Homegrown companies and the future of oil and gas sector
The recently concluded acquisition of ConocoPhillips upstream oil and gas interests and assets by Oando PLC is a fresh pointer to the emerging reality of the changing ownership structure in Nigeria’s oil and gas industry.
The Nigerian oil and gas industry long dominated by the International Oil Companies(IOCs) has in the last couple of years witnessed more acquisitions by homegrown players resulting in increased production levels from them.
The acquired ConocoPhillips fields produced about 43,000 barrels of oil per day(bpd) in 2013 and has proven reserves of 213 million barrels. This acquisition is expected to boost Oando’s oil production to about 50,000 bpd from about 5,000 bpd.
By the end of 2014, the major divestments by IOCs since 2010 will transfer about 5 billion barrels of oil and 20 trillion cubic feet of gas to indigenous players. It is estimated that Nigerian oil companies would account for about 25 per cent of oil production in five years.
As the International Oil Companies (IOCs) divest from these upstream oil assets, as a result of threats to production efforts, global capital re allocation and the cloud of uncertainty surrounding the Petroleum Industry Bill(PIB), the indigenous oil concerns are fast tapping into this huge opportunity for growth.
However, there are growing concerns for the the avoidance of pitfalls and creation of necessary transparence and protection in these emerging upstream acquisitions.
Upstream oil and gas assets acquisition experience reveal that there has been delayed and protracted closure, difficulties in raising funds, operators not moving with assets sold and the key issue of the appropriate application of “Ministerial consent”.
Analysts hold strongly that one of the grey areas in these emerging acquisitions is the issue of maintaining a balance between the entrepreneurial objectives of the investors and the development aspirations of host governments. This balance can be properly struck through a well crafted contract within the context of a national petroleum industry legislation.
The petroleum law should clearly state the authorities or agencies with mandates to implement policies and regulate affairs. This law will clarify licensee rights and tax regimes.
Well thought-out and implemented petroleum legislation creates conditions for mutual trust between all parties and players in the petroleum industry, creates stability and enhances value for both investors and governments.
We believe that the PIB when passed will be the overall institutional and regulatory framework for regulating the petroleum sector and ensuring that the interests of all parties are properly protected.
In ensuring equitable transfer of assets or acquisition transactions, analysts believe that proper due diligence on the part of the buyer is necessary. Sellers should be vigilant about the status and capacity of bidders, and negotiating process.
As these acquisitions are increasing, demonstrating that the country’s oil and gas industry is experiencing a major development phase, we continue to call on relevant authorities and institutions to speed up the passage of the PIB to ensure a transparent, productive and stable petroleum industry.