FG’s delay in approval holds back massive investment in oil, gas industry
Continuous delay by the Federal Government in approving key licences and attending to other pressing issues in the oil and gas industry is making investors have a rethink about stakes in the industry.
Analysts and industry watchers say a combination of indifference and lack of sensitivity to the importance of attracting fresh investment to the vital sector is causing many potential investors to stake funds in other countries. This is coupled with the delay in clearing the air on the regulatory framework that guide operations in the industry.
In the past few months, some companies whose licences on a number of assets have expired, despite still retaining operatorship, are still expectant of official renewal. A few of the companies affected include AITEO, Amni, Atlas Petroleum, Conoil, among others.
“In other climes, these things are taken more serious. When sensitive matters are handled with kid gloves, investors notice the trend and stay off because of the uncertainty,” Success Akinwunmi, a finance lecturer at the University of Ilorin, says.
The case of Lekoil presents an obvious picture of foot dragging. The company has been hoping for resolution of its long running struggle with the government to secure consent to buy controlling stake in Block OPL 310, a sole risk license off Lagos in the Benin embayment for years.
The transaction has been held up in courts with several analysts wondering what could be the reason for the apparent foot dragging on the part of the judiciary on a decision which could unlock the western frontier of Nigeria’s transform margin to massive investment.
At present, Lekoil has spent more than $120 million on OPL 310 but is unable to continue development without ministerial consent to the second equity transfer. Coupled with a court case that is being toyed with by the authorities.
First, the court went on recess, then the judge returned from vacation and adjourned the case, then Optimum moved to join itself to the case, which still has not been heard. This has significantly impacted Lekoil share price leading to a drop of over $400 million in market value.
Following an earlier farm-in, then UK-listed Afren acted as technical and financial partner to Nigerian operator, Optimum Petroleum Development. In 2013, AIM-listed Lekoil farmed into Afren’s stake, thereby acquiring a 30% economic interest, translating to 17% of equity participation.
However, Lekoil sought a much stronger position, company chief executive, Lekan Akinyanmi says.
The authorities who are supposed to unlock investment have not done enough to secure the position of Lekoil as well as many other indigenous operators, analysts say.
“What is even worse is that the Federal Government is not protecting the interests of core indigenous investors who have staked a lot of investments on the industry, causing a situation where funds which should have been invested are left hanging, Akinyanmi says.
“These types of delays are bad for business and the country because they have a negative economic impact on the companies that are affected by the delays.”
Data released by the National Bureau of Statistics (NBS) indicated that there was a significant decline in foreign investment inflow into the Nigeria’s oil and gas industry in the second quarter of 2018, as total capital imported into the industry between April and June 2018, dipped by 70.98 percent, compared with the amount imported in the first three months of the year.
A poor regulatory environment has meant that investors are looking away and government is being prodded by analysts to do more to safeguard the fortunes of the sector.