How local oil firms can stay competitive in next oil licensing rounds

Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation, (NNPC) last week urged members of the Independent Petroleum Producers Group (IPPG) to participate in the forthcoming bid round for 30 marginal oil fields.

According to a statement, by the NNPC, Baru, said that Federal Government would soon inaugurate the bid, and urged IPPG members to take advantage of the low crude oil price regime to develop their capacity and acquire more technology.

The NNPC GMD also tasked the IPPG members to ramp up their collective production from 10 per cent of national production to 50 per cent in the next 10 years in order to increase the footprint of indigenous companies in the upstream sub-sector as is the case in the downstream.

There have been much speculation about when the licensing rounds will begin and NNPC have yet to release guidelines even though it has always been saying it would happen soon. Factors such as the absence of the president for over 100 days and the non-passage of the Petroleum Industry Bill have stalled the process.

When the oil licensing rounds finally get away, local oil companies must ensure that they collaborate among themselves to present strong bids. At the inaugural West African International Petroleum Exhibition and Conference (WAIPEC) backed by the Petroleum Technology Association of Nigeria (PETAN), last year, operators in the oil and gas sector saw collaboration as a way to survive low oil prices.

Bayo Ojulari, managing director, Shell Nigeria Exploration and Production Company, in his presentation at the conference cited examples of countries where collaborations have worked including Malaysia, Brazil and South Korea. He said major drivers of their success are consistency of government’s policies, increase in service quality and delivery, local capacity and capability development, volume of work and economies of scale, harmonisation of technical standards, and collaboration among operators and academia.

Currently, local oil companies account for 10 per cent of national oil production and the NNPC boss urged them to ramp up capacity to 50 per cent in the next 10 years in order to increase the footprint of indigenous companies in the upstream sub-sector as is the case in the downstream sector.

Operators are calling for a review of Nigeria’s fiscal framework to make it more competitive and encourage other local companies to participate. At a recent conference organised by local firms in Lagos, operators said the government must ensure that they are competitive, even if it means the government forfeiting some money in the short term.

Many countries are making their fiscal systems competitive. Many oil producers have cut royalty rates and very few nations still maintain a signature bonus for oil blocks. Operators say a generous fiscal term will keep independents growing to create jobs, peace in the Niger Delta and create the volumes needed to grow our economy.

Threats to global oil markets such as shale producers and the rise of renewable energy are becoming drivers for better terms for oil investors. Nigeria is rather thinking of maximising rent on its oil acreages. The Petroleum Profit Tax (PPT) granted too generous concessions for exploration and production companies, gifting them zero royalty rates in water depths of 1,000 meters where the bulk of Nigeria’s deepwater finds have been located.

Operators say this system may not achieve the balance between short term revenue uptick and long term guarantee of income from taxation needed to catalyse other sectors of the economy. Local oil companies say a progressive tax regime is more likely to attract investments compared to a regressive tax regime which the current proposals tend to promote.

ISAAC ANYAOGU