Sustaining Local Capacity in Oil and Gas Sector

Ejiofor Alike writes on the need for the administration to sustain the significant growth in capacity building witnessed in the last few years in Nigeria’s oil and gas industry

Despite the plethora of challenges facing Nigeria’s oil and gas sector, indigenous manpower and facilities have recorded landmark achievements in the areas of building local capacity and capability since the past six years.
Nigeria first began producing oil almost 60 years ago and is Africa’s largest oil producer. In spite of this, it is only recently that the country have begun to see local indigenous involvement in the upstream industry begin to blossom. Historically dominated by International Oil Companies (IOCs), the oil and gas industry in Nigeria has over the last few years borne witness to an aggressive drive towards indigenous ownership in both the upstream and services segments. This development is crucial because after 60 years of producing oil domestically, it heralds the shift from international drivers of the oil and gas industry to indigenous players, for the first time driving the future of this critical sector.

Growth of local capacity
Prior to introduction of the Local Content Law, the absence of local capacity in the industry had resulted in repatriation of about 90 per cent of the $12 billion yearly industry spending abroad, with its adverse effects on job creation and the growth of the economy.

This stemmed from the fact that the wider scope of the industry’s lucrative jobs was performed in foreign fabrication yards; while expatriate workforce dominated local strategic positions in the industry.
Paucity of fund, absence of in-country capacity and inadequate manpower were identified as factors that denied the country the full benefits of her petroleum resources as only few indigenous facilities and manpower were involved in the oil and gas industry.

While indigenous facilities and manpower were yearning for oil and gas industry jobs, foreign yards were flooded with jobs that ought to benefit Nigerians and the country’s economy.
Even the attempt by the administration of former President Olusegun Obasanjo to halt this trend by introducing the local content policy in 2003 to compel the foreign operators in the industry to domicile certain percentage of their jobs in-country recorded very minimal success because of absence of legislation to drive the policy.
The Obasanjo’s administration had positioned the country to attain a local content target of 70 per cent by 2010 but only less than 10 per cent was achieved because mere persuasion adopted under the policy could not influence the International Oil Companies (IOCs) to key into the initiative.

But since the Local Content Law was enacted, many indigenous professionals are increasingly building capacity and proving their mettle in the execution of major projects, while an increasing number of multinational players have also been compelled by the legislation to domicile certain scope of their operations in-country.
With Nigerians developing competence in jobs that were the exclusive preserve of expatriates before the legislation was put in place, the scope of oil and gas industry jobs, which were executed outside the shores of Nigeria, are now being performed by Nigerians and in Nigeria.

For instance, Lagos Deep Offshore Logistics Base (LADOL) has completed the facility for the integration of Floating Production Storage Offloading (FPSO) vessel in Nigeria, the first of its kind in Africa.
Nigerdock has also built offshore living quarters in Nigeria, the first of its kind in Africa.
The implication of these giant strides is that what is being fabricated outside Nigeria will now be fabricated inside Nigeria and even other countries will bring vessels and orders to Nigeria for fabrication and assembling.
These efforts have led to the retention of a large chunk of the industry expenditure in- country, with the attendant positive impact on employment generation and growth of Gross Domestic Product (GDP).

In the area of exploration and exploitation of hydrocarbons, Nigerian independent exploration and production (E &P) companies, which were restricted to marginal assets before the Act was enacted, now have access to larger acreages, due to the divestment of onshore assets by the IOCs to boost indigenous participation in the industry.
From marginal field producers, Nigerian independent companies are now operators of bigger acreages, following the wave of asset divestments by the IOCs in recent years.

Shell Petroleum Development Company (SPDC) in 2010 opened the floodgates of assets sale by the IOCs when it announced the transfer of its 30 per cent interest in Oil Mining Leases (OMLs) 4, 38 and 41 to Seplat Petroleum Development Company. Total with 10 per cent and Eni with five per cent subsequently sold their stakes in the three leases to Seplat, thus raising the operator’s equity to 45 per cent.

