Nigeria expects $20bn foreign direct investments as oil projects get green light

Nigeria’s oil sector may see between $18 and $20 billion worth of investments as oil companies try to restart previously abandoned projects and quicken the pace on delayed projects due to improved terms, the head of a division of the state-oil firm has said.

Bala Wunti, head of Nigerian Petroleum Investment Company (NAPIMS) in remarks made at an oil conference in Abuja said projects like Agbami gas, and Exxonmobil’s Owowo field among others have seen renewed commitments from investors.

“We are significantly advancing on the Agbami gas project, which is bringing in a significant couple of billions of foreign direct investments.

“On top of that, we all know the Owowo project, which Exxon has put in the freezer has been unfreezed courtesy of the PIA and removal of the PSC, put all these together we see an outlook of between this year and next year, of somewhere in the neighbourhood of between $18billion and $20 billion,” Wunti said.

The Nigerian government passed the Petroleum Industry Act after two decades of delays, which offers improved regulatory and fiscal terms for oil production arrangements, especially for those onshore fields where investors have fled due to crude theft, sabotage, and community agitations.

Last August, the Nigerian National Petroleum Company (NNPC) Limited signed a contract extension with its international oil companies partners for five major oil blocs. This also improved terms for agreements such as the Production Sharing Agreement, Dispute Settlement Agreement, Settlement Repayment Agreement, and Escrow Agreement.

These efforts to remove barriers to investments, it seems, are crystalising into new investments as about 20 oil rigs are said to be in production, according to Gbenga Komolafe, the chief executive of the Nigerian Upstream Regulatory Commission (NUPRC).

He said the commission has rolled out the regulation on measurement, the first of its kind since oil was discovered, to stem losses from oil production.

“By the time we implement the regulation, the ultimate objective is to actually monitor production on a real-time basis,” he said.

Earlier reports from the NUPRC states that 40 percent of crude oil losses in the Nigerian petroleum industry are due to measurement inaccuracies which this new regulation aims to curb.

In a newfound drive to convince investors, Komolafe said the Commission seeks to become business enablers, leveraging regulations to create an enabling environment for investments in Nigeria.

“We are creating regulatory incentives that makes issuances quicker in a manner that will shorten turnaround time and that will impact favorably on the unit cost of production because businesses are looked at on the basis of profitability,” he said

But some operators say the challenges have yet to be totally removed. Elohor Aiboni: Managing Director, Shell Nigeria Exploration and Production Company Ltd. said any investor that seeks to invest in a country ensures stability risk, funding, ethics, compliance, security, and regulatory risks are minimal.

Nigeria ranks low on these metrics. Insecurity is pervasive in the Niger Delta, oil theft is a menace and even the PIA took two decades to become law.

Operators say regulatory risks constitute their biggest challenge seen in multiple and duplicated rules, confusing fiscal systems that see the PIA provide tax incentives that are wiped off in the Finance Act.

Roger Brown, MD of Seplat Petroleum Development Company, said investors want clarity and stability.

“Clarity is setting the rules and sticking to the rules,” he said.

He wants a situation where the government sets the rules including legislation and regulations and ensure they are followed. Another critical enabler he noted is there must be efforts to prevent disruptions to production from community agitation.

A panel session at the Nigerian Oil and Gas Conference on Wednesday in Abuja, which brought together operators from both the government and private sector, featured frank conversations about ways to derisk investments.

“Like we all know, capital has no emotions at all, it will flow to where it will get the highest return, it will then begin to hear fruit, lots of fruits and that’s certainly what any investor is looking for,” said Aiboni.

While some investors are braving the waters restarting new projects, others are more cautious. According to Elohor, the PIA provided better terms for onshore oil reducing tax and royalties but action was still required to enact terms for gas that is not associated with oil drilling.

Tayo Akinkunmi, MD/Country manager at TechnipF said the coountry has succeeded when it has been extremely intentional about a project. An exmaple is the NLNG which enjoyed massive incentives from the Nigerian government against cries about the country giving away too much.

“If you look at the valuation of the NLNG today, it is in excess of the entire companies listed on the stock exchange. That’s a long-term gain that we have to be looking at. NLNG has paid over $20bn dividend to the Nigerian government,”

Akinkunmi said the country should focus on those deals that would become a game changer and provide deliberate incentives that can help those projects come on stream, foregoing bruising short-term instant gratification, like extracting maximum signature bonuses that will hamper financing to drill wells, for long-term value.

There are still several projects waiting on investment decisions in Nigeria such as 120,000bpd Zabazaba-Etan project; 140,000bpd Bosi project; 80,000bpd Satellite Field development phase two; 110,000bpd Uge project and 110,000bpd Nsiko deepwater project; 1billion barrel Owowo field developments.