Why PIA hasn’t attracted investments to Nigeria – IOCs

Next month, the Petroleum Industry Act (PIA), advertised as the elixir for new investments into the sector, would be a year old, but investors are fleeing Nigeria due to industrial-scale crude theft, uncertainty and the government’s inability to fully implement the act, operators say.

Panel after panel at the Nigerian Oil and Gas Conference, which was held in Abuja from July 4 – 7, turned into a jeremiad on Nigeria’s spectacular failure to take advantage of its abundant oil and gas resources to lift its people out of poverty.

Osagie Okunbor, managing director of Shell Petroleum Development Company of Nigeria Ltd and country chair, Shell Companies in Nigeria, said a lack of stability in fiscal terms, issues with the sanctity of contracts, security of investments, and the sheer impact of crude theft continued to scare away investors.

He spent some time lauding the passage of the PIA, saying, however imperfect it was, it had brought some sort of clarity. Other international oil companies’ (IOCs) representatives on the panel including Mike Sangster, managing director of TotalEnergies Nigeria, agreed.

Clearly not enough to attract investment dollars even as the IOCs continued to pour money into other jurisdictions. Shell is participating in the North Field East LNG expansion project in Qatar. Shell Australia took a final investment decision for the development of the Crux natural gas field, off the coast of Western Australia and Shell Brasil signed a Production Sharing Contract to formally acquire a 25 percent stake of the Atapu field, paying $ 1.1 billion to Petrobras for the increased stake in the field.

ExxonMobil has spent a fortune in Guyana developing new fields while TotalEnergies is showing the cash in new projects in Uganda and Tanzania.

“It’s good that we have the PIA and the full impact on investments will take some time to materialise,” Okunbor said.

But it sounded like industry-speak for when the government is ready to be serious, investors will come.

Analysts say the Nigerian government has done little to fix the vexing issues in the oil sector. It took it 20 years to pass the Petroleum Industry Bill, and it’s taken one year to even commence the implementation of most of its provisions.

The aspects that can be implemented are done to skirt around contentious issues. For example, the Nigerian National Petroleum Corporation has been transformed into a company from July 1 with a mandate to become commercial but it will continue to pay petrol subsidy with 100 percent of its revenue after paying salaries.

The Buhari government’s inability to rein in crude theft is the biggest turn-off for investors. Using a back-of-the-envelope estimate, Sangster, TotalEnergies EP Nigeria boss, said the country could be losing about $10 million daily in accrued revenue with an estimated loss of 100,00 per barrels a day at the cost of $100 a barrel.

“I think, frankly, it’s organised crime,” said Sangster.

Read also: Delay in implementing PIA 2021 continues to impede consistent fuel supply

Analysts at Wood Mackenzie, in a report earlier in the year, revealed that Shell’s Bonny and the Brass oil pipeline system, owned by the upstream joint venture between Eni, Nigerian Petroleum Development Company and Oando, were facing systemic attacks.

“The scale and sophistication of crude thefts suggest an organised operation on an industrial scale,” said analysts at Wood Mackenzie.

The report said theft and vandalism hit Shell’s Bonny pipeline system the hardest, leading to the declaration of force majeure at the Bonny terminal in March 2022 due to a drop in crude output.

Heirs Oil & Gas averaged losses of 66 percent from Oil Mining Licence (OML) 17 in 2021, peaking at 97 percent in December.

Similarly, Eni’s Brass oil pipeline in the northern Niger Delta was heavily impacted, with local security contractors scrambling to deal with an unprecedented number of incidents early in the year.

Due to pipeline sabotage, Eni declared force majeure at the Brass River oil terminal in March, though the sabotage is concentrated at the Obiafu-Obrikom and Ebocha facilities.

Sangster said TotalEnergies had declared a force majeure on its OML 58 and had stopped production on February 24 due to the vandalism of its oil and gas infrastructure.

Military operations started to curb the menace and have proven ineffective, with accusations of compromised security personnel. Host communities, reports say, are also involved in sabotaging oil and gas infrastructure to seek compensation.

The organisers may have billed the event to be a discussion on the way forward for the beleaguered sector but it ended up sounding like a three-day lamentation where even those appointed or elected to solve the problem appeared to wail louder than operators.