From Uche Usim, Abuja
As the global energy transition agenda gains traction, the Nigerian Upstream Regulatory Commission (NUPRC) is racing against time to position Nigeria as an investment haven by dismantling operational and regulatory hurdles stacked against investors wanting to come into various segments of the petroleum industry.
The task is daunting as the operating environment remains toxic, leading to the exodus of key players in the petroleum sector.
Notwithstanding, the NUPRC said it is not throwing in the towel as it has designed the Regulatory Action Plan (RAP) for 2024-2026 and vowed to ensure that the terms of engagement are implemented vigorously by all stakeholders in the beneficial interest of operators, service providers, industry participants and the nation.
As highlighted by President Bola Tinubu and oil and gas experts at different fora, the NUPRC has also emphasised that the energy transition programme for Nigeria, Africa, and other resource-rich developing economies should take cognizance of the evolving energy dynamics which must be calibrated against geography, history, equity, inclusivity, sustainability, politics and the need for energy justice.
The Chief Executive Officer of NUPRC, Gbenga Komolafe, in the 2024-2026 RAP said Nigeria, alongside other countries blessed with oil and gas resources, faces the serious challenge of a decline in investments because of global realities and other factors that are local to the nation.
According to him, a study by the Commission on investment trends in Nigerian upstream oil and gas in the past 10-15 years indicates a declining appetite for investment in Nigerian oil and gas by the five leading international oil and gas companies (IOCs) operating in Nigeria.
He added that increasing competition from regional peers indicates that Nigeria is attracting a decreasing proportion of the overall upstream investment in Sub-Saharan Africa (SSA) – down from 44% of SSA’s total in 2014 to 30% in 2022.
Despite an expected global uptick in upstream capital expenditure (CAPEX), Nigeria is forecasted to grow to only $8.7 billion in 2025 over the next six years, from 2023 to 2028.
“Sadly, 14 countries in SSA are forecasted to attract more CAPEX relative to their resource potential than Nigeria.
“Several factors have been identified as the causes of investment apathy in Nigeria including the need for predictability in acreage availability through licencing rounds, high cost of development and production, regulatory uncertainty (pre-PIA era), disruptions in operations due to community conflicts, security challenges and related social issues.
“Other challenges include fiscals and commercial issues such as contractual bottlenecks and fiscals for offshore and deep-water gas resources and small deep-water accumulations”, Komolafe noted.
To whet investors’ appetite without jettisoning the global energy transition template and short-changing Nigeria, Komolafe said the Commission would lubricate the upstream operating space by implementing a broad-based strategy in 2024 and the near term.
This, he said, would entrench rules of general application by issuing new regulations, in addition to those already issued since the coming into effect of the Petroleum Industry Act (PIA), to cover all aspects of upstream petroleum operations and administration.
He added that the Commission will fashion out implementable strategies to retain existing investments, encourage additional investments by existing licensees and lessees and attract fresh inflows by eliminating identified barriers such as high signature bonus payments, convoluted assignment procedures, high cost of development and production and restiveness in producing communities.
In achieving this objective, Komolafe said the Commission in 2024 would establish and implement “The Ease of Investment in Nigeria Upstream Oil and Gas Initiative”.
This is aimed at seeking the collaboration of government agencies, state, and local governments as well as oil and gas operators and the communities to sign up a Protocol on Ease of investment and operations in oil and gas activities, to be developed by the Commission.
, Komolafe said that the Commission will strengthen the Nigerian Oil and Gas Business Opportunity Desk to serve as a rallying point for sustained advocacy on opportunities for investment and participation in Nigeria upstream. He said the Commission has paid close attention to the impact of high asset acquisition fees to the investment attractiveness of the upstream sector.
The NUPRC boss also noted that a careful review of regional Signature Bonuses across the globe based on Welligence Energy Analytics (WEA) evaluation revealed that several host governments are junking the traditional hefty signature bonuses paid for exploration blocks.
“That review showed that Latin America has been the most active region where signature bonuses paid for exploration blocks have been disclosed. In Brazil, for instance, where multiple license rounds have been organised in the last decade, Signature bonuses paid for deepwater blocks dropped from over US$ 6 billion paid for exploration blocks in 2013 to an average of US$43 million in the round of 2022”.
“The WEA’s review recognised Guyana basin as one of the highly sought-after exploration basins globally and noted that in the recent license round the minimum signature bonus was $10 million and $20 million for shallow water and deepwater blocks respectively.
“Similarly, signature bonuses in regions like the Middle East (e.g. Israel) and North Africa, where blocks have been awarded recently, are estimated to be around $10 million. In South-East Asia, for instance in Indonesia, signature bonuses are in the region of $1 to $1.5 million while in Thailand’s recent bid round, bidders were expected to offer at least $3 million signature bonus. In Sub-Saharan Africa, on the other hand, signature bonuses paid for exploration blocks awarded in recent years have not been disclosed, “but license bid rounds in Angola and Nigeria have attracted hefty signature bonuses in the past”, according to WEA.
“For example, the Angolan Block, 15/06, raked in more than US$900 million in signature bonus in April 2006, as reported by Energy Intelligence, 2006.
“The import of the above narrative is to showcase the current disposition of several regional host governments towards entry fees such as signature bonuses which has a huge implication on the direction of flow of investments.
“Recognising that the era of front-loaded huge signature bonuses is over, the NUPRC, in the ongoing deep offshore licensing round, has become a lot more pragmatic in ensuring that entry fees do not become a barrier to entry for investment in exploration blocks offered. As a responsible regulator, the Commission will continue to review the prevailing global investment climate to ensure that the entry fees associated with all future licensing rounds are competitive in the context of global realities and energy transition imperatives and advise the government accordingly”, he explained.
