OPEC congratulates Buhari on unlocking oil investments

Sopuruchi Onwuka

The Organization of Petroleum Exporting Countries (OPEC) has described the eventual legislative passage and presidential assent of the highly awaited Petroleum Industry Bill (PIB) as a significant milestone for Nigeria’s oil industry and an historic achievement for the Mohammadu Buari-led presidency.

Secretary General, Dr Mohammed Barkindo, stated in a goodwill message to Nigeria that the emerging law activates a new fiscal era for the Nigerian petroleum industry after years of legislative efforts to strengthen the legal, regulatory, fiscal and governance framework of the petroleum sector.

Secretary General of OPEC, Dr Mohammed Barkindo

“Mr. President, your signature on the PIB caps many years of important deliberations and detailed legislative work. I am confident the law marks the beginning of a new era of growth and prosperity that will be beneficial to the petroleum industry and ultimately to the Nigerian people,” Dr Barkindo stated in a letter from OPEC.

The Oracle Today reports that President Muhammadu Buhari assented the PIB on Monday, transiting the fiscal and regulatory propositions in the bill into an effective law that will govern commercial operations in the Nigerian petroleum industry.

The country’s House of Representatives and Senate had passed the PIB early July, drawing applaud from critical industry analysts and key agencies in the industry for providing clear fiscal and regulatory climate for investments in the nation’s petroleum industry.

Key international players also rekindled investments in major deepwater oil and gas development and production projects, indicating resolution of lingering investment impasse in exploration and production over fiscal uncertainty.

OPEC also had added encouragement to the progress made on the bill with Dr Barkindo describing legislative progress on the bill as “a further example of the need to advance working relationships, both at home and internationally, strengthen institutions, initiate new regulatory and fiscal frameworks and help attract much needed investment, that will lead to greater value creation for the country and its citizens.”

“On behalf of OPEC, I would like to congratulate President Muhammadu Buhari and his able Minister Timipre Sylva on this historic milestone. The 9 th National Assembly (NASS) has engraved itself in gold by passing this transformative legislation – the PIB,” Dr Barkindo stated when the bill scaled legislative approval.

With the presidential assent on the bill on Monday, Dr Barkindo pointed out that the new law would enhance the Nigerian petroleum industry’s reputation, open the door to new investment, and ultimately strengthen its position to meet the world’s growing demand for energy.

“The enactment of this legislation is especially timely as the investment outlook becomes clouded by efforts aimed at accelerating a lower-carbon future,” he noted.

In listing more economic benefits hosted in the new law, Dr Barkindo pointed at the key national aspirations for the petroleum industry, including growth of oil production to 4.0 million barrels per day (mb/d) and building national oil reserves to 40 billion barrels (Bbbls) “while also drawing on the country’s vast natural gas reserves to provide clean and efficient energy.”

He noted that the expected reserves and production growth in Nigeria would “be vital to supplying world markets with a broad portfolio of energy options, and support global efforts to alleviate energy poverty as outlined in the United Nations’ Sustainable Development Goal 7.”

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Barkindo informed Buhari that “the passage of the PIB by both houses of the National Assembly on 16 July 2021 and your act of signing it into law coincide with another significant milestone in our country’s history – the 50th anniversary of Nigeria’s Membership of OPEC.

“This golden moment provides a unique opportunity to reflect upon Nigeria’s rise as a global energy supplier and partner. Since the 24th OPEC Conference on 12 July 1971, when Nigeria received a unanimous and enthusiastic welcome as the 11th Member Country of the Organization, our country has come to symbolize Africa’s leadership within OPEC and its pivotal support for global oil market stability.

Excellency, the past year has been a time of enormous challenges for our world, for our Organization, and for each Member Country. Yet throughout this difficult period, we have demonstrated the enduring importance of OPEC and its timeless commitment to dialogue, cooperation, multilateralism and respect among all nations.

“In this respect, I wish to express my sincere gratitude for your instrumental support in establishing the Declaration of Cooperation (DoC) that was agreed on 10 December 2016. We could not envision at that time how important this framework would become during the COVID-19-related market crisis. It enabled bold, swift and decisive actions to address the historically unprecedented market downfall in 2020 and it has been vital to the ongoing efforts to provide a platform for recovery and future growth,” he pointed out.

Dr Barkindo expressed OPEC’s gratitude to President Buhari on his support for the DoC and the Charter of Cooperation which, according to him, paved the way for enhanced cooperation beyond the market[1]balancing efforts by all countries participating in the DoC.

He said the markets continue to recognize the vital contributions that OPEC and the non-OPEC Participating Countries are making to the market’s recovery, to the global economy as a whole, and to fostering constructive dialogue.

“Allow me to also use this opportunity to call attention to the invaluable contributions of HE Timipre Sylva, Minister of State for Petroleum Resources, to OPEC and the DoC. Minister Sylva’s shuttle diplomacy earlier this year as Special Envoy of the Joint Ministerial Monitoring Committee (JMMC) to Congo, Equatorial Guinea, Gabon and South Sudan contributed to the improvement in conformity levels with the voluntary production adjustments and compensation of overproduced volumes. He carried out this important mission with great aplomb and garnered the respect of his fellow Ministers,” he stated in the letter.

The Oracle Today reports that the emerging Petroleum Industry Act (PIA) 2021 is envisaged to open the floodgate of deep pocket investment in the development and production of huge deep offshore petroleum reserves discovered in Nigeria’s waters under the 1993 Production Sharing Contracts (PSCs).

