Oil & Gas Industry Reforms - Petan Otc

The Nigeria’s Oil Industry Reforms: The Journey So Far Presented By

DR EMMANUEL O. EGBOGAH, P.Eng, OON Special Adviser to the President on Petroleum Matters At

Special Panel Session on The Nigerian Oil Industry Reforms, Challenges and Enduring Opportunities Hosted by Petroleum Technology Association of Nigeria (PETAN) At the 2009 Offshore Technology Conference, Houston, Texas

Tuesday 5th May 2009

PROTOCOLS Distinguished chairman of this event Chairman and members of our host and organisers of this event, Petroleum Technology Association of Nigeria (PETAN). Group Managing Director of NNPC CEOs and Captains of the Oil & Gas industry here present Chief Executives of Financial Institutions here present. Members of the press Distinguished Ladies and Gentlemen

INTRODUCTION & BUSINESS CASE FOR THE REFORMS It is with profound pleasure that I welcome you all to this event. I would like to start by thanking the organisers of this event for the honour of inviting me to deliver this address at this august gathering of key players in the oil and gas industry. I also want to commend PETAN for the tremendous efforts they have been making in promoting Nigeria and Nigeria’s oil and gas industry. In the last few years PETAN has become a permanent feature in most oil and gas events, conferences and exhibitions, all over the world promoting and encouraging business activities and Office of the Special Adviser to the President on Petroleum Matters Page 2 of 18

investments in Nigeria’s oil and gas industry. This could not have been possible if not for the dynamic leadership and dedication of the members of this association. Please join me in giving a big round of applause to the executives and members of PETAN. I have been requested to speak on the topic The Nigeria Oil Industry Reforms: The Journey So Far. As many of you know the subject of the reform of Nigeria’s oil and gas industry is one that I am very passionate about. It is a common knowledge that oil exploration and production activities in Nigeria in it’s over fifty years of operation is yet to operate at standards and levels of efficiency expected of a twenty first century oil and gas industry. The oil and gas sector, though has been the mainstay of Nigeria’s economy has not fully met the aspirations of its key stakeholders. In addition, the operating landscape, business and competitive environments, both locally in Nigeria and internationally have continued to change rapidly in the last few years that Nigeria oil and gas industry as it is currently set up, can no longer operate in a sustainable manner.

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As a matter of fact the Nigeria oil and gas industry has continued to evolve since its inception in the fifties. The time from the late fifties to early seventies was a period marked by control of the industry by international oil companies. State involvement was restricted to quasi regulation, primarily for control of price of refined products, collection of fees, rentals and royalties. Active state involvement started in the early seventies, and was marked by Nigeria joining the OPEC member countries. During this period, the Nigerian National Oil Company was established, and government acquired 60% interest equity participation in the assets and operations of the international oil companies for the first time. Starting from the late seventies to late eighties, the industry witnessed the era of expansion, growth and reforms. The Ministry of Petroleum Resources was merged with the Nigerian National Oil Company to form the present Nigerian National Petroleum Corporation (NNPC). Internal restructuring of NNPC and commercialisation of its operation started in the late eighties. NNPC was subsequently transformed into a holding company with Office of the Special Adviser to the President on Petroleum Matters Page 4 of 18

11 subsidiaries, with the transfer of the Petroleum Inspectorate to the Ministry of Petroleum Resources. Despite the evolution, reforms and internal restructuring, the public sector of the industry has yet to fully meet the aspirations

of

the

Federal

Government

and

key

stakeholders as I already indicated. The existing structure of the industry and enabling legislation were no longer consistent with global standards. In parallel the private sector of the upstream sector of the industry, dominated and operated by the international oil and gas companies (in joint ventures with NNPC) equally continued to face new challenges mainly with funding and cash call problems, as well as challenges in the Niger Delta region. It is for this and many other reasons that the Federal Government of Nigeria embarked on a journey of a comprehensive reform aimed at re-positioning Nigeria’s oil and gas industry to foster a long-term sustainability of the sector, ensuring greater efficiency and effectiveness to

meet

the

aspirations

of

Nigerians

and

all

the

stakeholders, and also ensuring global competitiveness.

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We also know that the oil and gas sector accounts for about 30 – 40% of GDP, 80% of government revenues and 95% of foreign exchanges earnings, and is also the backbone

of

Nigeria’s

national

development

plan.

