Oil prices steadily rose this week, hitting an all-time high of $89.05 per barrel, thus making it the highest since 2014. Stakeholders and analysts predict that the commodity may reach the $100 mark in no distant time. What could be responsible for the soaring oil price? What are its implications and how prepared is Nigeria for this price regime? MUYIWA LUCAS asks

This week is perhaps shaping what the future of crude oil price for the year. In the last four days of the week, crude oil price in the international market space has been on a steady increase.

For instance, the commodity’s price as at yesterday, stood at $89.35 per barrel. Brent crude futures were up 81 cents, or 0.9 percent to $88.32 a barrel- making it the fourth day in succession. The benchmark contract earlier touched $89.05, its highest since October 13, 2014; while U.S. West Texas Intermediate (WTI) crude futures climbed 97 cents, or 1.14 percent to $86.40 a barrel. WTI earlier jumped to $87.08, its highest since October 9, 2014. Following this development, officials of Organisation of Petroleum Exporting Countries (OPEC) are convinced that a $100 per barrel oil price is possible in the next few months.

Although the current oil price increases may not deliver the same sort of revenues recorded by the country in 2014, yet, there are still gains to be made by the country from its export of the commodity; hence, government is expected to cash in on this window.

This position is further buttressed going by available data from the Central Bank of Nigeria (CBN) which revealed that the country earned about $11.3 billion or N4.69 trillion (using CBN forex official rate of N415.3 / dollar) from crude oil and gas exports in the third quarter of 2021. This was at a time international oil price averaged $75 per barrel.

Yet, it appears to be all rosy for oil producing nations if going by a recent Goldman Sachs report that oil price of $100 per barrel by the end of this year and $105 per barrel in 2023 is anything to go about.

This week’s oil price rise is said to have been influenced following a fire on a pipeline from Iraq to Turkey which stopped flows, increasing concerns about an already tight short term supply outlook. Added to this is the unplanned outages in Libya, Ecuador, and Kazakhstan, coupled with downgrades to US, Russia, and Brazil forecasts, which together resulted in one million bpd lower supply this month than previously forecasted.

Also, security concerns involving Russia, the world’s second-largest oil producer and the UAE, OPEC’s third-largest producer, are adding to supply fears. Meanwhile OPEC, Russia and other producers known as OPEC+ are struggling to hit their monthly output increase target of 400,000 barrels per day (bpd).

 

Output

OPEC, in its December 2021 monthly report, disclosed that Nigeria, including Iraq, Saudi Arabia and Venezuela boosted its oil output between October and November, with their average crude oil production increasing by 3.83 percent from 1.228 million bp/d to 1.275 million bp/d.

In a similar vein, as contained in its “Crude Oil and Condensate Production 2021,” the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the total volume of crude oil and condensate the country produced in 2021 was 17,686,919 barrels. The report said the total volume was oil produced from crude oil, blended condensate and un-blended condensate in the year under review.

A breakdown of the production showed that in January, the production was 1,711,467barrels; February it was 1,760,934 barrels; and in March it was 1,748,474 barrels. Also in April, Nigeria produced 1,687,044 barrels, in May 1,659,293 barrels and 1,639,403 in June; in July was 1,639,665 barrels, in August 1,530,210 barrels, and 1,532989 barrels in September. Still, 1,525,263 barrels was produced in October; 1,541,901 barrels and 1,471, 210 barrels per day in November and December.

Production terminals and streams that generated these data. According to the data, the production was from such the terminals and streams like Bonny; Brass; Qua Iboe; Forcados; Escravos; Odudu;  and Tulja Okwubome; Okoro; Otakpipo; Anitan; Okono; Yoho; Okwori; Ebok; Bongs; Erha; Usan; Egina; Abo; Pennington; Ugo Ocha; Sea Eagle; Anyala Madi; Agbami; Akpo; and Ajakpa Tulja-Okwubome.

 

Capacity

Impressive as this output and production may appear, it is still a far cry from OPEC’s allocated quota to the country. Therefore,  the country’s inability to meet her 1.6 million barrels per day crude oil production OPEC quota in the last five months will remain a huge albatross from benefitting maximally from the rising oil price. This is because the more output a nation is able to sell, the higher the revenue.

This shortfall in output may not be unconnected with such factors as the  cost of restarting fields and pipeline and other oil installation vandalism in the Niger Delta. OPEC and its allies, which has since been regulating oil producing countries daily production quota allocated Nigeria 1.6mb/d after the body agreed to raise production capacity by 400,000b/day, to avoid market glut. Available oil production statistics from OPEC showed that Nigeria produced 1.23mb/day in August, after hitting 1.32mb/day in July.

Infrastructural and technical challenges have remained a bane for the country’s capacity as these have continued to lead to shut-ins in operations. In addition to the above problems, there have also been instances of community workers’ protests, which incessantly disrupt operations, leading to severe losses.

For instance, in last August, sources maintained that the Nigerian NNPC and its partners lost 6.035 million barrels of crude oil to emergency shutdowns. Presenting its report to the Federation Account Allocation Committee (FAAC), in August, the corporation reported that there were 32 of such incidents throughout its facilities in the country, leading to shut-ins.

A breakdown of the losses, according to insider sources, showed that the highest combined shortage of 1.62 million barrels was from Qua Iboe, with 200,000 barrels due to production shut-in arising from flare management and low well head pressure. Still on Qua Iboe, a further 530,000 barrels were lost to shut-ins following tank top concerns, 650,000 barrels as a result of production cut-back as directed by the then Department of Petroleum Resources (DPR) as well as a loss of 240,000 barrels due to a gas leak on one of the assets.

This was followed by losses from the Forcados facility, which shed 200,000 barrels, 84,000 barrels, 30, 000 barrels and 80,000 barrels respectively on different days, with reasons ranging from leak repairs, tank top issues, a fire incident and declaration of a force majeure.

Forcados continued its shut-ins, shedding an additional 405,000 barrels of crude oil at the Uzere/Afisere/Kokori axis following a shutdown as a result of protests by community workers as well as a loss of 80, 000 barrels due to a fire incident.

In the same vein, Anyala Madu shed 105,000 barrels, Bonny suffered total shut-ins of 335,000 barrels, Ugo Ocha lost 30,000, Okono’s shutdown led to loss of 96,000 barrels, while Sea Eagle lost 750,000 barrels.

The Minister of State, Petroleum Resources, Chief Timipre Sylva, however attributed Nigeria’s production struggles to technical problems from re-tapping reservoirs that had been shuttered to comply with the stringent OPEC+ cuts. He assured that output could rebound to around 1.7 million bpd by November and two million bpd by the end of the year. This did not materialise.

“We had some issues from shutting down the reservoirs. When you shut down a reservoir, to restart it, sometimes there are challenges,” he said.

 

Experts speak

An industry expert, and former head of British funded Facility for Oil Sector Transparency and Reform (FOSTER), Mr. Henry Adigun, noted that the huge cost of restarting a field, instability in fiscal terms and vandalism were responsible for the country’s low production level in the past.

“The challenge is that if you shutdown most of the operations, restarting them is not straight forward. Our rig count was five a few months. A lot of factors affect rig count. One is price of oil in the market. When oil price is not very good and you shutdown, it takes a lot of cost to recover. If you look at the cost and it doesn’t look good on your balance sheet then you don’t recover.

“The other issue is the damage and vandalism that is going on around. The level of vandalism is very high and it is under-reported. Agip, Shell and some other companies have suffered serious damages in their areas, limiting their ability to contribute to production, this has led to shutdowns,” he stated.

Still, Olumide Adesina, an analyst at Quantum Economics, is convinced that until certain measures are put in place, meeting the production quota may remain a challenge. “Nigeria’s quest for over two million barrels per day would remain an illusion unless the Petroleum Industry Law is implemented quickly. Until we are able to show the world we are serious about attracting investment, only then will the world take us seriously. An uncertain environment will not attract investors. Investments are necessary to boost reserves and production. These investments will not be made in the current economic climate,” he warned.

Opeoluwa Dapo-Thomas, an international markets analyst agreed.  He said that Nigeria’s production lapses or quota deficit is a technical one. “Restarting reservoirs is a pretty challenging process especially as some of our infrastructures are antiquated. Our key Nigerian crudes, Forcados, Bonny Light, Escravos and Qua Iboe have faced operational challenges in recent memory. If I can add, do we still have a threat of militancy and vandalism? I’ll be lying if I say the threats have completely evaporated. These are the issues,” he noted.

Stakeholders in the oil and gas industry, and legal luminaries have converged on Abuja to chart a path for growth and harmony in the oil sector. JOHN OFIKHENUA reports that avoiding litigation remains key for a vibrant sector in the year.

For the oil and gas industry, 2022 is set to be a defining year for so many reasons. This is consequent upon the legacy matters that were carried over from last year.

Chiefly among the factors that held the sector down were litigations. Minister of State for Petroleum Resources Chief Timipre Sylva has counted down to this year for conflict resolution. On May 5, 2021, he told judges, including the Chief Justice of Nigeria, that owing to litigations, many International Oil Companies (IoC) were mulling the idea of leaving their onshore operations in the Nigeria. He lamented that on assumption of office, he realised that the industry had the penchant for sueing oil firms.The practice, according to him, was impeding the growth of the industry. To address the menace of unnecessarily court cases, the ministry held a National Oil and Gas Workshop for Hon. Justices and Judges.

The theme of the workshop was “Petroleum Industry Act New Legal and Fiscal Regime in the Nigerian Oil and Gas Industry.” He said it had become apt to train those at the bench on the nitty gritty of the industry, especially with the enactment of the Petroleum Industry Act (PIA).

Sylva said it was predictive that the act would provoke more court cases. He described the litigation as one of the major factors retarding onshore operations of the country.

Sylva spoke in Abuja, at the last year’s  workshop for judges.

He said: “We must start from the judiciary because I can tell you that this is one of the weakest link in the oil and gas industry. When I first came in as Minister of State, someone told me there were a lot of cases in the court.

“He wanted us to support him to win the cases. What I realised was that was what was happening in the oil industry.

“The industry was taking oil companies to court. He said he had over 200 cases in court. And unfortunately, it has impeded the growth of the industry.

“Today, I can tell you that a lot of oil companies are contemplating leaving the onshore of Nigeria.

“And one of the biggest problem we have onshore in Nigeria is incessant court cases that revibrate across the industry.”

The Chief Justice of Nigeria,  Ibrahim Tanko Muhammad, said the PIA would increase transparency. He admitted that the judiciary is not unaware of what has been going on in the oil and gas industry. The CJN vowed that the judiciary would provide the required interpretation of the PIA when necessary.

Unless the Federal Government, judiciary and stakeholders in the industry resolve to settle unnecessary matters out of court, 2022 may remain just another year of stagnation.

Still in the upstream, the government has in its hand the issue of crude oil production allocation to the marginal field operations. Myriad of complaints had permeated this section of the sector last year, which have remained unresolved in 2022. Recall that due to the outbreak of the Covid-19 pandemic in 2020, demand for crude oil dipped to its abbys in the international market. Consequently, the black gold’s prices nosedived unprecedentedly.

Organisation of Petroleum Exporting Countries (OPEC), the cartel of the global crude oil market pruned its production quota. Nigeria, its highest African supplier of the commodity, had no choice. As the organisation cut its quota, the country returned home to the drawboard to reduce oil companies quotas. This measure affected both the international oil companies and marginal field operators. To the latter, it was an unfair decision. Although the marginal field operators, complained with their tongue in their cheek, they patched on in the industry with the veneer of hate.

As some of them could not confront the minister and the then Director, Department of Petroleum Resources (DPR), Sarki Auwalu, to table their grievances, they registered their angst through the media.

One of them, who spoke on condition of anonymity said operators of marginal fields were groaning under the new Federal Government directive which reduced their production volume by half. The policy, which they described  as adverse to their operation, might still compel them to pull out of the business if the government fails to address the situation in three months. This was as at early last year.

The Nation gathered from some of the operators, who are mostly indigenous players, that since the government applied the measure, the investors in the marginal fields can no longer service their loans.

But the marginal field operator said “We were producing 5,000 barrels per day. They have reduced our production to 2,500 bpd in the last three months. You have already killed the companies. We cannot meet our obligation to our creditors.” According to the investor, they find it difficult to run the fields because of the minimal production volume.

Explaining that the marginal filed operators can no longer cope under the policy, he said, “therefore, we have to retrench.”

The grouse of the marginal field operators is that their businesses are worse hit since they are yet to stabilise like the the international players.

He added that the marginal field operators have more of indigenous workers under their employment, noting that it is through their employment money trickles down directly to the Nigerians, especially the downtrodden.

Basically, it is through the marginal fields that the commonwealth from the industry gets to the indigenous people. In other words, the implementation of the Nigerian Content Act is better realised via this segment of the industry.

It is pertinent to recall that marginal field operators that retrenched some of their the workers as a result of the 2016 recession and unfavourable business environment have not reappointed them.

Only last year, it became apparent that the government was yet to conclude the 2020 marginal field bid round programme. But the last that was heard of the fields was that the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is set to close out the 2020 marginal field bid round programme and has put in place necessary machinery to progress the bid round exercise to conclusion in line with the Petroleum Industry Act 2021 (PIA).

According to a statement, the Commission’s Chief Executive, Mr. Gbenga Komolafe in a notice to participants in the programme indicated that an in-house work team has already been constituted to deal with outstanding issues, including distilling and addressing the concerns of awardees to close out issues affecting multiple awardees per asset and formation of Special Purpose Vehicles (SPV) by awardees in line with the  letters of award.

Read Also: FUPRE’s quest for better oil, gas sector

Consequently, the Commission has enjoined awardees with the indicated issues to avail themselves of the resolution mechanism provided, in the overriding national interest. Mr. Komolafe also stated that the Commission is collaborating with lease holders to agree on transition mechanisms in line with the PIA and the aspirations of government for the marginal field bid round exercise.

Restating that the 45 days period for payment of signature bonus by successful awardees, as stipulated by the Marginal Field Guidelines has lapsed, he assured those who have fully paid their signature bonuses that the Commission would ensure that all guidelines to enable them progress to the next stage of the exercise, are fully implemented.

Upon the completion and operation of these acreages, they will in no small measure contribute to Nigeria’s crude oil production. It is thus obvious that the assignment of making haste to support the development of the marginal field has already been cut out for the government. Through the field, the government can employ so many people and realise its dream of raising crude oil reserve to 40 billion barrels. Besides, it can spur the journey towards attainment of four million- barrel day production target in 2022.

Yet, this year remains key to the completion of some projects likes… the $3.6 billion Brass Fertiliser and Petrochemical Company Limited (BFPCL), which the Nigerian National Petroleum Corporation (NNPC) with its partners DSV Engineering Limited and Nigerian Content Development and Monitoring Board (NCDMB) took Final Investment Decision last year, slates for inauguration in 2024.

The corporation and its partners took the FID for the construction of first ever methanol plant in Nigeria at the cost of $3.6 billion. The plant, an integrated methanol and gas project in Odioma, Brass Island, Bayelsa State, which is scheduled to come into operation in 2024, is expected to produce 10,000 tons of methanol daily.

To this gigantic project, 2022 is a defining moment for it to ensure to completion, therefore, the partners must see to its implementation to completion in 2024.

Another wake up call is for the Federal Government to make good its promise of completing the Ajaokuta-Kaduna-Kano gas pipeline. 2022 is a great expectation for the conclusion of the project. Last June, President Muhammadu Buhari signed a pact for the construction. In June that year, the government commenced the construction of the 40-inch x 614km gas pipeline project with 24 months’ timeline of project delivery target. The AKK Gas Pipeline is a pipeline planned to transport natural gas from Ajaokuta, in Kogi State to Kano, in Kano State, through several states and urban centers, as part of the Trans Nigeria Gas Pipeline.

Upon completion, the project will enable the injection of 2.2bscf/d of gas into the domestic market and facilitate an additional power generation capacity of 3,600MW.

Last year, the government cried out over oil theft. It partnered the military to bring oil bunkering and pipeline vandalism to a halt. This year should be a follow up moment for the government in its assignment of oil theft stoppage.

On the other hand, there is also the issue of petrol smuggling to neighbouring countries that do not enjoy petrol subsidy. Last May, the daily consumption of the product rose surprisingly to 60 million litres from a neighbourhood of 54 million litres. This year,  the task for tracking petrol smuggling remains a core mandate for the security operatives before the removal of the subsidy.

With the enactment of the PIA, all eyes are now on the Federal Government to put in place all the conditions precedent to the full deregulation of the downstream sector. Majorly among the factors is in-country refining of petroleum products. 2022 is actually a year to test run the PIA. It is essentially a moment for the government to gather the courage to allow market fundamentals to determine the prices of all petroleum products. In order words, the removal of petrol subsidy remains a bold step that may make or mar the government in 2022. Should the government remove it, according to its calculation, it will free more fund for infrastrutural development. However, owing a trust deficit, the citizenry have cast a shadow of doubt on the government sincerity. For the government, there is huge task of awareness campaign about palliative that will cushion the pains of exit from the subsidy. The government must make some frantic efforts  for people’s buy in to the policy before its execution to avert the looming danger of hunger and anger.

The Federal Government, last year,  awarded a contract for the  rehabilitation of the Port Harcourt Refining Company at $1.5 billion. It is an 18-month project, which the NNPC Group Managing Director, Malam Mele Kyari, said could start refining even before the completion of the entire project.

The year has thrusted the task of making up for government’s inability to provide refined products for the country to private investors. While the government relies on Dangote Oil Refining Company and other modular refineries to meet its needs, its patience to allow them come on stream before phasing out the subsidy must not snap.

Once Nigeria hits substantial a level of refining, there is no doubt that all the stakeholders will be in dire need of a sincere mutual consent for the removal of petrol subsidy to avert anger and hunger, and on the other hand, to block the financial drain pipe of subsidy.

With a steadily increasing global crude oil price, a weakening naira against other international currencies, planned removal of fuel subsidy, among others, Nigerians will have to brace up for tougher times this year. Besides, the projected divestment of oil majors from some of its local investments, full implementation of the provisions of the Petroleum Industry Act, are issues that will shape the industry this year, MUYIWA LUCAS reports.

If the trend in international crude oil price continues as it is entering into this year, then it signposts huge revenue earnings for the federal government. At the turn of the year, Brent crude sold at over $80 per barrel at the international market, while the country’s N17.12 trillion budget is benchmarked at $62 per barrel of oil.

 

Production capacity

The Organisation of Petroleum Exporting Countries (OPEC) forecast global oil demand for the year at 100.83 million barrels per day (mbpd). This represents a 4.15 million bpd increase from the 2021 figure.

However, the country’s greatest challenge against benefitting from the surging crude oil price and increased production quota allocation will be her inability to meet its daily production quota of two million bpd last year. Although the Minister of state for petroleum, Timipre Sylva projects that production output will rise to 2.4mbpd this year, if the capacity in the last five months is anything to go by, then Sylva’s projection may remain a tall dream. This is because OPEC is not likely to be favourably disposed to granting any application from the country aimed at increasing her output. For several months, Nigeria failed to meet the existing crude oil supply quota allocated to it by OPEC. For instance, last August, the country under produced by 90,000 bpd, translating to about 2.8 mbpd during the month, leaving the country with a paltry crude oil production of 1.43 million bpd in that month and one of the lowest in five years. Besides, ending last year on a low production output of 1.57 mbpd is not a good way to jump start 2022, especially if the country is to benefit from the rising price of the commodity in the international market.

Still, with the COVID-19 pandemic still ravaging and the race by developed economies to full key the new order called “energy transition”- a movement away from fossils fuels to usage of cleaner energy as replacement, Nigeria’s intentions of kick-starting aggressive exploration and production programmes may suffer this year. Fields like Shell’s Bonga Southwest/Aparo, TotalEnergies’ Preowei and Exxon’s Bosi, which have the potential to add a total of around 400,000 bpd to the country’s oil production output, may all now be at risk of either not getting developed or experience apathy from its owners owing to the energy transition programme. Yet, field and pipeline issues, vandalism, financial constraint and insecurity in the Niger Delta are likely to continue to threaten the industry this year.

 

Subsidy removal

The rising cost of crude oil in the international market is a double edged sword for the country. This is because as an oil producing nation, domestic fuel consumption is primarily dependent on importation of the white product, which is estimated at 1.25 million metric tons per month, due to the poor performance of the four government-owned refineries. Now, with the local currency trading poorly against international currencies, the cost of landing imported fuel keeps rising, causing a huge hole in government pocket. As at September last year, government estimate put subsidy spent at N1.8 trillion annually. Fuel subsidy is the difference between the landing cost of petrol per litre and the regulated pump price per litre.

Malam Mele Kyari, Group Managing Director and Chief Executive Officer of Nigerian National Petroleum Company (NNPC) Limited, last November, was emphatic that the law provides that by the end of February 2022, the nation should be out of the subsidy regime.

“There will be no provision for it legally in our system, but I am also sure you will appreciate that government has a bigger social responsibility to cater for the ordinary and therefore engage in a process that will ensure that we exit in the most subtle and easy manner,” Kyari noted, hinting at fuel selling at between N320 and N340 per litre this year.

But how the subsidy regime will be “subtly” exited remains another stern test for the country. Already, labour and other civil society groups are vehemently against this idea for obvious reasons of hardship that will definitely come with it like inflation.

 

Divestment dilemma

For stakeholders in the industry, 2022 may witness more divestment by oil majors from their legacy oil and gas assets to reduce operating, security challenges and the huge costs of battling with the pandemic.

Buttressing this position, analytics at S&P Global Platts in a report warned that the country could be the worst hit as Shell, Chevron, and ExxonMobil are close to selling their onshore assets in the country. It further warned that many oil majors are starting to divest their legacy oil and gas assets in Africa as they target net-zero carbon emissions while hanging onto their most efficient and often largest oil projects.

For instance, last May, Shell Petroleum Development Company (SPDC) had said its onshore operations in the country were no longer compatible with its long-term climate strategy. This is even more pronounced after the oil major pledged to transform itself into “clean energy” giant and gradually wind down its oil and gas business to achieve net-zero carbon emissions by 2050. As many as 19 Oil Mining Leases (OMLs) were being touted for sale by the oil giant in onshore locations and shallow waters in the company’s eastern and western operations in the Niger Delta.

“So, I expect to see more divestment by oil majors from selected assets because things are not working as they should be,” the CEO of Lagos-based oil consultancy firm, Degeconek, Abiodun Adesanya, noted in a chat with S&P Global Platts.

 

PIA

The Petroleum Industry Act (PIA), will this year take its full cycle in terms of implementation. Stakeholders are expectant that this year, the PIA would bring about increased local and foreign investment in the industry, just as it is expected to tackle the associated problems in the industry like pipeline vandalism, oil theft, illegal refining and environmental pollution in the industry.

This year, the PIA is further expected to be straightened out , especially in such grey areas like that of the Community Trust Fund to host communities, which is pegged at three percent.

Already, the NNPC is set to operate as a private concern as provided for by the Act.

 

Gas

Gas is expected to continue an aggressive revolution against fossil fuel this year. A growing and more flexible liquefied natural gas (LNG) market has enabled global competition for gas supply. Now, with more demands for gas, locally and internationally, the country’s declaration of the next 10 years as a decade of gas may be rightly justified. Experts contend that the commodity may have been a taken the upward curve given that it is a cleaner source of energy and now being embraced by the majority.

The Nigerian National Petroleum Company (NNPC) Limited, target is to produce at least five billion Standard Cubic Feet (SCF) of gas per day for domestic consumption this year. With over 206TCF of natural gas reserves, Nigeria has enough of the molecules to support new gas-fired power plants and more than enough to make gas a viable fuel for existing and new industrial facilities.

Managing Partner, Imperial Law, Mrs. Afolake Lawal, in this review underlines the need for strong corporate governance at the Nigeria National Petroleum Company (NNPC).

Introduction

The need for a cohesive legislative framework in the Petroleum Industry was met upon the enactment of the Petroleum Industry Act2021 (‘PIA/ the Act’) which was assented to by President Muhammadu Buhari on the 16th of August 2021. The Act introduced institutional reforms in the Nigerian petroleum industry among others, and of particular importance is the establishment of the Nigeria National Petroleum Company Limited (‘NNPC Ltd’) as a successor to the Nigeria National Petroleum Company (‘NNPC’) which is Nigeria’s national oil company established in 1977. The NNPC, being a state-run corporation had been characterised with poor governance practices, and particularly, the lack of transparency in the management of its affairs, which attribute is incompatible with an entity which aims at maximising profits for the stakeholders.

The Act vests in the Minister of Petroleum Resources the power to formulate, monitor and administer government policy for the Petroleum industry among others. Importantly, the Act in section 53 (1) obligates the Minister of Petroleum Resources to cause to be incorporated under the Companies and Allied Matters Act, the NNPC Ltd within six months from the commencement of the Act. The NNPC Ltd has been incorporated on the directive of the President who doubles as the Minister of Petroleum Resources.

Objectives of the NNPC Ltd

Whist it is too early to appraise the NNPC Ltd, the company was set up with specific objectives which are laudable and will serve as part of its assessment criteria in the future. These among others are; to carry out petroleum operations on a commercial basis, comparable to private companies in Nigeria carrying out similar activities including exemption to Public Procurement Act, Fiscal Responsibility Act and Treasury Single Account; to engage in the business of renewables and other energy investments; to carry out task requested by the Nigerian Upstream Regulatory Commission or the Nigerian Midstream & Downstream Regulatory Authority on a fee basis; and to carry out such other tasks as may be determined by the Board of NNPC Limited.

Similarly, section 53 (7) of the Act also requires that ‘NNPC limited and any of its subsidiaries shall conduct their affairs on a commercial basis in a profitable and efficient manner without recourse to government funds and their memorandum and articles of association shall state these restrictions, and NNPC Limited shall operate as a Companies and Allied Maters Act entity, declare dividends to its shareholders and retain 20% of profits as retained earnings to grow its business’

Compliance with Nigerian Code of Corporate Governance 2018

The prescription of the Act that NNPC Limited shall operate as a Companies and Allied Maters Act entity makes the provisions of the Nigerian Code of Corporate Governance 2018 (‘Code’) applicable to it. The Code seeks to institutionalise corporate governance best practices in Nigerian companies so as to rebuild public trust and confidence in the Nigerian economy, thus facilitating increased trade and investment.

The Code recognises that its prescribed practices can be tailored to meet industry or company needs, by adopting the ‘apply and explain’ approach where so required. It assumes the application of all its principles and requires entities to explain how the principles are applied. By this, NNPC Ltd will have to demonstrate how the specific activities it has undertaken best achieve the outcomes intended by the corporate governance principles.

The Code subscribes to enforcement of its standards through third parties i.e. regulators and registered exchanges are empowered to sanction specific deviations. However, the petroleum industry in Nigeria lacks a sectorial code on corporate governance, thus making the incorporation of good corporate governance practices in the Act a welcome development, and thereby placing NNPC Ltd under a compulsion to comply with the set standards.

Governance Structure of NNPC Ltd under the Act

Notably, section 53 (3) of the Act requires that ownership of all shares in NNPC Ltd shall be vested in the Government at incorporation and held by the Ministry of Finance Incorporated and the Ministry of Petroleum Incorporated in equal portions on behalf of the Federation. Though the NNPC Ltd is currently wholly-owned by the federal government of Nigeria, it is reasonably expected that it should be managed differently in order for it not to go the way of its predecessor.

To this end, the Act provides a governance framework for NNPC Ltd, including establishment of the board of directors and prescribing composition of the board, constitution of board committees as well as the responsibilities of the board.

The Act in section 58 establishes the Board of the NNPC Ltd which shall perform its duties in accordance with the Act, the Companies and Allied Matters Act, 2020 (‘CAMA’) and the articles of association of the company. The Act further sets out the composition of the board.

The President is vested pursuant section 59 (2) of the Act, with the power to appoint the board of the company for as long as the company is wholly owned by the government. Where the company is not wholly owned by the government, the composition of the board shall be determined by its shareholders in line with CAMA and its articles of association.

The board is to be composed of 11 members comprising of a non-executive chairman, a Chief Executive Officer, a Chief Financial Officer, a representative of each of the office of the Minister of Petroleum and Ministry of Finance not below the rank of a director, six non-executive members with at least 15 years cognate experience in petroleum or any other relevant sector of the economy representing each geopolitical zone in Nigeria. The qualification of the Chief Executive Officer is also prescribed to be a person with extensive managerial, technical and professional knowledge in the petroleum or other relevant industry with at least 15 years post qualification experience.

The board is also charged with the responsibility to constitute the board committees within three months of incorporation of the company by developing formal and transparent process for the creation of its committees and nominating members of the board to the committees.

Importantly, the Act expressly demands in section 61 (1), that the board of NNPC Ltd shall discharge their responsibilities in accordance with the highest standards, practices and principles of corporate governance. Similarly, The Act enshrines transparency in the establishment of the board committees by directing that its mandate, composition and procedures shall be comprehensive and opened for inspection by the shareholders of the company. It prescribes a minimum of three committees for the board which includes; finance committee, board nomination committee, and remuneration committee. It further prescribes that non-executive members of the board capable of exercising independent judgement should be nominated to these committees.

Subject to a duty of confidentiality which the company owes to a third party, the Act mandates the board to be opened with respect to its actions or decisions upon the request of one or more shareholders holding not less than 10% of the voting interest in the company.

Moreover, section 62 of the Act obligates the company to conduct an annual audit of the company by an independent, competent, experienced and qualified auditor who shall provide an external and objective assurance to the board and shareholders that the financial statements of the company fairly represent the financial position and performance of the company.

Further, in section 63 the Act provides a comprehensive list of responsibilities of the board of NNPC Ltd in addition to those provided under the CAMA and articles of association of the company and which are required to be incorporated into the articles of association of the company and its subsidiaries. Some of the responsibilities include:

1. To be responsible for the strategic guidance and determining the business structure of NNPC Limited;
2. To be responsible for the approval of the annual budget of NNPC Limited;
3. To act in good faith and exercise due diligence and care in the best interests of NNPC Limited, the shareholders and the sustainable development of Nigeria;
4. To apply the highest ethical standards in performing its duties, taking into account the interests of its stakeholders and the fiduciary duty of the directors to NNPC Limited; and
5. To make decisions guided by commercial and technical considerations that represents good international petroleum industry practices.

We are of the view that the incorporation of sound corporate governance practices in the Act will compel compliance by NNPC Ltd and its board members, and adherence to corporate governance standard will demonstrate NNPC Ltd’s commitment to good governance practices. It will also increase the level of trust the investing public will have in the company and make the company’s business operations sustainable.

Conclusion

The NNPC Ltd was established further to the yearnings for institutional reforms in the Nigerian petroleum industry, including the need for good corporate governance practices, and the lack of transparency in the affairs of its predecessor, we therefore, hope that the board of NNPC Ltd, which has been constituted by the President, will uphold the best corporate governance practices such as accountability, transparency, fairness, and responsibility. This will keep the NNPC Ltd on the path of sustained profitability, and also aid the achievement of other establishment objectives of the company, particularly, the need to attract desired investors to the company.

Whilst the governance standards for NNPC Ltd are statutorily backed and they make for improved accountability and transparency, we consider that the company will require another layer of governance standard, which is the abstinence of the government in interfering in the governance and management of NNPC Ltd.

The passage of the Petroleum Industry Act, steady rise in crude oil price in the international market and rising cost of liquefied petroleum gas were the memorable events that shaped the industry in the outgoing year. MUYIWA LUCAS and JOHN Ofikhenua report.

For stakeholders in the oil and gas sector, this year would remain evergreen in their memories. It is the year that finally saw the passage of the Petroleum Industry Act (PIA) by the National Assembly (NASS), after over 20 years of its waiting in the Red Chambers. That was on July 1, 2021. The PIA provides legal, governance, regulatory and fiscal framework for the petroleum industry, the development of host communities, and related matters.

This singular act signifies the country’s readiness for a new regime in the oil and gas economy.  The PIA marks a new era for the industry, especially after years of legislative efforts to strengthen the legal, regulatory, fiscal and governance frameworks of the petroleum sector.

The new is expected to enhance the Nigerian petroleum industry’s reputation, open the door to new investment, and Nigeria’s position to meet world’s growing demand for energy.

A major burden that the PIA tackles is the removal of subsidy on petroleum products. In June, over $14 million was spent in subsidising petrol. This is why many stakeholders have said that the removal of petrol subsidy is in the best interest of the country, especially as the PIA has no provision for subsidy.

But given the harsh economy and rate of inflation in the country, the stack reality may not have sunk in for Nigerians. Recently, the government, obviously testing the waters, announced that petrol would from next year sell at N345 per litre.

In making the announcement, government had said that it could no longer bear the burden given the galloping international crude oil price. This situation has been further compounded as Nigeria has continued to import refined petroleum products for domestic consumption, irrespective of being an oil producing nation.

Another area of contention in the PIA is the Community Trust Fund to host communities, which is pegged at three per cent. Although host communities are demanding for between five and 10 per cent as the minimum threshold, some stakeholders have countered that increasing the three per cent host communities fund will affect the profit of oil companies and in turn force them to exit the country. It is estimated that even with three per cent, the host community fund may exceed $500 million yearly.

Gas

Nigeria, this year, made its plans for gas very clear with the declaration of “A decade of Gas.” While the country sits as the ninth highest producer of the product, it is believed that proving the 600 trillion standard cubic feet (Tscf) would catapult the country to number four globally. This target, experts say, should be a key objective for the decade of gas agenda.

As 2021 fizzled out, the relics of neglect and gradual abandonment of the oil and gas industry might not abate so soon. Different phenomena dogged the industry from within  and without. The impact of lockdown of so many economies in the preceding year took a toll in the industry.  It was simply  a year of gradual  recovery from the abysmal prices that the crude oil price had quaked to, due to little or no demand. Besides, plans and campaigns  for net zero carbon were already gaining momentum prior to 2021. However,  what started as an experiment was spirally  manifesting as most oil companies and countries  started mopping up their investments in the black gold. Whereas the renewable  energies to which the global players  were divesting had not found its feet  to provide and sustain world energy demands, the fossil fuel industry was already crippled. This resulted in an acute shortage of crude oil while the Organization of Petroleum Exporting Countries  (OPEC ) was reluctant to boost supply for fear of price crash.

Nigeria had a fair share of the interplay.  It could not meet its production quota. Shell Petroleum Development Company (SPDC) declared force majure on Forcados. The giant of African in October lost its position of the leading oil producing  country to Libya. It was  largely due to oil theft, bunkering and low investments. It however regained it in November when it hit 1.27million barrel per day.

While the upstream was grappling with investment issues, the downstream was also in dire need of in-country production, especially refining. The high hope for the Dangote refinery coming on stream in the next few years rose, especially as the Nigerian National Petroleum Corporation (NNPC) bought some equity in it. Besides, it was the year of much uproar about government implementation of the rehabilitation of the Port Harcourt refinery with $1.5billion.

Electricity:

In 2021, the investments in the power sector could not make manifest. The perennial blame game that had held the sector down persisted.  Expectedly, as the international energy crisis ranges, it affected the cost of gas. Gas for power became gold as the producers were simply concerned about their profit.

The electricity market shortfall had already exceeded N2 trillion as at July 2021. While the Nigerian Electricity Regulatory Commission (NERC) stopped the 11 electricity Distribution Companies (DisCos) from collecting their cost reflective tariff, the only way they could remain in business was via Federal Government subsidy.

Whereas adequate metering of customers would have facilitated the revenue collection from the industry, it was never the case. There was still about 60% metering gap despite government’s intervention. The Federal Government introduced the National Mass Metering Program (NMMP) that was expected to bridge the metering gap.

The electricity tariff that the commission reviewed several times could not take effect. While consumers insisted that supply was not any way near what they were paying mostly through estimated billing, the organized labour came to their rescue. The government and workers negotiation held down the electricity tariff throughout the year. Even on its own, the Minister of State for Power, Mr. Goddy Jeddy-Agba had informed journalists in Abuja in December that it was still unreasonable to increase the tariff  power until it becomes available and affordable. He however cited the achievement  of the resolution of the crisis that was delaying the Mambilla Hydroelectric contract.

2021was actually a year of policy somersault. It was the year that the eligible customer regulation that enabled bulk customers to procure power directly from the Generation Companies (GenCos) was suspended. It dashed the hope of most manufacturers that were already reviving alongside the policy. Reports were to later blame the DisCos that were neither prepared for infrastructrure investment to increase supply. The energy distributors were still in their comfort zones continuing with estimated billings. Instead of improving their performance,  Since they thwarted efforts of eligible customers that were by passing their inefficiency.

In the year under review, total energy sent out was still about 4,341mw. It was also the year that the Transmission Company of Nigeria said it reduced system collapse that resulted in all-time peak generation of 5,801.60mw.