Key players in the industry comprising the Oil Producers Trade Section (OPTS) of the Organized Private Sector (OPS) and the Independent Petroleum Producers Group (IPPG) stated in a presentation to the Nigerian Gas Association (NGA) that members are will to proceed with potential $90 billion investments if the emerging laws address their concerns.

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The expected defrost of investments, The Oracle Today reports, would aver looming fall in the nation’s hydrocarbon liquids production from conventional and deepwater terrains by cumulative 30 percent by 2030.

In a position paper sighted by The Oracle Today, he Chairman of OPTS, Mr Mike Sangster, held that the fiscal environment to be instated by the 2020 PIB must attract the right level of commercial investments required to meet government’s economic aspirations in the petroleum industry.

The aspirations, our correspondent reports, include building crude oil reserves to 40 billion barrels, growing production capacity to over 4.0 million barrels per day, increasing Nigerian content of the industry to over 70 percent and commercializing Nigerian natural gas resources to achieve economic and environmental goals.

The realization of the key aspirations and broader economic targets for the industry would depend on the outcome of commercial activities that would be driven by deep pocket investors that operate sundry exploration and production agreements with government’s Nigerian National Petroleum Corporation (NNPC) and regulators in the industry.

Then 2020 PIB evolves governance, administrative, host environment and fiscal frameworks that would rule commercial investments in the industry when it eventually scales legislative processes to emerge into an act.

Terms for commercial investments have remained the major road block for the passage of the PIB since 2008 when it was first introduced in the National Assembly where the investor groups mounted strong resistance against its legislative progress.

The bill which was the key outcome of a presidential oil industry review committee in 2000 was conceived to aggregate and upgrade the nation’s fragmented and strewn oil industry legislations into a unified reference document for industry governance.

Whereas government’s regulators and industry operators largely had little issues with the bulk of administrative and governance issues in the original PIB, the major disagreements revolved around fiscal templates that marked up taxes and sundry government’s revenue receivables from industry operations. At the center of argument were cost templates conceived to form the baselines for calculation of payments.

Fiscal disputes associated with introduction of the PIB have stalled investments in reserves growth and production uptick agenda of the government. Investments in exploration, development and oilfield activities stalled as the fiscal climate remained hazy.

With fiscal dispute between government and industry investment groups worsening as the bill lingered, erstwhile Managing Director of Seplat Petroleum Development Company (SPDC) Plc, Mr Austin Avuru, had at an industry conference in 2015 advised government to simplify passage of the nebulous bill by breaking it into smaller segments that could be passed as separate but related acts.

Government subsequently segmented the PIB into four daughter bills, including Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administrative Bill (PIAB), Petroleum Host Community Bill (PHCB) and Petroleum Industry Fiscal Bill (PIFB). The PIGB pulled through legislations but failed to get presidential assent in 2018, dashing hopes that the rest of the legislative bills could make it through to executive assent.

With the four daughter bills hitting the rocks as legislative bills, new efforts were made to reset the process. And the reconstitution of the National Assembly in 2019 to politically align with the executive, regulators recovered, reconsolidated and represented the PIB to National Assembly as one document that has the former daughter bills as chapters.

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 But the OPTS and the IPPG still contend that fiscal provisions in the reworked PIB mjust address investors’ concerns in the operating environment, warning that the PIB 2020 terms could lead to Nigeria foregoing about 30% of its deepwater production potential in 2030.

In the document which the group presented during stakeholder engagement forums, Mike Sangster contended that the current PIB 2020 must improve the investment environment for new project investment decisions to be taken.

He warned that policy drivers must avert “~38% reduction in deepwater production compared to 2020 levels,” adding that “over 30% of production potential could be lost by 2030” if the concerns of investors were not addressed.

He said that a competitive PIB could unlock Nigeria’s production potential and contribute to the country’s next wave of economic growth, adding that “PIB enabled projects have the potential to create 300,000 direct and indirect jobs2 over the next 10 years.”

“With the right fiscal framework, OPTS could invest an additional ~$90 billion1 in Deepwater projects to grow oil and gas development in Nigeria with resultant benefits for the nation,” Mr Sangster stated.

The document detailed a number of demands that primarily include rollover of accumulated tax credits and allowances into new licenses at the point of conversion from oil licenses to petroleum licenses. Other demands include sanctity of existing contracts upon conversion, as well as, protection of integrated field developments that currently fall vulnerable to segregation of upstream and midstream fiscal requirements.

The group complains that promising deepwater projects would face relatively tough fiscal terms in Nigeria. It pointed out that the situation could jeopardize significant investment, risk sizable resources threaten potential increase in government’s revenue.

According to the OPTS, the 2020 PIB should also aim to address commercial and transaction constraints that create bottle-necks in the gas value chain. It called for settlement legacy debt owed to gas suppliers and an end to regulated gas pricing.

Other grievances of the group which could affect investments in growth projects, according to the document, include deepwater royalty rates, and high overall government’s take from operations output.

The investor groups stated in a joint document that ignoring concerns industry operators raised during stakeholder engagements would result in a huge toll on economic aspirations in the industry.

However, at the 2021 Nigerian Oil and Gas Conference and Exhibitions, the OPTS expressed happiness at the final draft of the bill which was harmonized by both chambers of the nation’s bi-cameral legislature; indicating that all the contentious issues in the proposal had been addressed, leading to presidential assent on Monday.

Presidential spokesmen stated that the progress on the bill calls for celebration, adding that “the ceremonial part of the new legislation will be done on Wednesday” after the president who just returned from London leaves self-isolation, in line with Covid protocols following an overseas trip.

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