrangement in order to push the Nigerian government to suspend the country’s laws and allow it further waivers, according to THISDAY. Shell had wanted this after receiving some concessions as an inducement to accelerate development of some of its offshore projects that had been dormant for decades.
Mr. Simbi Wabote, Executive Secretary of the NCDMB, hinted to Shell’s withdrawal from the September 2023 tripartite deal during his speech at the recently concluded 41st Annual International Conference and Exhibition of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos.
Wabote claimed that the IOCs, particularly Shell, had lost interest in investing in the country.
The statement came as the Nigerian National Petroleum Corporation (NNPC) bemoaned the return of portfolio managers to the Nigerian oil and gas industry as a result of the Nigerian Local Content Act.
In September, NNPC and NCDMB inked a major MoU with the IOCs to cut the contracting cycle by 81.6 percent as part of efforts to address decreasing investment in the upstream oil sector, persistent output reduction, and infrastructure shortfall.
The measure was projected to shorten the existing contracting cycle to no more than 180 working days, down from 327 days.
NNPC stated at the time that the transaction would improve the ease of doing business, cut costs, and promote efficiency, which would eventually translate to production growth, better revenues, and, ultimately, improved profitability.
The statement said,
“The MoU is also expected to contribute significantly to the double-digit economic growth rate agenda of the federal government and generate tremendous value for all the stakeholders, which include investors, companies, host communities and the nation at large.
“Key benefits of the framework in the MoU include a reduction of the contracting cycle for open competitive tender, selective tender, and single sourcing tender to 180, 178, and 128 working days, respectively, compared with the current best effort performance of 327, 333, and 185 working days, respectively.”
But contributing during a panel session at the NAPE conference, Wabote stated that the reliance on the IOCs would not help Nigeria make progress in the development of its assets, stressing that Shell no longer wants to invest in the country.
Referring to Shell’s attitude in the September MoU between the IOCs, and NNPC and NCDMB, Wabote argued that the company had continued to demand more waivers after some had been granted it. He said Shell wanted Nigeria to set aside every of its laws and allow it to develop the prolonged prolific Bonga Southwest project and some of its shallow offshore projects on its terms.
Wabote stated,
“I don’t think Shell wants to invest in this country again. I’m sorry to say it, because I give you an example. Bonga Southwest started before I was even recruited in Shell and that is 26 years before I left Shell.
“Today, Shell wants Nigeria to set aside every law and do Bonga Southwest on their terms. Same thing with some of the shallow offshore projects. They want you to set all your laws aside and they want to create an emergency situation to tell you it is now very critical.
“But we started HI development almost 20 years ago, now it is very critical for Shell. HA development is now becoming critical for Shell. That’s how they leave their projects, such that it becomes critical, they write all the justifications, set aside your PIA, set aside your Local Content Act for them to do those projects. I personally don’t think they want to invest in those projects, they will prove me wrong, but time will tell.
“We in local content sat down with all the IOCs (myself and Mele Kyari) and we said, what are the issues to enable us increase production. They listed those issues. We agreed on waivers that we would give. Later, I wrote a letter and submitted back to Shell to say, three months ago, we agreed to all the waivers you requested, where is the progress? The next response was that they were looking for further waivers.”
The NCDMB boss encouraged the local exploration and production companies that are now taking over assets divested by the IOCs to apply strict corporate governance so that they could create a joint venture that would help the country to develop its assets. He said Nigeria needed to be deliberate and realise that some of the multinationals were not prepared to help the country move forward, adding, “Let’s take our destiny in our hands and progress accordingly.”
In her intervention at the panel, Executive Vice President (Upstream), NNPC, Oritsemeyiwa Eyesan, who listed the challenges confronting the country’s oil and gas industry, revealed that despite its gains, the Nigerian Content Act had encouraged the return of portfolio managers in the industry.
Eyesan said,
“I must at this point just also introduce the challenges we have with local content. When the Local Content Act was passed, we were all excited and looking forward to the growth of local capacity.
“Indeed, there had been some gains in the past in this regard. But you will also agree with me that it has brought with it a lot of challenges, to the extent that we have more or less encouraged portfolio managers rather than build competences and capabilities that the local content law was supposed to achieve.”
Eyesan explained that the return of portfolio managers made projects’ financing more difficult, “because when you have middlemen, sometimes, you have several layers in these middlemen that it becomes almost impossible to complete projects profitably”.
She said another challenge facing the oil and gas industry in Nigeria, which was causing the exit of the IOCs and discouraging new entrants into the sector, was the difficult and lengthy contracting process. She described it as an operational challenge, which NNPC Limited was not insulated from.
Eyesan lamented as dismal a situation where a contracting process would linger for 24 months, instead of two to three months obtainable in other climes.
Citing political and regulatory risks as one other challenge in the industry, Eyesan said the Petroleum Industry Act (PIA) was supposed to be an enabler for investment, explaining that if well implemented, it would enable and attract investment into the industry.
She said financial risk was another major encumbrance in the sector, explaining that currency and exchange rates instability make it difficult to structure financing deals that would deliver on the expected return. She added that investors were leaving the shores of Nigeria partly because of the financial risk.
The NNPC EVP further said, “First of all, we all agreed that virtually all the IOCs are leaving onshore, not to say they are leaving Nigeria completely, and we’ve articulated some of the reasons why they are leaving. Security is a major one, because if I’m not assured that I would get my money at the end of the day, then there is no reason why I would continue.
“The other risk that confronts participants in the sector is operational risk. We talk about insecurity in the Niger Delta and in the entire country as a whole. Again, I want to invest, I’m not assured my investment will be realised. That definitely will not make it possible for me to come.
“Technology deployment as well: when we are not able to deploy cutting-edge technology because we cannot afford it, it becomes even more difficult for us.
“There are other in-country reasons: stability in our regulations, stability in the fiscal environment. Until you solve those problems, it will be difficult for you to start saying you want to attract foreign investment.”
(Credit: Thisday)