THE NIGERIAN OIL AND GAS INDUSTRY & ITS CHANGING INVESTMENT CLIMATE

Transcription

1 THE NIGERIAN OIL AND GAS INDUSTRY & ITS CHANGING INVESTMENT CLIMATE By Sola Adepetun Managing Partner International Bar Association African Regional Forum 6 th 8 th November, 2013 Lagos, Nigeria

2 INTRODUCTION Any change, even a change for the better, is always accompanied by drawbacks and discomforts -Arnold Bennet 1

3 OUTLINE I. Introduction II. Where were we III. IV. IV. Nigerian oil & gas industry statistics Recognisable legal environment and investment climate to prolonged reforms and uncertainty The emerging environment for petroleum operations The Pre-Reform Era: Established upstream legal and regulatory framework The Pre-Reform Era: Contractual framework The Pre-Reform Era: Upstream fiscal regime Where are we Emerging trends The Reforms and the PIB Debate The Emerging Law and Changing Practice A paradox of Divestments and Opportunities Where are we going: an uncertain future? Recent Global Developments Concluding questions 2

4 1.1 Nigerian Oil & Gas Industry Statistics Facts & Figures 37.2 billion barrels of proven oil reserves; 42.1% oil reserves-to-production ratio as at 2012; the second largest proven oil reserves in Africa (Source: BP statistical Review of World Energy, 2013) Current oil production- 2.2 million barrels per day (bbl/d); potential for over 3 million bbl/d (Source: PWC Oil and Gas Review, June 2013) Over 182 trillion cubic feet (Tcf.) of proven gas reserves. The largest in Africa and the 9 th largest in the world (Source: BP statistical Review of World Energy, 2013) Petroleum sector accounts for more than 95% of export earnings and more than 75% of Federal Government revenue 3

5 1.2. From a stable legal environment and investment climate to prolonged reforms and uncertainty Unprecedented investments in upstream and downstream ventures Proposals and FIDs in LNG, Gas pipeline projects, refineries, offshore E&P activities etc. Industry developed faster than extant laws and regulations BEFORE THE REFORMS THE REFORMS 2000 till date??? National Oil and Gas Policy, 2004 The Petroleum Industry Bill (PIB) 2008? 2009?? 2012??? Uncertainties Divestments New indigenous investors backed by foreign capital and other independents like SEPLAT, NECONDE, Addax & Sinopec, Afren etc. THE CURRENT CLIMATE 4

6 1.3. The emerging environment for petroleum operations Uncertainties in Nigeria's investment policies and regulatory framework have caused a slowdown in oil and gas exploration activity, and delays in project development... However, the longawaited and delayed Petroleum Industry Bill (PIB) could potentially iron out investment uncertainties and set a regulatory framework for the country's oil and gas industry [emphasis added] Source: US Energy Information Administration (EIA), 2012 Country Analysis on Nigeria Is the current investment climate sustainable or not? What are the relevant legal and policy issues? What are the emerging trends? 5

7 WHERE WERE WE? 6

8 2.1. The Pre-Reform Era: Established upstream legal and regulatory framework Law/ Regulation Petroleum Act 1969 Petroleum (Drilling and Production) Regulations 1969 Deep Offshore and Inland Basin Production Sharing Contracts Decree 1999 ( DOI-PSCs Decree ) Petroleum Profit Tax Act, 2004 ( PPTA ) Licenses/Lease/farm outs Oil exploration license (OEL) Oil prospecting license (OPL) Oil mining lease (OML) Indigenous concessions Marginal fields Main Regulators Minister of Petroleum (Minister) Department of Petroleum Resources (DPR) A recognisable upstream regulatory framework OEL: non-exclusive license to explore. Expires 31 st December of the year granted OPL: exclusive rights to exploration/production. Duration: 5years (onshore and shallow waters); 10 years (deep offshore and inland basins), including period of renewals OML: exclusive rights to win, get, work, store, carry away, transport, export or otherwise treat petroleum discovered. Duration- 20 years. To be renewed as provided by the Act and Regulations Other issues covered- assignments; revocations; farm outs; regulation for fees, rents and royalties; field development, drilling and production operations etc Ancillary regulations include: the Mineral Oils (Safety) Regulations, Petroleum Refining Regulations, and the National Domestic Gas Supply and Pricing Regulations 2008, etc 7