The Commission, he noted, is working out suitable models that support investments and guarantee value for stakeholders in accordance with the government aspirations based on the optimisation of government revenues in a sustainable manner; ensuring competitive entry fees that are responsive to prevailing realities as against the traditional (static) front-loaded fees; having high regards for the commerciality of projects benchmarked against similar terrains in comparable petroleum provinces.
Nigeria, despite being a major oil exporter, has faced the paradox of importing refined products, leading to increased costs and vulnerabilities in the face of global oil price fluctuations. To this end, the Petroleum Industry Act (PIA) 2021, in Section 109 introduced the Domestic Crude Supply Obligation (DCSO). The DCSO is a policy that mandates oil-producing companies to allocate a specific percentage of their crude oil production for domestic refining.
Interestingly, the Commission said it has fully operationalised the implementation of the Domestic Crude Oil Supply Obligation since the regulation was gazetted a few months ago. Alignment with the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), operators and refineries on the operating framework has fully commenced in line with PIA provisions.
It also said it has identified Key Performance Indicators from the new regulations and ensured adherence on a non-discriminatory basis.
The NUPRC said it will also be issuing guidelines and standard operating procedures based on the identified KPIs from the regulations for the effective and efficient implementation of the regulations and the Act.
The CEO, Komolafe, said the Commission would conduct annual performance evaluation involving the deployment and use of modern interactive tools and feedback mechanisms to complete a circle of regulatory certainty and predictability.
“In line with Section 73 of the PIA for the conduct of acreage licensing, the Commission shall, beginning 2024, conduct all future licensing rounds based on a Licensing Round Plan and modern acreage licensing practices, to include: periodicity of licensing based on predictability of timelines and long-term national economic and developmental agenda deployment of modern information management systems on resource basins; the management of licensing of acreage based on an acreage management plan; deepen alignment of licensing practice with the objectives, philosophy, and procedures of the PIA; continuous evaluation of economic, geopolitical and market conditions and reflecting the outcome of such evaluations on decision-making, periodic roadshows and targeted investment outreach and alignment of seismic acquisition activities with policy on acreage licensing”, the NUPRC CEO stated.
He added that going forward, every licensing round exercise would have a defined objective which may include opening of new or virgin areas for exploration and development (frontier licensing), raising immediate financing to address other national needs and attracting fresh investments in exploration and development.
Other objectives are; to meet exploration or production targets, increase reserves, advance bilateral relationships, promote Indigenous participation and domestic wealth and monetize its gas resources for enhanced domestic supply or to expand global market share.
To achieve the aforementioned, Komolafe said the Commission was totally committed to successfully concluding the ongoing Deep Offshore Blocks Licensing Mini Bid Round in 2024.
“In accordance with the commercial regulation mandate of the Commission as enshrined in Section 4 of the PIA, the Commission would, in 2024 and the near term, pursue strategies aimed at optimising the unit cost of production for oil and gas by driving the reduction of the current average unit cost of production in all terrains to below $20 per barrel, in the near term from current sub-optimal levels of $25-40 per barrel.
“To achieve this target, the Commission would, in the near term, set up a framework for crude oil and gas transportation and/or handling costs based on a standardised tariff template/model, implement an open access regime for upstream oil and gas pipelines and ancillary facilities, incentivise investment in oil and gas transportation infrastructure to boost domestic delivery and stimulate the deregulated domestic gas market through the ease of administrative approval processes; operationalise the Host Community Development Trust Fund(s) development actions to engender social inclusion and commitment to protect oil and gas facilities and ensure uninterrupted operations thereby eliminating costs associated with community agitations and disruptive activities; activate the Environmental Remediation Fund provision of the PIA through the issuance of the Environmental Remediation Fund Administration Regulations 2023 (currently awaiting gazetting).
“The Commission will diligently implement the regulations to address the environmental impacts of oil and gas operations during the period.
“Agree on a protocol with the Nigerian Content Development and Monitoring Board (NCDMB) to ensure that the implementation of the Nigerian content regime does not escalate costs.
“Implement cost benchmarking strategies to ensure optimised costs for oil and gas operations and optimise hydrocarbon accounting systems and processes and ensure automation and business process improvements for operational efficiency”, Komolafe noted.
The Commission also seeks to include structured payments for signature bonuses, or other entry fees where appropriate and necessary.
It also seeks to emplace a deferred payment structure for signature bonus through bonuses or other alternative mechanisms, while deepening transparency, accountability and elimination of discriminatory regulatory practices.
The Commission recognises the risk of a lopsided upstream petroleum sector due to the variants of business arrangements, company ownership, and nature of transactions.
Prior to the enactment of the PIA, this development created a non-uniform fiscal regime which was complex to administer. In addition, the preponderance of human interface due to manual operations under the pre-PIA regime posed significant risk to transparency.
Leveraging the PIA, the Commission said it is poised to steer the sector such that companies operate in a non-discriminatory regulatory environment by putting in place predictable regulatory processes through business automation and strict adherence to the provisions of the law.
In response to the global climate concerns and the emerging opportunities therefrom, the Commission said it has established the Energy Transition & Carbon Monetisation Division to coordinate industry decarbonisation efforts to mitigate the impact of energy transition and sustain investments.
“The Commission is also leveraging the emerging opportunities in the carbon market based on the requirements for greenhouse gas emissions management in the PIA.
“To refocus the industry towards decarbonisation and take advantage of carbon finance and funding mechanisms, the Commission, in 2024, will develop a comprehensive policy and regulatory framework for carbon credits earning, establish the protocol for data management, monitoring, and emissions trading systems, develop transparent market infrastructure, introduce incentive mechanisms to encourage voluntary emissions reduction and collaborate with relevant stakeholders to develop the carbon market in Nigeria”, the NUPRC stated in the regulatory action plan.