Efficient management of the industry will therefore have a significant impact not only the well being and future prospects of the Nigerian economy, but also on the security and stability of global energy supply and the growth of global economy. I will therefore like, as has been requested of me, to outline the progress so far made with the reform agenda. This I believe will stimulate the rest of the discussions at this event. However, please permit me to first use this medium to briefly talk about Nigeria’s hydrocarbon potentials, for the benefit of those of us here who are not familiar with the Nigeria oil industry, NIGERIA’S HYDROCARBON PORTFOLIO With about 38 billion barrels of oil reserves, Nigeria has the tenth largest proven oil reserves in the world, and accounts for about a third of Africa’s oil resources. The volumes are contained mainly in the onshore Niger Delta Office of the Special Adviser to the President on Petroleum Matters Page 6 of 18

and the offshore deepwater basins of Nigeria. However, significant upsides still exists in deeper geological plays and in Nigeria’s ultra deepwater. We also have to remember that Nigeria’s success rate in deepwater exploration is second to none in the world. Also, Nigeria is endowed with huge gas reserves. It is believed that Nigeria is more a Gas country than oil. Current estimate of proven gas reserves is about 187 trillion cubic feet, which makes Nigeria the world’s 7th largest gas reserves holder in the world. However, a US Geological Survey (USGS) study estimates that the gas reserves potential in the Nigeria could be as high as 600 trillion cubic feet. To date, there has not been dedicated exploration for gas and all the proven gas reserves were discovered during exploration for oil. It is therefore not unlikely that with focused gas exploration, the USGS estimate of gas reserves can be realised. This will easily put Nigeria in the league of top 4 gas reserves holders in the world. Of particular interest is the fact that Nigerian’s gas is rich in natural gas liquids. This large resource base has positioned Nigeria as one of the key players in the global energy supply and demand Office of the Special Adviser to the President on Petroleum Matters Page 7 of 18

mix for now and in the future. However, the extent to which these vast hydrocarbon resources can be efficiently exploited and effectively connected to both the huge domestic and export markets, will determine the extent to which the full potential of these resource can be exploited for the development of Nigeria and to the benefit of stakeholders. CURRENT REFORMS AND PRESENT STATUS In order to effectively address the challenges of industry, the current reforms now in the process of implementation will

require

structural,

legislative,

commercial

and

operational changes in order to bring the industry in line with global trends and standards. The present reform started with the inauguration of the Oil & Gas Sector Reform Implementation in the year 2000 by former President Olusegun Obasanjo. The committee started work immediately and this lead to preparation of the Draft National Oil & Gas Policy in 2004. The singular objective of the policy was to make far reaching changes and ensure the fundamental transformation of Nigeria’s Oil and Gas Industry, such as to bring it in line with 21st Office of the Special Adviser to the President on Petroleum Matters Page 8 of 18

century global industry performance as well as form the bedrock upon which Vision 20-2020 will be anchored. The Oil & Gas Sector Reforms Implementation Committee was re-constituted in 2007 by President Umaru Musa Yar’adua under the Chairmanship of Dr Rilwanu Lukman, and was charged with the responsibility of implementing the National Oil and Gas Policy approved by the Federal Executive Council, and to actualise the reform. In pursuance of this a Petroleum Industry Bill was drafted, in line with the Policy, as an all-encompassing legislation to regulate

major

aspects

of

the

Nigerian

petroleum

industry. As I already indicated, the restructuring is aimed at repositioning Nigeria’s oil and gas industry to foster a longterm sustainability of the sector, ensure greater efficiency and effectiveness to meet the aspirations of Nigerians and

all

the

stakeholders,

and

also

ensure

global

competitiveness. The reforms seeks to transform the Nigerian National Petroleum

Corporation

(NNPC)

into

an

integrated,

international, commercial oil and gas corporation driven Office of the Special Adviser to the President on Petroleum Matters Page 9 of 18

by revenue generation and profit oriented motives, in such a way that it will be divorced of some of its current conflicting roles of policy regulation and national assets management, to function properly as a profit-oriented, commercial and duly capitalized limited liability company with rights to raise funds for its projects and operations. To achieve the above objectives, a new institutional structure has been developed and shall comprise of the following: •

One Policy Body, National Petroleum Directorate This body will be charged with the responsibility for detailed policy initiation, formulation and development for optimum resource utilisation. This will also serve as secretariat for the Minister.

• Three Regulatory Agencies: 1.

National Petroleum Inspectorate; this will be an autonomous stand-alone Technical regulator and will replace the Department of Petroleum Resources, DPR.

2.

National Petroleum Assets Management Agency: will manage the petroleum assets, undertake costs and commercial regulation of the industry with aim of ensuring the nation derives maximum value from its oil and gas resources Office of the Special Adviser to the President on Petroleum Matters Page 10 of 18

3.

•

Petroleum Products Regulatory Authority: will regulate the commercial aspects of the downstream sector of the industry

One

Commercial

Centre,

Nigerian

National

Petroleum Company Ltd; will have strict commercial orientation and focus, vertically integrated and capable of competing both locally and internationally in all elevant segments of the oil and gas industry •

One Research & Development Centre, NPRC, will be

responsible

for

research

and

development,

promoting capacity building and maximising local value addition. •

One Manpower Training Centre, Petroleum Training Institute

• Two Fund Organisations: Petroleum Equalisation Fund, and Petroleum Technology Development Fund

•

Frontier Exploration Services: to be responsible for regulating

and

stimulating

petroleum

exploration

activities in the unassigned frontier acreages Nigeria.

