NNPC wants to become an integrated energy company, what does it really mean?

The Nigerian National Petroleum Corporation (NNPC) says its on-going reform is geared towards transforming the corporation from an oil and gas company into an integrated energy outfit.

Mele Kyari, NNPC’s group managing director during an interview with Kadaria Ahmed, televised on Sunday night, said the long-term goal of the corporation is to be an integrated energy company that is commercially focused and wholly committed to deriving value for the benefit of its shareholders.

“Today, we do 80-90percent of our business through automation. This company is changing for the better and it will remain an entity that all Nigerians will be proud of,” Kyari said.

What is an Integrated Oil and Gas Company?

According to online platform, Investopedia.com, an integrated oil and gas company is a business entity that engages in the exploration, production, refinement, and distribution of oil and gas, as opposed to companies that specialize in just one segment.

Given the high entry costs relating to many oil and gas industry operations, many of the world’s largest oil and gas companies, like Chevron and Exxon, are integrated.

McKinsey & Company, an American management consulting firm said integrated oil companies are ones that play across the entire petroleum value chain from oil exploration and production (upstream) to transport, refining, and marketing (downstream).

Read also: NNPCs operating revenue increased by N31.68 billion in May- Report

What should the NNPC be doing to become one?

To move towards this vision, global consulting firm, PricewaterhouseCoopers (PwC) recommended that NNPC should consider the way they are structured right from the beginning to ensure increasing complexity is managed as the group grows.

PwC advised that regulatory bodies should also be separated from the state-owned oil corporation which will remove potential conflicts of interest and help encourage foreign investment through transparency.

For instance, in the sale of crude oil to the nation’s four refineries, NNPC acts as a regulator, buyer, and government commercial agent. NNPC also manages the government’s stake in Nigeria’s oil operations as a parastatal organized under the presidency, rendering it unaccountable to any shareholders in a purely commercial sense.

Are there legal, regulatory hurdles that stand in its way?

In order to transform NNPC into an integrated company, passing the long-awaited Petroleum Industry Governance Bill (PIB) will be important; the bill is all about looking at ways to make the national oil company commercially-driven.

The PIGB, a fraction of a more comprehensive Petroleum Industry Bill (PIB) was first proposed some 17 years ago by stakeholders in the oil and gas sector, as an answer to the massive corruption and theft that has confronted every administration since the 1960s.

The bill seeks to separate the policy, regulatory and commercial roles of government institutions in the oil and gas sector while assigning specific roles to them.

How a listed NNPC fits in

The decision might be tough, but for Nigeria, a listed NNPC will not only drive huge capital accumulation in Nigeria it also means Nigeria is going for market forces to determine oil production, retail price for products and proper deregulation of the oil sector.

Auditing and preparing NNPC books for IPO also implies revealing the total and current disclosure of reserves capacity, total revenue, profitability, taxes, and other key metrics that are needed in modelling the profitability of NNPC Plc and potential dividend it could pay to investors.

Listed NNPC will lift out Nigeria’s oil sector largely in recession and also uplift Nigeria’s oil and gas reserves which have remained stagnant or dwindling, while oil production is on a decline.

Listed NNPC means huge gas reserves estimated at 202 trillion cubic feet (TCF) could help feed power generation for energy-starved Nigeria, largely remain undeveloped 20 plus years after being discovered due to NNPC’s inability to either fund the CapEx needed to develop the fields or let go of the fields for private oil firms to develop.

The decision of NNPC to list is not a new development as other state-owned oil companies like Brazilian State oil company Petrobras which was created in 1953, however, it first sold shares to the public in December 1957 and is listed on the Ibovespa or Brazilian stock market.