9 2.2. The Pre-Reform Era: contractual framework Concessions Dominated by the multinationals prior to NNPC s establishment and participation in OMLs Current trend is to award sole risk and PSC concessions 60% to 40% indigenous to foreign participating interest ratio in the indigenous concessions Joint Venture/Joint Operating Agreement (JV/JOAs) Arose from NNPC acquisition of participatory interests in OMLs JOAs define working relationship of parties Memorandum of Understanding (MoUs) later introduced in the 1990s to secure profit margins NNPC currently has six (6) JV/JOA arrangements with SPDC/Elf/Agip, Chevron, ExxonMobil, NAOC, Texaco Overseas and Total respectively Production Sharing Contracts/Risk Service Contracts NNPC holds the OML; Oil companies are contractors Marginal field operators entered into funding arrangements and RSC hybrids with Independents PSCs- Cost oil/gas, profit oil/gas shared in agreed percentages RSCs- a flat fee is paid to the contractor 8

10 Law/ Regulation Petroleum Profits Tax Act (PPTA) DOI-PSCs Act Section 39, Companies Income Tax Act (CITA) Regulators The Minister DPR Federal Inland Revenue Service (FIRS) National Petroleum Investment Management Services (NAPIMS) - The Petroleum Profits Tax (PPT) - MoUs - Rents, fees and royalties - Signature and production bonuses for E&P contracts 2.3. The Pre-Reform Era: Upstream fiscal regime Tried and tested upstream fiscal regime- Outdated? PPT applied to the chargeable profits of companies engaged in upstream petroleum operations as provided in the PPTA A general PPT of 85%. A PPT rate of 65.75% for first five years of petroleum operations PPT applicable to PSCs is 50% flat rate for the contract area The Regulations and the DOI-PSCs Act deal with royalties The DOI-PSCs has a fixed royalty rate of 20% for onshore PSCs (with production above 10,000 bpd) and a sliding scale of royalties (based of water depth) for offshore PSCs Rents and fees are dealt with in the Regulations Signature and production bonuses are required for PSCs and other concessions 9

11 WHERE ARE WE? What have the reforms or the PIB got to do with it? 10

12 3.1. Emerging Trends Nigeria s 2011 crude oil and condensate: Production reduced by 3% from 2010 Domestic and export lifting reduced by 4% from 2010 Source: NNPC, Annual Statistical Bulletin, 2011 Petroleum exploration activity levels: At their lowest in 10 years. Only 3 exploratory wells drilled in 2011 compared to over 20 wells drilled in 2005 Source: EIA, 2012 Country Analysis on Nigeria Security Challenges: Crude oil theft over US$6 billion lost annually Source: Thisday, April 1, 2013, Pg 12 Refined products theft- over N105 billion lost annually Source: Thisday, April 1, Pg 12 Pipeline sabotage Piracy Kidnapping Rash of Divestments: British Gas- 100% SPDC- 30% stake in OMLs 4, 38, 41, 42 etc. Total- 20% stake in OML 138 ConocoPhilips- 100% Petrobras- 100%??? Chevron -OMLs 83 and 85. Plans to divest interests in OMLs 52, 53 and 55 SPDC- again? 11