These

acreages

are

defined

within

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of the

Petroleum Industry Bill as the Anambra, Benue Trough, Bida, Chad, Dahomey and Sokoto Basins. The reform also provides for the conversion of all the existing unincorporated joint ventures into incorporated joint ventures (IJVs). Each IJV will be a corporate entity to be incorporated under the laws of Federal Republic of Nigeria,

and

the

incorporation

process

including

capitalisation and restructuring will be carried out through negotiations

with

the

respective

International

Oil

Companies (IOCs) during the reform transition period. Apart from immediately eliminating problems of cash call constraints, the IJV concept will free up funds, which will be available to the Federal Government to invest in other areas of social and economic development of the country. The Petroleum Industry Bill (PIB) on the other hand is a comprehensive, all-encompassing piece of legislation given the role of oil in our National economy, the size of capital

involved

and

the

level

of

emotions

and

controversies surrounding the industry. It captures all the experience of past 50yrs in addressing all institutional matters: policy, structure, legal and governance. It also Office of the Special Adviser to the President on Petroleum Matters Page 12 of 18

endorses clear separation of roles and responsibilities across various directorates, companies and agencies. The PIB incorporates the emergence of gas as key element of the value chain, and accordingly, considers new fiscal frameworks that are more robust to withstand changes The report of OGIC committee which details the reform proposals was completed in 2008. This has subsequently been approved by the Federal Executive Council. The proposals together with Petroleum Industry Bill were formally submitted to the National Assembly in January 2009 for legislative consideration. The Bill has already passed the 1st and 2nd readings, and public hearings are scheduled to start in May 2009. Meanwhile stakeholder engagements

with

the

stakeholders

are

currently

ongoing. I want to also re-state that the Government of Nigeria recognises the crucial role that gas plays in any economy and also that gas has a significant potential to alter our economic destiny as a nation. Despite the huger gas resources available in Nigeria, we have not been able to Office of the Special Adviser to the President on Petroleum Matters Page 13 of 18

effectively exploit the huge potential in such a manner that

the

multiplier

domestic

economy

effect

gas.

of

will

benefit

Consequently,

from

the

the

Federal

Government has embarked on the reform of the gas sector through the implementation of a Gas Master Plan. The Gas Master Plan aims to address some of the challenges confronting the Nigeria gas sector, notably that

of

inadequate

infrastructure

and

commercial

framework, which have had a strong impact on the ability of the sector to supply as rapidly as the market opportunity dictates. The gas master plan provides for an Infrastructure blueprint for the development of an extensive backbone for the Nigerian gas grid. The fundamental strategy is the creation of a gas infrastructure that concurrently supports the supply of gas to the domestic, regional and export markets.

This

approach

provides

for

flexibility

and

scaleability of supply, and cost effectiveness. Other competing countries have managed to develop such integrated networks.

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At the core of the proposed infrastructure are 3 gas gathering and processing systems each of which will gather gas across a delineated area, process the gas into a national specification and export the dry gas into the network of gas transmission systems. The processing facilities will enhance the LPG capacity in the country and hopefully address the issue of LPG availability within Nigeria. Three transmission systems are proposed. The first is a western transmission system comprising the existing Escravos-Lagos Pipeline System (ELPS) and a proposed offshore extension to supply Nigeria’s dominant market in the west as well as the West African regional market. The second is the South-North system that will ultimately progress to be the Trans-Saharan pipeline when mature. The third system is the inter-connector system that will be the link line between the East, West and the South-toNorth. With

the

proposed

network

of

infrastructure,

it

is

expected that the ability to supply will increase rapidly and flexibly, and Nigeria will be better positioned to Office of the Special Adviser to the President on Petroleum Matters Page 15 of 18

respond

to

growth

in

demand

both

domestically,

regionally and for export. Implementation of the Gas Master Plan is in progress. Following expressions of interest, a shortlist of selected core investors have been compiled, and these ‘core’ investors are in the process of forming consortia in readiness for submission of formal bids. CLOSING I want to conclude this presentation by stating that the current reform represents a clear demonstration of Federal Government’s desire to re-position Nigeria’s oil industry. Sceptics have often asked how this reform will be different from previous internal restructuring of the public sector. I would like to state that there is a clear vision of this reform to “maximise the net economic benefit to the nation from our oil and gas resources, while meeting the nation’s need for fuels at a competitive cost, and accomplishing all in an environmentally acceptable manner.”

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The reform programme is about harnessing opportunities and addressing the challenges. It is a very comprehensive and radical transformation aimed at ensuring that Nigeria gets the maximum benefits, directly and indirectly, across oil and gas value chains It

opens

up

horizons

for

wider

participation

of

stakeholders including the financial institutions, big and small players and individuals. Nigeria is entering a new phase in the exploration and exploitation of its vast hydrocarbon resources. An era in which the oil and gas resources will play a key role in shaping the economic future of Nigeria, as we aspire to become one of the top 20 economies of the world by the year 2020. An era in which Nigeria’s oil and gas industry will be a key player in the global energy supply and demand mix for now and in the future. I therefore urge you all to support the efforts of the Federal Government in re-shaping Nigeria’s oil and gas industry.

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I thank you all for listening and wish you a successful event today and for the rest of OTC here in Houston.

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