Nigeria: 2022 - Daunting Task Before Nigeria's Upstream Petroleum Regulator

11 January 2022

Emmanuel Addeh writes that with the challenges besetting the upstream sector of the Nigerian oil and gas industry, the job before the newly-created petroleum regulator appears clearly cut out this year.

With the enactment of the Petroleum Industry Act (PIA) in August last year by the President Muhammadu Buhari led administration, Nigeria appeared to be fully set, after many decades, to get the best out of its God-given resources. The law effectively put an end to the Department of Petroleum Resources (DPR), which metamorphosed into the Nigerian Upstream Petroleum Regulatory Commission (NURPC). If anything, this critical agency will be a major driving force that will oversee the technical implementation of the new law. Indeed, the success or failure of the PIA will this year and the ones to come largely depend on what the agency does or fails to do.

The EVOLUTION

The new NURPC has a long history in the oil and gas industry in Nigeria, having started with the hydrocarbon section of the then Ministry of Lagos Affairs, which reported directly to the governor-general. It was basically to keep records on matters relating to exploration, and importation of petroleum products as well as enforcement of safety.

In 1971, a new body, the Nigerian National Oil Corporation (NNOC) - was created to handle direct commercial operational activities in the oil industry on behalf of the federal government, while the DPR in the ministry of mines and power continued to exercise statutory supervision and control of the industry.

In 1975, the department was upgraded to a ministry and named the ministry of petroleum and energy, which was later renamed the ministry of petroleum resources.

By decree 33 of 1977, the petroleum inspectorate was created as an integral part of the NNPC, and entrusted it with the regulation of the petroleum industry.

It remained there until March, 1988 when the inspectorate was excised from the corporation, and transferred to the ministry of petroleum resources and renamed the DPR, before its recent renaming as NURPC.

EXPANDING RESPONSIBILITIES

Over the years, the job of the regulator has expanded with the complexities in the oil and gas industry, to include ensuring compliance to petroleum laws, regulations and guidelines. It also monitors operations at drilling sites, producing wells, production platforms and flow stations.

Moreover, it oversees the oil export terminals, refineries, storage depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold.

In addition, it monitors all pipelines carrying crude oil, natural gas and petroleum products and supervises operations being carried out under licences and leases in the country as well as pushing for government policies in flare down and domestic gas supply obligations.

Added to those functions, the upstream regulator ensures that health safety and environment regulations conform with national and international best oil field practices, maintains records on petroleum reserves, production/exports, licences and leases.

Furthermore, it advises government and relevant government agencies on technical matters and public policies that may have impact on the administration and petroleum activities and processes applications for leases, licences and permits.

It also ensures timely and accurate payments of rents, royalties and other revenues due to the government and administers the National Data Repository (NDR).

A DEFINING YEAR

Given the significance of its functions in the oil and gas industry, the actions and inactions of the upstream commission can markedly make or mar the aspirations of the federal government.

With the new PIA and the emerging global energy transition, the need to quickly put machinery in motion to ensure that the execution of the low hanging fruits has never been this urgent.

While the NURPC needs to quickly deal with its teething internal problems, it must urgently take charge of issues that relate to its functions in the new law.

THE CHALLENGES

The challenges in the country's oil and gas industry are complex and multi-pronged, ranging from waning investment in the sector, dilapidating infrastructure, dipping oil production, inadequate technical know-how, opacity, insecurity of physical assets, community issues , among others.

The NURPC needs to quickly do all it can to ensure that operators ramp up production and boost the revenues of government as the country is currently gaining close to nothing from the high international oil prices.

Meeting the Organisation of Petroleum Exporting Countries (OPEC) quota has been an uphill task in the last couple of months, thereby negatively affecting federation revenues, in addition to the portrayal of the country as lacking capacity by members of the international community.

At the interface level between the commission and the operators, some of the lingering issues include frequent attacks, lengthy contract cycle terms as well as administrative complexities.

Other matters which the operators have listed as concerning are the need for government to quickly activate and meet the timelines in certain areas of the PIA and uncertainty over issues like the Production Sharing Contracts (PSCs) that are being renegotiated and how the PIA affects them.

In addition, stakeholders have always complained that getting information from the defunct DPR was almost an impossible task as well as publishing the results of its environmental assessment in a transparent manner. Under the new leadership, openness must be the watchword.