13 3.2. The Reforms and the PIB Debate The oil and Gas Sector Reform Implementation Committee The National Oil and Gas Policy, 2004 Key objectives- Privatisation Separating the commercial, regulatory and policy-making institutions and framework Constructive increase in government and national revenue Transparency and accountability Efficient institutions and regulators 2008/2009 The PIB 2008 submitted to the National Assembly and amended in 2009 (public hearing debacle) Key proposals (Upstream)- Incorporation of upstream JV/JOAs, unbundling of NNPC and incorporation of a National Oil Company (NOC) A National Petroleum Directorate to replace the Ministry of Petroleum A National Petroleum Inspectorate to replace DPR A National Petroleum Assets Management Agency to replace NAPIMS A National Frontier Exploration Service for frontier exploration Nigerian Hydrocarbon Tax (NHT) + Companies Income Tax (CIT) regime New PIB re-submitted in July, 2012 was to be enacted within six months Key proposals (Upstream)- Discards with incorporation of JV/JOAs An Upstream Petroleum Inspectorate (UPI) to replace DPR A Downstream Petroleum Regulatory Agency (DPRA) to replace Petroleum Products Pricing and Regulatory Agency (PPPRA) and Department of Gas A Nigerian Petroleum Assets Management Company Ltd (NPC) to acquire NNPC s interest in JV/JOAs A National Petroleum Assets Management Corporation (NPCO) to own NPC A National Oil Company to retain NNPC assets and liabilites not trasnferred to NPC or Nigerian Gas Company NHT ( 50%- onshore and shallow water areas) (25%- bitumen, frontier acreages and deep water areas) + CIT (30%)+ PHCF (10%) Royalties, fees and rentals to be prescribed by the Minister 12

14 The Proposed PIB: Regulatory and Institutional Framework 13

15 The Proposed PIB: Regulatory and Institutional Framework (contd) National Oil Company Plc Takes over NNPC assets and liabilities, excluding those transferred to the Management Company i.e. Unincorporated Joint Ventures (UJV) assets/ liabilities and National Gas Company (NGC) Plc To be incorporated as a public company 30% of its shares goes public in the first six years. Initial shares held by government (Ministry of Petroleum Resources and Ministry of Finance Incorporated). Not bound by Fiscal Responsibility Act, (FRA) 2007 and Public Procurement Act, (PPA) 2007 Nigerian Petroleum Assets Management Company Limited Takes over Government/NNPC interests and assets in existing JV/JOAs; to be transferred within months from the Effective Date Initial 2 years work programme to be funded by the NPCO. Initial shares held by the NPCO (99%) and Ministry of Petroleum (1%). Not bound by FRA & PPA National Petroleum Assets Management Corporation Holding corporation for the NPC To manage government assets and investments upstream like current NAPIMS Administrative support to be provided by the NPC 14

16 3.3The Emerging Law and Changing Practice Existing legal and institutional framework PIB considered ambitious and time consuming Resultant state of flux!! Regulatory discretion OML renewals Arbitrary extensions Material changes Wait for the PIB Drawback- development of practice Resort to case law rules outside the framework The Moni Pulo case Acquisition of Nigerian Oil and Gas Industry controlling shares in Content Development Act, 2010 concession owning ( Local Content Act ) company requires Applies to all matters prior ministerial pertaining to local content consent Supremacy issues; major Sections 194(1) & (2), reference document PIB Drafting and clarity issues The Famfa Case Interpretation issues e.g. Supreme Court- Nigerian subsidiary of government must international or follow due process of multinationals- S.41(2) negotiation before The lacuna and the unclear exercising back-inrights legislation 15

17 3.4. A Paradox of Divestments and Opportunities State of flux- negative impact on investment climate Heightened investment risk profile Disincentive to oil and gas project development Discouraging industry statistics IOC divestments Fresh investment opportunities created by divestments Dumped concessions being snapped up Emerging indigenous powerhouses OANDO, Sahara, SEPLAT, AFREN, Midwestern, NECONDE, First E&P; Atlantic, etc 16

18 WHERE ARE WE GOING: AN UNCERTAIN FUTURE? 17

19 4.1. Recent Global Developments Competitive global markets Cheaper shale oil and gas explosion East and West African discoveries Kenya, Uganda, Tanzania, Mozambique, Ghana, etc Dire need for favourable investment climate Full throttle production Make hay while the sun shines Investments in new and existing oil and gas projects required 18

20 CONCLUDING QUESTIONS Is there anything we can do to improve the investment climate while we wait for the PIB to be passed? Strengthen the Local Content Act? Long term stabilized contracts? When will the PIB be passed??? Politicization Stagnation Political will- can this bill be shelved? Yet another change??? To improve is to change; to be perfect is to change often - Winston Churchill 19

21 ADEPETUN CAXTON-MARTINS AGBOR & SEGUN CONTACT DETAILS: Sola Adepetun Managing Partner 9th Floor, St. Nicholas House Catholic Mission Street Lagos, Nigeria Tel: Cell: [email protected] 20