BusinessDay

IOCs’ exit cedes space to locals, will test FG’s policies

The reality of International Oil Companies’ (IOCs) departure from the largest oil patch in Africa is ceding the space to independent companies – a development that will test Nigeria’s ability to craft policies that will make its oil industry attractive for investments.

Oil industry professionals who spoke to BusinessDay said the decision to leave Nigeria had been taken years ago when it emerged that the country was crimping the space for operators.

They say Nigerian government officials’ cavalier attitude towards industry operators, rampant crude theft and sabotage, inability to quickly enact regulatory and fiscal reforms, insecurity and disrespect for contract sanctity, and pressure exacted by climate change activists are some of the key factors driving the exodus of IOCs.

“The Nigerian oil industry from 2022 will be taken over by independents, whether they are Nigerian or foreign independents because the IOCs are not coming back,” Uduimoh Itsueli, a former chairman of the Nigerian National Petroleum Company (NNPC) and chairman of Dubril Oil Company Ltd, said in an interview.

Itsueli, however, said the independents do not have the clout of the IOCs.

“So, we need to craft the policies so that it can encourage these ones who do not have the same clout as the IOCs. We need to change how we do business. We need to grow our own independents,” he said.

Nigeria is doing the very opposite. The cash-strapped government is foraging for cash with a desperation that borders on mania, leading to rampant harassment of industry operators by various organs of government.

Indigenous oil firms tell BusinessDay that various state governments, local government agencies, and lawmakers embark on revenue drives in the form of levies, new taxes, and constant demands for audits and documentation about companies’ accounts with so much tenacity that it looks like a shakedown.

“Somebody sent a letter to our Benin office saying that we do not have a permit to produce water we use commercially. But we don’t even have a water plant; we don’t sell water. They wrote threatening to take action. We simply called their number to say we have a borehole for water we use internally. They said, ‘Oh, write a letter to us to that effect,’” Itsueli said.

The same week the company received a letter from the National Assembly, requesting details of its transactions with the NNPC going back 20 years as well as bank records and the company’s books. The committee wanted 20 copies of each and two flash drives as well as the company’s officials to physically bring them to Abuja.

However, Dubril Oil is a sole risk company with no transactions with the NNPC.

Itsueli said these were the sort of things that needed to change. While the IOCs have a large staff strength and huge departments and can respond to government officials’ harassment, sometimes appealing to their ambassadors to intervene, the independents do not have such clout.
Read also: IOCs lament threat to business as Nigeria loses $3.27bn to crude oil theft

Since they are nimble and efficient, independents have small staff strength and even smaller tolerance for official ineptitude. A relapse to the old ways by the Nigerian government will trigger an exit faster than a 100 meters dash.

Delay in granting approvals and taking decisions, a constant feature of the Nigerian government engagement with oil sector operators, (it took 22 years to write an oil law), sometimes weaponised to whip erring operators in line, will be a blunt tool after the exit of IOCs.

Following plans for a new marginal field bid rounds, the erstwhile regulator, Department of Petroleum Resources, revoked the marginal fields awarded to seven firms, including Associated Oil & Gas Limited and Dansaki Petroleum Limited, operators of Tom Shot Bank Marginal Field; Bayelsa Oil Limited, operator of Atala Marginal Field; Independent Energy Limited, operator of Ofa Marginal Field; and Del-Sigma Petroleum Nigeria Limited, operator of Ke Marginal Field.

Others are Sogenal Energy Limited, operator of Akepo Marginal Field; Sahara Energy Limited and African Oil & Gas Limited, operators of Tsekelewu Marginal Field; Bicta Energy and Management Systems Ltd, operator of Ogedeh Marginal Field; and Goland Petroleum Limited, operator of Oriri Marginal Field.

The firms went to court and secured a judgment restraining the government from auctioning the fields they said they had invested over $100 million to develop.

Since the judgment was secured in 2020, even after another bid round in 2021, the matter has remained unresolved.

“We have written letters upon letters, but we have not heard anything,” Aderele Afolabi, founder of Dansaki Petroleum Ltd, told BusinessDay. “Please keep me informed if you hear anything,” he urged this reporter.

In a serious country, an investor would not ask a reporter the latest details about his investment with the government.

Prior to Lekoil’s corporate troubles, Lekan Akinyanmi, the company’s CEO, had told BusinessDay that the greatest risk facing local oil firms was not raising capital, wasn’t human resources, wasn’t even community agitations but the slow pace of regulatory decision-making.

“The challenge for the government now is how to make the sector more attractive for investors, tackle vandalism in the Niger Delta and incentivise operators,” said Adebowale Adeniyi, senior manager, Oil, Gas & Power Group at Andersen Tax.

Government officials who shout themselves hoarse over ease of doing business, operators say, behave as if they get paid by how thorough they are in frustrating businesses.

Operators say the tone of communication by government regulators and lawmakers with oversight over committees, many with scant knowledge of the sector they pretend to superintend, is often punitive, laced with threats.

Some operators report an aversion for private companies reporting huge profits, forgetting that when private companies succeed, the economy gets bigger, they employ more people, pay more taxes, get involved in more Corporate Social Responsibility and relieve the government of some burden to focus on more urgent areas.

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