Adeyemi-Bero: Nigerian Oil Firms Spend 20% Costs on Providing Security in N’Delta

The immediate-past Chairman of the Independent Petroleum Producers Group (IPPG) and Chief Executive Officer of First Exploration and Petroleum Development Company Limited, Mr. Ademola Adeyemi-Bero, in this interview with THISDAY in commemoration of the 60th anniversary of the Oil Producers Trade Section (OPTS), shared his thoughts on some topical issues in the Nigerian oil and gas industry. Peter Uzoho presents the excerpts:

The Oil Producers Trade Section (OPTS) has been in existence for the past 60 years. What in your opinion are the achievements of the organisation over the years?

The achievements are numerous. Let’s take the most recent one – the Petroleum Industry Act (PIA). When you look at the Petroleum Industry Bill (PIB), from where it started 20 years ago, it was the oil and gas reform initiative that turned into the PIB, with four different segments and finally got signed into law b President Muhammadu Buhari. OPTS played a pivotal role in shaping the industry bill and advocating for what is required to enable continued investment into the country’s petroleum sector. We needed to have a bill that creates an attractive and enabling environment for investment.

OPTS played that facilitating and challenging role with all sectors of government in working with committees, with broader stakeholder engagements and other avenues that brought international benchmarks and their own individual and collective perspectives from the various countries in which they have operations, with the objective of making the Nigeria petroleum industry competitive.

Local Content Development is another area that OPTS has made outstanding contributions to. The Nigerian Content Development and Monitoring Board (NCDMB) is driving the Local Content agenda, but OPTS companies have been instrumental, coming together to support NCDMB. You cannot build Local Content if you don’t build infrastructure as well as invest in people, systems, and capability. OPTS, in its respective companies and collectively, have been investing in these critical areas. There is a report that says the number of scholarships given by OPTS companies over the past years is about 140,000 and counting. Though, execution and delivery are majorly through the respective companies, it is also a peer challenge group where best and successful practices are learnt and shared across companies and built upon for the greater benefit of the industry. You see your OPTS colleague doing great things, it challenges you to do same or even better.

How effective has the organisation been in tackling some of the greatest challenges that the member-companies are facing?

OPTS is a 30-member strong organisation that works through the structure of chief executive level monthly meetings, supported by working level committees that work issues and matters of industry importance. The working sub-committees are resourced by nomination from respective member companies.

This approach allows us to bring in the collective knowledge of our respective companies without jeopardising the confidentiality of individual businesses. Our committees and executive level meetings are driven by topical agendas, be it the industry bill or any legislation or regulation that has an impact on the business.

For example, we have looked at topical issues such as the high cost in the Nigeria upstream sector, especially when compared to peer and global benchmarks. We can’t address that as one company on its own. We address that by looking at data across our respective operational activities and seek to find optimisation and reduction solutions.

The biggest challenge we face today is insecurity and the absence of sustained law and order in the Niger Delta – resulting in major crude oil theft, weak license to operate in our operating environments, kidnapping and all the associated violence that is prevalent across the Niger Delta and the broader country.

So, OPTS gathers data, understands emerging trends and areas of escalation, and this is shared with OPTS members and key government stakeholders.

Tax is another big topic – understanding the new fiscal laws, the growing number of fees, levies and duties, and their worsening impact on the investor attractiveness. The oil and gas industry is the proverbial fat cow. Many government agencies and institutions charge the industry for their revenue generation.

The number of levies, duties and fees charged to oil and gas companies, at the last count exceeds 40. So, OPTS assesses the impact of these charges on the revenue and bottom line of their ventures, and collectively advocates with the government stakeholders in order to address the challenges.

The OPTS operating framework has been very effective over the past decades. The collaborative approach has successfully partnered with Nigerian National Petroleum Company (NNPC) and other government stakeholders in evolving solutions that are in the interest of the Nigeria petroleum industry. Significant progress has been made in the past 60 years, and I expect this to be sustained in the years ahead.

High production cost is one of the major challenges facing oil companies in the country. What kind of fiscal framework and incentive would you suggest should be put in place to enable companies maximise their output and profitability?

The oil and gas portfolio and assets have different requirements.  The PIA has given us a good fiscal framework that the industry can work with. Of course, we need a few changes here and there but overall. The PIA is a good document that can enable investment growth.

 The PIA is however not the panacea for the ailment of Nigeria’s low production. Insecurity is a major factor, and it adds a very sizeable percentage to the overall cost of projects and operations in the Niger Delta, certainly exceeding 20 per cent. The insecurity in the Niger Delta has to be tackled.

The PIA has the Host Community Bill which will address the social aspects and hopefully encourage the hearts and minds of people in the Niger Delta towards engendering a sustained enabling environment.

