A myriad of bottlenecks are piling against the ability of the Nigeria National Petroleum Corporation (NNPC) to take over from Royal Dutch Shell plc operatorship of the $2 billion Oil Mining Licence (OML) 11 in Ogoniland, in the heart of the Niger Delta, where environmental and human rights controversies have prevented Shell from operating over the years.
Beyond lack of capacity and technology on the part of NNPC and its upstream arm, Nigeria Petroleum Development Company (NPDC), to run OML 11, experts who spoke to BusinessDay said there may also be legal questions around the Federal Government’s directive to the state-owned oil firm.
“There are questions about parties’ obligations, which due process has to be followed for change in operatorship and possible breach of the Joint Operating Agreement (JOA) and/or any other underlying contractual or commercial arrangement put in place for the purpose of the operatorship,” Joseph Onele, energy lawyer and policy consultant at Bloomfield law practice, said.
President Muhammadu Buhari had in a letter dated March 1, 2019, through the office of the Chief of Staff Abba Kyari, directed the state-owned oil company and its upstream arm, NPDC, to take over operatorship of the entire oil blocks in OML 11 not later than April 30, 2019 and also ensure smooth re-entry given the delicate situation in Ogoniland.
OML 11 lies in the south-eastern Niger Delta and contains 33 oil and gas fields of which eight are producing as per 2017. In terms of production, it is one of the most important blocks in Nigeria as the terrain is swamp to the south with numerous rivers and creeks (Ogoniland).
But experts strongly doubt the capacity of NNPC/NPDC to operate the field.
“It’s an open secret that NPDC doesn’t have the financial capability to run those assets. Even the ones they are holding now they are looking for third party financing,” Luqman Agboola, head of energy infrastructure at Sofidam Capital, told BusinessDay.
NPDC early this year said it was making efforts to raise $3.15 billion through third party financing to develop the 416 million barrels of reserves in OML 13 field located in Akwa Ibom which will go towards funding cash call debts.
OML 13, a field which the NNPC persuaded President Buhari to recover from its operators in 2016 citing non-compliance with the provision of the Petroleum Act on payment of signature bonus and irregular award, is currently operated by Sterling Energy and Exploration Production Limited, an Indian group on behalf of NPDC.
Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, agreed that NPDC in its current state does not have the capacity and technology to run OML 11.
The experts also said for a country in dire need of foreign investments, the directive from the Presidency was damaging to Nigeria’s business climate and could chase away potential investors or even discourage some existing ones.
“Yes, there are issues relating to Ogoniland, but the government also cannot resolve it by just directing Shell and its partners which include NNPC. Going public with what seems like a power display is bad for the industry; it scares away investors and should not be encouraged,” said a Lagos-based oil and gas expert who craved anonymity because of his closeness to the issue.
Atafiri said the directive was a bad decision at a time when “economy is unstable and dwindling”.
Foreign investment inflow into the Nigeria petroleum industry hit a three-year low of $133 million in 2018, a sharp decline of 59.82 percent compared to $331 million recorded in the same period in 2017, according to data from National Bureau of Statistics (NBS).
Capital importation into the oil and gas sector is yet to reach its 2016 peak of $720.15 million, which was lower compared to $331.36 million in 2017 as 2014 and 2015 figures stood at $208.18 million and $29.76 million, respectively.
“This is why some of us keep advocating for effective industry governance. It is a strong arrogation of power on the part of the Chief of Staff. I am not sure he has the authority legally,” said Wummi Iledare, a professor of Petroleum Economics and Policy Research at the Centre for Petroleum Energy Economics and Law, University of Ibadan, in an emailed response.
Asked whether it might affect investments in the oil and gas sector, Iledare responded, “Honestly, we are not learning from Venezuela experience.”
While some of the experts agreed that government has the right to revoke or renew any licence at any point in time when there is a breach of operation, others said there is also the possibility of Shell triggering the dispute resolution clause or mechanism in the underlying contract and seeking remedies for breach.
Asked if Shell is entitled to any compensation, Agboola said, “Government can value the current infrastructural properties of Shell on the assets and pay them some money or wait for the assets to start producing before giving them some barrels of oil as compensation.”
Other stakeholders said the current situation has shown that the agglomeration of presidential powers with that of Minister of Petroleum can be very dangerous, especially when the man wielding both powers has socialist leanings.
When contacted, Shell Nigeria declined comment on the matter. “I’m sorry we could not comment on a reported internal government communications not directed to SPDC,” Bamidele Odugbesan, media relations manager at Shell Nigeria, told BusinessDay.
Oil is the heartbeat of Africa’s biggest economy, accounting for more than half of government revenue and 90 percent of export income. As such, issues concerning production are always major concerns for the country’s economic manager.
Although President Buhari deserves credit for easing the bottlenecks in the cash calls for upstream work programme and removing NPDC’s chokehold on Nigerian independents since assuming office in May 2015, he has, however, failed to stop NNPC from owing cash calls in a way that effectively disabled work programmes of operating companies. And by insisting on operatorship without the wherewithal to do so (competencies, governance, processes and funding), the NPDC, the operating E&P arm of the NNPC, had strangled investment in assets that Shell & Co. had sold to five Nigerian independents since 2012.
Nigeria prides itself as one of the biggest economies in Africa but continues to fail in providing an environment conducive for businesses. Some of the companies that have withdrawn investments in Nigeria include Sun International and, recently, Etisalat UAE.
DIPO OLADEHINDE
