On the same day as Nigerian upstream regulator NUPRC was announcing the grant of regulatory approval to four of five pending Nigerian oil and gas divestment transactions, it was also publicly celebrating, along with its third anniversary, the launch of an initiative that, according to it, would potentially introduce an additional one million barrels per day of oil to Nigeria’s decimated hydrocarbon output......See Full Story>>.....See Full Story>>
Strikingly, the country’s Honourable Minister of State for Petroleum Resources (Oil) present at the event stepped up to declare during his address to the occasion that he was unimpressed by the output and timeline targets of the one-million barrel initiative. In his view, the NUPRC should be more ambitious with both barrels and duration. Many nodded in silent agreement with the Minister.
Interestingly, some of the deals that recently received NUPRC approval had been under review for what many characterise as unnecessarily long periods. The approval process for at least one of the concerned acquisitions was entering its third year. Some who are unable to figure out why ‘willing seller and willing buyer’ transactions should drag for years have strong concerns about both competence and the transparency of the approval process, especially for a regulator who has recently been on a roadshow to attract investors for a new bid round.
The NUPRC CEO also used the same opportunity to reveal—to the surprise of some in the Abuja audience—that approval to a fourth deal, the Shell/Renaissance transaction, was being withheld because, according to him, it “could not meet the mark.” He omitted to provide any further insight, justification, or clarity nor the balance of thoughts to confirm that this deal was based on a very robust tender process spanning over two years already.
“The perceived prevarication, lack of duty-of-care, or attention so far demonstrated in relation to an issue that many believe connects directly to the very heart of Nigeria’s ambition to boost oil and gas output as a viable pathway out of its present economic difficulties hasn’t gone unnoticed.”
It is perhaps instructive that NUPRC, at different times during the process, steered the divestment narrative, particularly relating the Shell/Renaissance deal towards issues including labour and industrial relations, community relations management, profile and registration status of the Renaissance, environmental performance, technical financial capability, and others, without expressing any real concerns all through. Concerns that knowledgeable people believe may have been addressed in communication between the parties.
During the same week as the NUPRC announcement happened, Nigeria’s Coordinating Minister of the Economy and key administration pointsman was in New York reassuring an IMF/World Bank audience (and the global investor community) that Nigeria remains a viable investment destination and that urgently increasing oil output remained an almost immutable pre-condition for the revitalisation of Nigeria’s economy.
The perceived prevarication, lack of duty-of-care, or attention so far demonstrated in relation to an issue that many believe connects directly to the very heart of Nigeria’s ambition to boost oil and gas output as a viable pathway out of its present economic difficulties hasn’t gone unnoticed.
Reacting to the NUPRC announcement, Clementine Wallop, Director for sub-Saharan Africa at New York-based Horizon Engage, an international political risk advisory firm, declared to Reuters that the undue difficulty of getting regulatory approval clashed with the president’s quest to win outside investment.
“On the one hand, you have a government that says we’re open for business. We want to improve the ease of doing business. We want to engage with the world’s largest energy investors, and on the other hand, there have been these long delays to the approvals,” Wallop said. “The delays have been an impediment to the success of the Tinubu regime’s big investment push. It has had an effect outside the energy industry as well.”
Interestingly, Reuters in the same Nigerian report pointed out that Shell has a partnership with Nigeria that reaches back to the very advent of the country’s oil and gas play in the mid to late 1950s. It is also on record that Shell’s Nigerian subsidiary ramped up the SPDC JV’s daily output to a record one million barrels of oil per day around 2008, with peak national production of about 2.6 million barrels per day in 2010.
The report further recounted how Nigeria’s economy has failed to recover from COVID-era shocks and their impact on oil demand. Total foreign investment inflows fell to $3.9 billion last year from $5.3 billion in 2022, data from the National Bureau of Statistics showed. That unforeseen hiatus led to a lull, which continued as a downward trend beginning some five years ago when investors pumped in $24 billion. This is how stark the problem has become. It is even more dire when you note that of the over $70 billion dollars investment into Africa between 2015 and 2020, only 5 percent came into Nigeria to underpin how unattractive we have become.
