Rising Costs Hindering Investment in Oil Industry, Say Producing Companies


By Emmanuel Addeh

Major stakeholders Nigeria’s oil and gas industry yesterday lamented the rising cost of doing business in the country, insisting that the development was hindering the much-needed investments in the sector.

The stakeholders, including the Oil Producers Trade Section (OPTS), comprising 30 oil and gas companies and the Independent Petroleum Producers Group (IPPIG), with a membership of 25 firms, agreed that the prevailing situation was not sustainable.

They spoke at a Nigerian Association of Petroleum Explorationists (NAPE), virtual event tagged “The Nigerian Oil and Gas Regulations: X-raying the Petroleum Industry Bill (PIB), Stakeholders Review of the Perspectives, Legislation and Opportunities in the Oil and Gas Landscape.”

Quoting industry data, Managing Director, Total E&P Nigeria Limited and Chairman, OPTS, Mr. Mike Sangster, noted that for instance, of the $70 billion that flowed into the continent between 2015 and 2019, only $3 billion came into the country.

He explained that considering Nigeria’s huge resource base, the quantum of foreign investment was very low, noting that bureaucracy and the cost of doing business in the country was not only hurting investors, but also negatively impacting government revenues.

Represented by the Director, Downstream Gas, Chevron Nigeria Limited, Mr. Sanjay Narasimhalu, the Total chief executive argued that what Nigeria needed was “the right” PIB, saying that almost every Nigerian has a different reason for wanting the enactment of the proposed law.

“What Nigeria needs is the right PIB. Every entity, everybody has a different reason why we should have one. Between 2015 and 2019, there was an amount of capital spend across the globe and it shows that what resources a country has and the capital they received.

“The key takeaway is that of the $70 billion that came to Africa between 2015 and 2019, only $3 billion came to Nigeria despite the amount of resources. That’s a powerful message,” he posited.

Sangster opined that businesses will always go to where they are competitive, stating that there was so much time and resources wasted on bureaucracy in the country.

He added: “The cost of doing business in Nigeria is a reality. We spend so much time and money in developing projects and we are inundated with a significant amount of bureaucracy and oversight and that chews away profitability for government and for investors.

“So, cost is a parasite that hurts government and industry and that’s where we can partner so that the PIB can work in our favour to help to focus on driving cost down. So, when it comes to governance, will the new PIB help to really drive cost down. Does it simplify the administration process?”

He maintained that a principle that all stakeholders must agree on is that the proposed law must establish a governance framework that simplifies the entire process and drives cost of business down.

In his remarks, the Managing Director, First E&P and Chairman of IPPG, Mr. Abimbola Adeyemi-Bero, noted that the biggest challenge before the PIB was the implementation stage, stressing that changing the mindset of the current operators will be a difficult task.

“Clearly, everyone believes that the NNPC must be a thriving, commercial company. I am a big advocate that every major resource holding country must have a thriving, progressive, independent commercial company like the Petronas or Statoil that has been renamed etc.

“That’s the direction the NNPC wants to go and the boldness of that shift must be done without forging it, meaning that it can’t be partly commercial and partly hung on the control of government. You need a truly commercial company that can raise money for example. When that independence is there, they can really thrive,” he noted.

He opined that the entire performance of the NNPC should be to deliver to the people of Nigeria, but stated that the corporation must be given the freedom to execute the targets set by government.

“The biggest challenge for PIB is post-PIB. How do we implement the PIB and the biggest challenge is shifting from the old organisational structures, processes and framework to a new one. It’s going to require a new set of people, a new mindset and we haven’t given a lot of thoughts to that challenge. That transition will be very challenging,” he said.

Partner, Advisory Legal Consultants, Adegbite Adeniji and former Special Technical Adviser, Upstream and Gas, to ex-Minister of State for Petroleum, Dr. Ibe Kachikwu, noted that Nigeria must look at the cost of regulation and its impact on the regulated entities.

“The current structure just doesn’t work. Basically, what should be the design. What the PIB does is that it creates a new national company and moves all the staff from the old company to the new company – old wine in new bottle.

“It does not quite address some fundamentals. First, is governance. How to ensure that the old problems related with the old entity goes away. There are the potentates, the political interference that doesn’t allow for the National Oil Company operate the way it should for the benefit of Nigerians. How do you insulate that company.

“The solution is to put on the board of the entity independent directors and to minimise the appointment of government people to run a commercial agency. You need to draw on the expertise that’s so available in Nigeria,” he explained.