In 2011, Neconde Energy paid $585 million to Shell, Total and Eni to acquire their 45 per cent stake in OML 42. Shoreline Energy Resources paid $850 million to Shell and its partners for their 45 per cent stake in OML 30; Eland Oil paid $154 million for Shell, Total and Eni’s 45 per cent stake in OML 40; ND Western paid $600 million for OML 34; while First Hydrocarbon Nigeria, partly owned by Afren paid $98 million to acquire Shell’s 30 per cent interest in OML 26.

NNPC retained 55 per cent in the eight OMLs, which it later transferred to its producing arm, the Nigerian Petroleum Development Company (NPDC) between 2010 and 2011 at a cost of $1.8 billion.
Today, the African indigenous private sector is no longer content to be minority partners. A rapidly growing group of indigenous companies now have the financial resources and technical competence to own and operate assets independently. These indigenous companies are not content to simply own the assets and earn the profits from inherited production. They have plans to grow these assets, acquire more assets and to use that production to develop a wave of mid-stream and downstream solutions to address one of Africa’s most intractable problems.

More than funding is required

But while progress has been made, and Nigeria’s share of ownership in upstream production has been enhanced significantly, the key to long term sustainability lies in the establishment of a more fundamental asset, human capital. The support of domestic banks is undoubtedly important to upstream companies and oil services contractors in order to assist expansion, the establishment of the underlying human and technical capacity is what will drive true long term change. Nigeria has recorded some measure of success in this light with the existing pool of brilliant engineers and executives; but they are simply not enough of them.

Education is the greatest weapon to fill the deficit in indigenous technical ability. Increased funding of universities and research institutes should be top priority in budgetary allocation. The government needs to provide adequate resources for the maintenance of decaying infrastructure, as well as address the various policies that have triggered the dearth of world class technical talent in the universities.

All over the world, the development of technological advantage is recognised as a necessary pre-condition for economic growth and social progress. With the recent awaking of local content consciousness, the Nigerian National Petroleum Corporation (NNPC) has to put in place a comprehensive Nigerian capacity building development strategy as the primary vehicle for actualising economic dividends from the oil and gas industry. The main thrust of building domestic human and technical capacity in the oil sector is to guarantee active participation of Nigerians in oil and gas activities without compromising standard in order to stimulate growth of indigenous capacity. The increasing role of indigenous firms in both the oil services and upstream sectors of the industry can only be successful if they have access to the human resources required. Knowledge and technology transfer by multinationals in the process of implementing contracts is no longer enough to give us what we need.

Indigenous oil and gas firms in Nigeria have started to invest heavily in the development of technical human capacity. For example, Oriental Energy Resources has funded the re-accreditation of the University of Uyo’s Department of Petroleum and Chemical Engineering, and also recently trained 70 youths at seven Skill Acquisition Centres in Uyo, Oron, Eket and Ewang in Akwa Ibom state. Another example can be seen in Seven Energy, which recently pioneered the Graduate Engineer Training Programme in collaboration with the Nigerian Content Development and Monitoring Board (NCDMB). These approaches should be commended, but they must also be expanded, and supported more aggressively by the public sector.

The current administration of President Muhammadu Buhari should galvanise support for the industry to think longer term and develop world class training centres in the Niger Delta and across Nigeria, dedicated to training the next generation of professionals and leaders in the sector. For any nation and indeed for Nigeria, capacity building is a long term continuous process in which all stakeholders participate.

The private sector, whether multinationals or indigenous companies, cannot fill the gap that exists in the country’s universities on their own. The government must demonstrate the commitment required to re-position the universities as centres of technical excellence. To build their capacity and ensure that Nigeria develops a strong production line of world class engineers, technicians and executives. Without this, no matter what legislation is put in place, the country will rely on the expertise and resources of others to the detriment of our own growth and development.