There is no other oil and gas environment across the global petroleum industry with the level of insecurity we have in the Niger Delta, and this impacts its competitiveness. We have to resolve this challenge and the PIA will not solve it on its own. This is the government’s responsibility and accountability. 

The PIA has introduced a number of fees and levies, which on top of the existing list certainly adds more to the cost of operations in the oil and gas Industry. Specifically for gas, there is still some work to be done to fully attract the required investments to develop upstream gas fields and midstream/downstream infrastructure.

 The PIA has already provided some good incentives in the fiscals – low royalties, low taxes etc. For the size of gas development and infrastructure requirement to achieve 10-15BCF of gas per day, NLNG type of incentives and waivers will be required. Gas should be recognised as an enabler of the economy, it’s an enabler for industries, enabler for manufacturing and an enabler for power. 

What is your assessment of the relationship between IPPG and OPTS?

IPPG was set up for solely Nigeria upstream E&P companies and several of its members are already part of OPTS. There are specific issues, specific matters that relate purely to indigenous companies that are not in the purview of the international companies.

Two examples that I can point to are marginal fields rounds and operations, and the international oil companies (IOC)’s divestments in the past decade. The IOCs don’t participate in marginal field rounds. So the specific issues related to indigenous companies and the marginal field terms needed focused engagement with government regulators and other stakeholders.

Several IOCs have divested their participating interest in the onshore/shallow offshore JVs primarily to Nigerian independent E&P companies. IPPG offers its members a collective forum for engaging government as well as for developing collaborative partnerships for these material acquisition opportunities. So, the IPPG provides indigenous companies with a forum to engage openly and honestly among each other, with the objective of improving and sustaining the development of the Nigeria independents.

The OPTS and IPPG have defined very effective areas of collaboration. Both chairmen of OPTS and IPPG endeavour to meet quarterly to align on issues and agree on a joint working approach that is mutually beneficial and that provides stakeholders a unified engagement body on industry matters. OPTS and IPPG both have focused and identical objectives that have overlapping interests in the main.

To what extent has OPTS helped in promoting Local Content in the Nigerian oil and gas industry, and how do you see improvement opportunities in this?

Let me speak first as a Nigerian. If this industry spends $10 to $30 billion each budget year, that is the operating and capital expenditure budget on a yearly basis. It is most important that a sizeable portion of this is spent in Nigeria to have the right socio-economic impact.

 So, the Nigerian Content Development and Monitoring Board (NCDMB) is implementing the provisions of the Nigerian Content Development Act and it is making significant and successful strides in delivering the objectives. The current executive secretary (as well as the past) and the entire NCDMB organisation must be commended for the progress being delivered. 

The OPTS continues to champion the whole Local Content agenda. For instance, the Samsung Heavy Industries facility at LADOL, was infrastructure built on the Total Egina Field Development investments and will serve other similar requirements into the future.

OPTS member companies are enabling infrastructure that allows Local Content to be sustainably grown in Nigeria. One unspoken Local Content achievement of IOCs and hence OPTS members is capability and competence development of the Nigeria people. I am a product of Nigerian Content.

Shell employed me as a young engineer, I spent 20 plus years working in several roles and a number of countries. I also worked for BG at top executive roles and today, I am running an oil and gas company in an entrepreneurial capacity.

 I am able to successfully fulfil this role because of the development I had at Shell and BG, with the experiences, the knowledge and leadership capability building I gained over a number of years.

 My story is replicated in several other persons across the industry here in Nigeria and across the globe. The array of Nigeria independents oil and gas companies is exemplary, and this is unique when compared to other major oil producing companies in Africa. 

The exit of IOCs from the onshore and shallow water terrain represents a major growth opportunity for Nigeria independents as well as the new NNPC Limited. It is very clear – the IOCs would focus on Deepwater assets and large integrated gas.

Onshore and shallow water is expected to be the domain of the Nigerian independents and NNPC Limited. Local Content has clearly enabled the local industry capability to fill this important role in the emerging Nigeria portfolio segmentation.

Are there contributions that should come from OPTS and probably, IPPG in order to make this PIA work and benefit all stakeholders in the industry?

Yes, we must participate in the next implementation phase of the PIA. So, what are the next actions? Next actions are, as you know, the Administrative Bill has put structures in place. I think the industry must be a vigilant observer and challenger of the process.  

The roles of NUPRC and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) are being formalised and we must make sure that overlaps are avoided and ease of doing business for operators is paramount.

OPTS and IPPG have to be active and interested participants throughout the implementation phase. Lastly, we must ensure that the PIA delivers on the objectives of attracting investments into the Nigeria Petroleum sector and the realisation of production and reserves growth. These will enable the renaissance of Africa’s largest oil and gas sector.