60% of Drilling, Engineering Firms in Nigeria’s Oil Sector Blame Govt Policies for Stunted Activities

Emmanuel Addeh in Abuja

A new report by the National Bureau of Statistics (NBS) has revealed that as much as 60 per cent of companies operating in the wells, drilling and engineering services segment of the Nigerian oil and gas sector believe that government policies are constraining their activities.

The document on the: “Baseline Census for Well, Drilling and Petroleum Engineering Services in the Nigerian Oil and Gas Industry,” was conducted alongside the Nigerian Content Development and Monitoring Board (NCDMB), and aimed to ensure data availability and accessibility for improved policy and decision-making.

For instance, out of the 125 companies which are active in the oil sector, 74 said that the policies of government impede them from sourcing for materials locally.

 However, while 227 companies were in the database for the research, 70 firms were discovered not to be ‘involved’, 14 firms denied the team access to their facilities, while there were unsuccessful attempts in reaching out to 18 firms.

According to the report co-authored by the NBS and NCDMB, overall, the data suggested a significant reliance on local suppliers by many establishments, but stated that there is also evidence of varying levels of dependence on foreign suppliers for different raw materials.

“The most common constraint encountered in sourcing raw materials is government policy with 74 establishments (among 125 companies). This suggests that regulations, tariffs, or other governmental policies may pose challenges or restrictions in obtaining necessary materials.

“In addition, security concerns rank as the second most prevalent constraint, with 60 establishments facing issues related to safety or instability in their sourcing environments. This could include risks such as theft, vandalism, or conflict affecting the transportation or procurement of raw materials,” the report added.

The data also highlighted availability and quality of materials, financial limitations, and infrastructure-related issues, noting that addressing these constraints effectively is crucial for ensuring efficient and reliable supply chains.

Other government policies that adversely affect businesses in the sector, according to the oil firms, include: multiple taxation, foreign exchange rate, high cost of clearing goods, fiscal policy, multiple agency reporting and access to loans.

Players in the drilling and engineering services segment of the oil and gas sector also listed community issues, where they are compelled to spend on the locals before they are allowed to carry out their activities.

Other inhibitions include: high Nigerian Upstream Petroleum Regulatory Commission (NUPRC) fees for critical services, long certification process, bureaucracy in government ministries as well as customs law and equipment export restrictions.

In terms of solutions, the report recommended that government should implement reforms to streamline the tax system and eliminate duplicate or overlapping taxes, while the Central Bank of Nigeria (CBN) should use all monetary tools to correct the foreign exchange problems.

Besides, it called for reduce customs rates, introduction of tax incentives for local businesses,  merging or consolidating agencies that have overlapping functions and provision of favourable credit facilities.

The operators also called for measures to fast-track certification processes, permission of free in and outward flow of tools/equipment and stoppage of frequent review of the Petroleum Industry Act (PIA).

In all, in terms of business collaboration, 59 per cent of the active companies encompassed a spectrum of partnership arrangement, followed closely by alliances at 35 per cent and joint ventures representing 6 per cent of activities in the oil and gas sector.

It also shed light on the financial challenges encountered by companies, particularly in labour, technology, equipment, and securing capital.

Among the companies, 45 reported high labour costs, 64 reported medium labour costs, and 16 reported low labour costs. This revealed that a notable portion of companies encountered moderate to high expenditures related to labour.

“The majority of companies, 87 in total, reported high costs linked to technology and equipment. Conversely, 25 companies reported medium costs, while 13 reported low costs in this domain. This underscored the significant financial investment required for technology and equipment in many businesses.

“Regarding the cost of capital, 79 companies reported high expenses, whereas, 28 reported medium expenses and 18 reported low expenses. This highlights that a considerable number of companies contend with substantial costs associated with acquiring capital for their operations, such as interest payments on loans or financing,” the report added.

As for the distribution of annual business costs related to infrastructure and utilities, 95 of the 125 companies, representing 76 per cent reported high costs for electricity, indicating a substantial financial burden in this area.

Additionally, 19 companies or 15 per cent reported medium costs, while 11 companies or 9 per cent of the bunch reported low costs, highlighting the diverse range of expenditures related to electricity consumption among businesses.

In terms of transportation costs, 82 of the companies, representing 66 per cent reported high expenses, 35 companies or 28 per cent reported medium costs, and 8 companies or 6 per cent reported low costs, underscoring the varied nature of transportation expenses across companies.

“Overall, the baseline census for well, drilling and petroleum engineering services laid a solid foundation for evidence-based policy making and strategic decision making, contributing to the long-term development and competitiveness in the Nigerian oil and gas industry.

“Additionally, it provides stakeholders opportunities to leverage the baseline datasets for targeted intervention aimed at addressing capacity gaps and promoting indigenous participation in the well, drilling and petroleum engineering services,” the report added.