How well the upstream commission, which has a critical role to play in managing the divestment from onshore and shallow waters of a number of the International Oil Companies (IOCs) this year, will also be very important.

Furthermore, the cost of pumping a barrel of oil in Nigeria remains far higher than the country's peers elsewhere. Reducing the cost of production is a task that should go beyond mere paperwork this year.

SETTING THE AGENDA

A power block which the NURPC will have to constantly interface with, is the Oil Producers Trade Section (OPTS) comprising both local and foreign oil companies registered in Nigeria holding an Oil Prospecting Licence (OPL) or an Oil Mining Licence (OML).

A 30-member organisation, it comprises companies like Chevron Nigeria Limited, TotalEnergies EP Nigeria Limited, Shell Petroleum Development Company (SPDC) Nigeria Limited, ExxonMobil Nigeria Limited and Nigerian Agip Oil Company (NAOC).

Setting the agenda for the new Chief Executive Officer of the NURC, Mr. Gbenga Komolafe, on behalf of OPTS recently, Chevron's Rick Kennedy, noted that although there are opportunities for collaboration and partnership with the commission, a number of challenges remain.

Stressing that there is a number of compliance and mandatory items that the industry really has to get in place very quickly, he listed the incorporation of the development trust with the host communities as one of them, stating that it requires some alignment with multiple stakeholders. "So, we have to manage that transition very effectively," he stated.

Kennedy said the OPTS had gone through the PIA and identified potential ambiguities on areas where they were not quite clear on the intent of the law.

"We have areas where regulations will get to be issued and potentially, this needs further guidelines... an example is the regulation on the decommissioning fund.

"There is a number of ongoing discussions on renegotiation of existing PSCs in the deepwater between the NNPC. And the PIA has a provision to allow those ongoing negotiation to be completed within 12 months of the enactment of the Act.

"The other things are things around relative security, lengthy contract cycle terms and general administrative complexities.

" The industry is currently burdened with a number of fees and levies, and through the PIA, we see the potential of additional levies will be applied to the industry. So, we will be happy to work with you and your team to perhaps, identify opportunities to manage and improve cost," he said.

According to the OPTS, the energy transition offers the country an opportunity around developing the gas resources, adding however, that something has to be done around the fiscal environment to encourage investment in that area.

TARGETING THE DELIVERABLES

The oil sector has a huge influence on Nigeria's economy despite representing a relatively small proportion of the Gross Domestic Product (GDP): about 9 per cent in 2020.

But, in the same period, crude oil sales made up one-third of the government's budget revenue and about 90 per cent of the West African nation's export earnings.

Usually, when the price of crude oil is lower than government projections, gaping holes emerge in the federal budget, creating huge problems.

Perhaps, cognisant of its pivotal role, the NURPC says it has set six to 12 months timeline for the critical deliverables of PIA in the development of key upstream projects.

"The implementation of the PIA is very germane to Mr. President. As a matter of fact, the task for us is to see how, within the next six to 12 months, we will begin to see critical deliverables of the PIA in the development of key upstream projects," Komolafe recently noted.

Komolafe added that the NUPRC intends to be a 21st regulator where it will serve as a business enabler, saying at this point in time, it needs to build good synergy with operators and investors.

He identified the indigenous exploration and production companies as a critical component of the government's energy security plan for the nation.

"We will be a fair and just regulator conducting our affairs in a transparent manner and serving as a business enabler", Komolafe stated. While emphasising the importance of compliance with regulation by industry players, the NUPRC helmsman promised to work closely with all industry stakeholders.

He said the agency would work to ensure that Nigeria meets its OPEC oil production quota and benefits maximally from the current rise in price of oil.

AVOIDING PAST MISTAKES

As stated earlier, like most government agencies in Nigeria, transparency and general openness appears to be the hugest Achilles heel in the oil and gas industry in the country.

Generally, Nigeria has a poor track record in awarding oil blocks, a process that is managed by the DPR, now NURPC.

For example, although adjudged as an improvement on past exercises, the last one was still beset with complaints of underhand activities by some persons who took part in the process.

This year, the new commission must remove the opacity from the organisation, given its interaction with the outside world, and make information easily accessible to those who need it. The NURPC cannot afford to fail.

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