In contrast to the impression portrayed by the regulator’s action last week, the Renaissance consortium is a strategic coming together of four very credible Nigerian independents: ND Western, Aradel, FIRST Exploration and Production, and WalterSmith and Petrolin, an international energy firm. The Nigerian operator members of the consortium have forged an enduring value-based partnership in the Niger Delta, which began about 12 years ago. They also currently manage 12 OMLs, from which they together produce over 100,000 barrels per day of oil equivalent and also operate two functional modular refineries—the Aradel and Waltersmith refineries. Surely their profile projects them not only as capable operators who have even gone on to achieve high levels of integration in their operations. FIRST E&P, a member of the consortium, is the most successful indigenous producer in the shallow offshore and the most recent poster child of NNPC’s highest incremental oil production, which was widely celebrated.
The oil assets to be exchanged between Shell and Renaissance in the proposed share sale takeover are to be bolstered by the existing production processes, systems, and existing staff as a consolidated deal and therefore stand to benefit from substantial injections of investment, technology, and innovation, which represent the promise that Renaissance brings to the table with its demonstrable capacity as a consortium. It therefore begs the question that this is the deal the regulator is slow to support and yet wants to grow production by 1 million barrels per day.
Outside Nigeria’s oil business, the foreign exchange difficulties and the plunge in the value of the naira have led multinational companies, including Procter & Gamble, GSK Plc, and Bayer AG, to migrate elsewhere or appoint third parties to distribute their products.
If that outlook looks bleak, the Nigerian economy’s macro status presently provides scarce comfort. Headline inflation hovers around 32 percent with a year-on-year increase rate of about five percent. The World Bank confirms that one million more Nigerians are experiencing food insecurity in 2024 than in the previous year, and by all accounts, the road ahead looks challenging. Nigerians are literally straining to adapt to petrol prices, which have spiked 500 percent since May 29, 2023. The emerging profile is one of widespread hardship about to get significantly worse if left unattended.
Some commentators and analysts believe that the curious behaviours by regulators and others have unfortunately created a debilitating culture that manifests as complexity, unnecessarily long lead project times, and uncompetitive costs. These constitute significant obstacles to Nigeria’s ability to attract the investment so badly needed to revitalise its ailing oil and gas business and enable growth within the wider economy.
This development is perceived as a serious impediment to constructive progress and has even raised third-party concerns about the transparency, credibility, and good faith in the regulators management of operators in the oil and gas industry. Proponents of this view offer as evidence the recent very public face-off between the NNPCL, the industry’s midstream/downstream agency, and businessman Aliko Dangote, who at the time was flagging off production at a $20 billion, 650,000 barrel per day refinery in Lagos.
Nigerians watched in disbelief as the regulators and the national oil company—purported partners in the project—and its agents announced first that the Dangote Refinery, a sprawling facility about six times the size of Victoria Island in Lagos, sitting in the Lagos Free Trade Zone, was only partially complete and therefore not permitted to operate. It was later alleged that the products to flow from the facility were inferior to imported petrol; an allegation later empirically disproved by the Dangote refinery.
The regulatory agency’s claims were startling and not unusual for an entity that itself has earned notoriety over the years, as much for the opaqueness that has long been its hallmark as for its stark inability to successfully operate any of Nigeria’s government-owned refineries situated in Port Harcourt, Warri, and Kaduna over the last 10 to 20 years.
The usually self-effacing and modest Dangote uncharacteristically responded with serious counter allegations against the NNPC, citing the existence of an “‘oil mafia” and shady links to offshore blending plants, operated by interests whose undertakings constituted serious threats to Nigeria’s socio-economic survival and wellbeing.
In the final analysis, it is clearer today, perhaps than it has ever been, that a forensic investigation followed by urgent and far-reaching reforms is needed to sanitise the sector, which produces about 90 percent of Nigeria’s foreign exchange revenues.
The consensus is that to dither is to fail to prepare, and by extension, to prepare to fail Nigerians. This government needs to do the right thing to ventilate the oil and gas industry and encourage the regulator to demonstrate more transparency and agility in the divestment process and not hold back on high investment opportunities that the nation needs so badly.