Nigeria dithers as peers implement strategic oil sector reforms

Prospects for new investments in Nigeria’s oil sector does not look promising as the country’s inability to reform the sector could see it cede markets and new investment opportunities to its African peers who are currently embarking on deep reforms to make their sectors competitive.

With weak fiscal terms, poorly regulated sector and lack of a competitive oil sector law, Nigeria’s improved oil sales has not translated into better value for the country’s 198million people. While the global oil industry is evolving, Nigeria’s laws have failed to keep pace, hence a petroleum industry bill has not become law 17 years after it was initiated. The Nigerian National Petroleum Corporation (NNPC) is accused of being opaque, inefficient and unreceptive to reforms.

But Nigeria’s African peers are not dithering. Last week, Angola announced it will set up a new regulator for the country’s oil industry as part of efforts to restructure state-owned Sonangol and revive falling oil and gas output. The South western African nation has seen oil production dip to 1.4million barrels per day (bpd) from 1.9million bpd.

The regulatory role will be transferred from Sonangol to the National Agency of Petroleum and Gas in the first half of next year in a reorganization scheduled for completion in 2020, while Sonangol, which partners with Total SA and BP Plc to pump oil, will focus on the exploration, production, refining and distribution of oil and gas.

Africa’s third biggest oil producer, Algeria is amending its national energy law to encourage upstream investments. The country is softening tough fiscal terms and increasing efficiency and speed of business processes to improve investor confidence.

The country’s objective is to align reforms with the current energy market, striking a balance in technical and financial risks between Sonatrach, its national oil company and international investors. It also seeks to incentivise outside participation while simultaneously preserving oil rents.

Experts say the country would amend its fiscal regime, allowing foreign partners to manage capital projects as opposed to the current law requiring Sonatrach to possess a 51% majority stake in all hydrocarbon projects.

“The existing tax law, drafted during a high oil-price cycle, should be revised to account for lower oil prices. Algeria charges a 20% royalty on production, and this could be altered to 12.5% and 16.25% subject to special conditions in the new law. Windfall taxes of 15-50%, pending the amount of production also apply, and may be targeted in the new law to encourage outside investment in exploration and development projects,” Rym Loucif, energy lawyer at Algiers office of French law firm Gide Loyrette Nouel, told an online gas journal.

Other African oil producers including Ghana, Equatorial Guinea, Egypt and Mozambique are driving reforms in their oil sectors, positioning to attract new investments through competitive fiscal and regulatory frameworks.

“The world around us is changing and the danger is that those of us in this part of the world who play ostrich, could be in a dangerous situation as time will pass quickly and others would move on,” warns Victor Eromosele, CEO of M.E Consulting.

In its report for 2018, the African Law and Business Summit 2018 says that change has been rapid and widespread in Africa’s oil and gas landscape.

“Until recently, for example, Kenya and many other African countries were solely oil importers and had no gas reserves of substance. However, a host of new finds, gradually entering into production, across Ghana, Kenya, Mozambique, Senegal and Mauritania, Tanzania and Uganda, have significantly boosted sub-Saharan Africa’s traditional upstream players.

“Senegal, for instance, has seen investment from oil exploration companies, Cairn Energy and Kosmos Energy, respectively, discovering some of the largest offshore gas deposits between Senegal and neighbouring Mauritania’s territorial waters” the report said.

Egypt and Algeria are ramping gas production. “Notably, almost 60% of Algeria’s oil exports were to Europe in 2016. As well as being the main supplier of natural gas to Spain last year, Algeria is one of the four or five largest providers of oil and gas to countries like France, Italy, Portugal, and even Germany. Similarly, in 2016, 86% of Libya’s oil exports were to Europe,” Dele Kuti, global head of oil and gas for South Africa’s Standard Bank Group.

According to Bank-Anthony Okoroafor, chairman of Petroleum Technology Association of Nigeria (PETAN, Africa has huge resource base comprising 128 billion barrels or 7.5% of world proven oil reserve, 503.3 Tcf (86.8 billion BoE) or 7.6% of world’s proven gas reserves and 26 billion barrels (Libya 5th globally) of shale oil. Algeria (3rd globally) holds 707 Tcf or 121.9 billion BoE shale gas potential. It is estimated that Africa oil & gas will increase by 74% by 2050.

Analysts say foreign investors are spoilt for choice and investment dollars will go to countries that are serious.

ISAAC ANYAOGU