Magazine article African Business

Making Hydrocarbons Work: Nigeria's Oil and Gas Industry Is Evolving as More Domestic Businesses Are Becoming Involved in Its Upstream and Downstream Industries

Magazine article African Business

Making Hydrocarbons Work: Nigeria's Oil and Gas Industry Is Evolving as More Domestic Businesses Are Becoming Involved in Its Upstream and Downstream Industries

Article excerpt

Since the turn of the millennium, Nigeria has pursued an ambitious programme to develop its 'local content', ensuring that the international oil companies (IOCs) that have dominated the marketplace since the 1960s work actively to deepen the participation of Nigerian enterprises and individuals in the hydrocarbon supply chain. Although oil and gas revenues make up around 90% of the government's budget, the sector employs a proportionally very small amount of the Nigerian population. Since the government set a target of 75% local participation across the entire sector, Nigeria has made major strides towards creating an industry that is mutually beneficial for all stakeholders.

The Nigerian Oil and Gas Industry Content Development Bill was signed into law in 2010, creating the Nigerian Content Development and Monitoring Board (NCDMB). This was designed to promote skills development and capacity building within the Nigerian oil and gas industry. Indirectly and directly, around 250,000 jobs have been created as a result of the local content regulations. Over the past few years, the shape of the industry has started to evolve, with Nigerian-owned and operated business increasingly taking on a leadership role in the industry.

Nigerian domestic oil companies cut their teeth in so-called 'marginal' fields--oil and gas assets that were considered uneconomic by the IOCs. Often onshore in difficult geographies, these fields were ideal training grounds for businesspeople and engineers to develop the expertise needed to grow.

"We started by running a marginal oil field. That is how the opportunity was created for professionals to step into the oil and gas industry and build capacity and expertise from a very small background," says Austin Avuru, the CEO of Seplat. "We were very clear that from the beginning we wanted to build a worldclass company."

Over the past half decade, the IOCs have begun to reduce their exposure to Nigerian onshore assets, preferring to focus on the offshore business, and have sold off $5 billion worth of assets to local companies.

"The Nigerian oil and gas industry is maturing, from a geological point of view. We are reaching a point where there are mature fields that are beginning to fall below the profitability threshold of the multinationals," Avuru says.

"Regulatory changes also ensure that multinationals don't have the luxury any more of sitting on large tracts of acreage for so long. The combination of those two means that you are seeing the rationalisation of assets by multinationals, and the indigenous companies who have gained experience in marginal fields are moving in to take on those opportunities. That's the platform for our growth."

In 2010, domestic oil companies controlled less than 10% of the Nigerian upstream oil and gas sector. Today that figure is more than 30%, with companies such as Oando, Afren, Lekoil and Seplat becoming important parts of the country's upstream growth.

In 2014, Seplat joined Lekoil in listing on the London Stock Exchange, taking the company's growth international and finding new funding for the sector. It is an endorsement of the growing international reputation of Nigerian businesses, and of their commitment to corporate governance. Through their better understanding of local communities and of the political context of their investments, Nigerian oil and gas companies are expected to suffer less from the social challenges faced by IOCs. Oil theft and instability have reduced the profitability of some operators, and it is hoped that local players will be better placed to mitigate these issues. …

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