This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Diezani Alison-Madueke's Petroleum Industry Bill Offers Hope For Nigeria's Oil And Gas Industry

LAGOS, Nigeria, May 1, 2013 /PRNewswire/ --



The Petroleum Industry Bill aims to resolve some of the many issues that have affected Africa's largest oil producer and pave the way for future growth and investment. Growth in Africa's oil and gas industry has been accelerating in recent years. The continent's total production now accounts for around seven percent of world output. With the Gulf of Guinea's imminent deepwater activity, East Africa's emergence as a crude oil producer and the natural gas discoveries off the coasts of Tanzania and Mozambique, businesses, investors and governments are gearing up for a hydrocarbon boom that will involve not just large multinationals but smaller, indigenous firms as well. Even regions traditionally regarded as inaccessible are knocking on the door - recent discoveries in Somalia for example have resulted in an inward flow of much-needed investment.

Encouraging though these developments are for Africa's smaller economies, these nascent industries are dwarfed by the oil and gas sector of Nigeria. After more than 50 years of production, Nigeria - the tenth largest oil producer in the world - still has proven reserves of 37bn barrels, three times that of its nearest rival Angola. Its natural gas reserves are estimated to be in the region of 190tn cubic feet. The country produces up to 2.5m barrels per day of the sweet, light crude that fetches the highest prices on the world market.

But despite this untapped potential, Nigeria's active international oil companies (IOCs) have waited five years for a licensing round. Investment in new infrastructure and growth in output have stagnated while the Federal Government and state administrations debate what promises to be one of the boldest pieces of legislation in the sector's history: the Petroleum Industry Bill (PIB), drafted by the Petroleum Minister Diezani Alison-Madueke.

The PIB has several commendable aims. It seeks to introduce a new tax and royalty regime to increase the government's take and redistribute more of the spoils to ordinary Nigerians. It aims to rationalise what is a notoriously cumbersome legal framework and to clarify the fiscal terms on which a foreign player can acquire concessions from and partner with the Nigerian National Petroleum Corporation (NNPC), the state-owned corporation that controls large stakes in the country's major operations. It contains provisions for putting an expanded share of production into the hands of domestic firms. And it aims to improve the credibility of the NNPC, making it a commercially viable, profit-driven entity with greater independence from the government.

The history of Nigeria's oil industry dates back to the colonial era. Even before the official consolidation in 1914 of the territory's various states and ethnic groups, the Nigerian Bitumen Company and British Colonial Petroleum were exploring the Okitipupa region adjoining the Niger Delta. In 1938 the colonial administration granted the state-sponsored Shell (then Shell D'Arcy) complete monopoly over the exploration of all minerals and petroleum throughout the colony. Shell's hegemony lasted until the late 1950s when Mobil, Texaco and Gulf began to establish themselves. In 1956 Shell made the first successful drill at Oloibiri in the Eastern Niger Delta. Nigeria's first oil shipment followed two years later.

Exploration and production by foreign firms continued to expand after independence in 1960, and by the end of the decade total production had reached two million barrels per day. 1970 saw the first of the oil price hikes of the seventies, and in 1971 Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC). In 1977 the NNPC was established to oversee the development of the growing sector. After a slump in production figures during the eighties, the Joint Venture Operating Agreement (JOA) came into force in 1991, making clear provisions for the respective stakes of investing companies and the government. By 2004 several large majors including Royal Dutch Shell,  Chevron,  Exxon-Mobil, ENI,  ConocoPhillips and Total were firmly established, and daily production hit a record level of 2.5m barrels.

Oil now accounts for 40 percent of Nigeria's GDP and yet the industry has faced persistent criticism for not distributing the gains more widely. A sense that ordinary people in the oil-producing regions have been left behind has led to periods of unrest, and for decades successive governments have come under attack for squandering the wealth at their disposal.

Compounding the issue, a chronic overreliance on upstream industry has hindered the development of domestic refining capacity, with the result that Nigeria is forced to import much of its fuel. Consumers have grown accustomed to being protected from this fundamental imbalance by generous state subsidies. President Goodluck Jonathan's recent attempt to lift them was met with fierce opposition and had to be partially reversed.

The PIB offers hope of a solution to many of these problems, and while it has gone through several iterations there are still many in the industry who remain upbeat about its potential as the catalyst for a new era of investment. Fresh capital is surely needed. Uncertainty about the tax regime and regulatory environment is blocking billions of dollars' worth of new exploration projects; the number of new wells being drilled each year has been steadily dwindling since 2005. The US, Nigeria's second largest trading partner after India, is switching to its own supply of cheap shale oil.

More encouraging signs are appearing closer to home. Indigenous production accounts for a mere five percent of Nigeria's total output, but dynamic firms such as the Lagos-based Seplat and the pan-African Oando are acquiring a growing number of concessions and are buying assets from the large IOCs. Technology is steadily improving, promising greater access to large offshore reserves.

Domestic operations are also on the rise in the downstream sector, where healthy competition is transforming the business landscape. Earlier this month, Dangote announced plans to invest $8bn in a new refinery with a capacity of 400,000 barrels per day. If other refining projects go ahead as planned, experts predict that Nigeria's refining capacity could top 800,000 barrels per day by 2017, meaning an end to the fiscal conundrum of expensive imports and an economy based on extractive industry.

But for now, the vast potential of Nigeria's fossil fuel reserves remains unrealised. The next licensing round, initially scheduled by Alison-Madueke for the first quarter of this year, has been postponed while her legislation is debated. Until it is passed, investors will simply watch and wait.

 

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs