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The Nigerian Oil and Gas Industry and the Perils It Faces in 2022

The Nigerian Oil and Gas Industry and the Perils It Faces in 2022

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 Nigeria. He lamented that on the assumption of office, he realised that the industry had the penchant for suing 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 the 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 links 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 problems 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. A 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 were nosedived unprecedentedly.

The 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 draw board 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 of 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.”

Source: John Ofikhenua

The Nation Newspaper.

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