Related News

Friendshoring hubs suffer increased political risk, research finds

Nigerian oil sector secures “landmark” US$3.3bn facility

HSBC digitises demand guarantee to speed up trade

ExxonMobil makes big move on lithium, but commodity traders bide time

Campaigners urge US Exim to oppose gas project in Papua New Guinea

Nigeria’s National Assembly has passed a long-awaited Petroleum Industry Bill (PIB) as the government works to fix longstanding foreign investor concerns over the national oil sector’s outdated regulatory and fiscal framework.

On July 1, the country’s Senate and House of Representatives each passed different versions of the PIB after more than a decade of efforts and revisions since it was first presented to the National Assembly.

Both chambers will now embark on a reconciliation process to agree on a joint version of the bill, before it can be sent to the president for assent into law, Alexandre Raymakers, senior Africa analyst at risk analytics company Verisk Maplecroft, tells GTR.

He says the legislative process is likely to be completed this year, given both the legislative and executive branch are eager to demonstrate their willingness to reform.

Mansur Mohammed, head of West Africa content on Wood Mackenzie’s Sub-Saharan Africa upstream research team, says that while there is still work to be done before the PIB becomes law, the energy research and consultancy firm sees “momentum” behind the bill.

Efforts to push through the PIB have been ongoing since a first legislative attempt in 2008, culminating in the most recent failure in January 2018 when President Muhammadu Buhari refused to sign the text into Nigerian law due to concerns around the potential loss of ministerial power and a lack of “fiscal content”.

The bill aims to put in place a regulatory and fiscal framework to encourage international investment and drive up production, with Nigeria continuing to rely on oil exports for the majority of foreign exchange earnings – as much as 90%, according to analysis by KPMG published in June last year.

Reforms would include changes to how revenues of oil production are shared, the creation of new regulatory bodies, and a restructuring of the country’s state oil company, Nigerian National Petroleum Corporation (NNPC).

Ongoing issues

With the bill now on the cusp of approval, analysts say that the legislation could finally allay concerns from international oil companies (IOCs) who have been historically skittish about Nigeria’s oil sector.

“If passed, the fiscal uncertainty deterring investment across upstream, gas, midstream and downstream will be alleviated… The latest version of the bill offers incentives and concessions made to assuage stakeholder concerns. Lower royalty and tax rates are proposed,” Wood Mackenzie says.

Raymakers at Verisk Maplecroft notes that these royalties and tax rates were revised down from a previous draft of the bill presented earlier this year, in a bid to further reassure IOCs about Nigeria’s so-called “breakeven price”.

But despite these attempts to appease IOCs, Raymakers says that international companies are unlikely to rush back into Nigeria’s oil sector.

“Although a positive development, as it ends the regulatory uncertainty that has plagued the Nigerian oil sector, the bill in itself is unlikely to quickly entice IOCs back to Nigeria,” he says.

He notes that with the collapse of global crude prices, major producers have cut capital expenditure in Nigeria, preferring to concentrate on cleaner energy and more cost-effective markets. “Total foreign investment in the Nigerian oil industry has slumped compared to its regional peers and key producers are divesting from major assets.”

KPMG notes in a June 2021 report that only 4% of the US$70bn investments made in Africa’s oil and gas industry between 2015 and 2019 went towards Nigeria, “even though it is the biggest producer and has the largest reserves on the continent”.

Covid-19 only complicated matters further, forcing international and local companies alike to suspend or reign in upstream projects.

In May 2020, Nigerian officials announced that bidding rounds for major oil fields would not be held until crude prices recover, and that some upstream projects would be completed much later than originally planned.

Major international oil firms operating in the country put plans on hold, with Total suspending development of the deepwater Preowei field in April 2020, and ExxonMobil halting its drilling programme with the Trident XIV rig.

Meanwhile, indigenous producers such as Seplat Petroleum also cut back costs for their drilling and upstream plans, with chief financial officer Roger Brown telling Reuters in March last year that it would look to drill just three wells in 2020 instead of the 15 to 20 originally planned.

At the same time, there are ongoing concerns that local communities will feel short-changed by the PIB, with politicians in the Senate and House reportedly yet to agree on the amount local communities should receive from any oil production.

“Communities hosting production hubs, mainly in the oil producing south of Nigeria, will be disappointed by the PIB as the bill is unlikely to meet their request that 10% of wealth generated be retained by producing communities, with the House offering 5% and the Senate 3%,” Raymakers says.

“The issue remains outstanding as both chambers embark on a reconciliation process in order to agree to a joint version of the bill.”