After a 10-year wait, Nigeria and much of the oil sector globally wait this week in shared anticipation for the passing of the Petroleum Industry Bill (PIB). With just a few days left until the self-imposed deadline announced by the Senate for introducing the PIB, are we at last on the verge of a resurgence across the entire sector?
After the Osinbajo administration first proposed the reforms a decade ago, the stage was finally set in March when commercial, governmental and regulatory representatives from the oil and gas sector gathered in Abuja to explore the risks and opportunities we are facing. There it was universally agreed that the outdated legal, regulatory and institutional structures under which the oil and gas industry is operating are the single source of obstruction to its current maintenance and future development. Since then, the new and improved PIB (now the Petroleum Industries Governance Act) has gone to the Senate for debate and as recently as yesterday government officials confirmed that we were close to seeing it passed. Senator Clifford Odia told media that he is “very much sure that the bill will be passed in record time so that the people of the Niger Delta can get a sign of relief that all those problems with oil production would be reduced.”
Describing this 10-year wait as passing the bill in "record time" suggests that the Senator may be borrowing from the Donald Trump School of Optimism, but it is certainly good news that confidence is high within the legislature. In fact, the timing for passing the PIB now could not be more perfect, with the general state of the oil and gas sector improving in recent weeks and momentum gathering particularly among indigenous oil companies. An updated and refreshed framework for operation could be the catalyst for true resurgence, building on the green shoots that we are already seeing.
Earlier this year companies like Aiteo Group and Seplat emerged as two of Nigeria's leading oil and gas companies after announcing a peak production of 90,000 and 54,000 barrels per day respectively. For Aiteo Group this is particularly impressive given the news comes just one year after the company's acquisition of onshore oil block OML 29, which has been described as sub-Saharan Africa's largest. Production levels under Aiteo's stewardship of OML 29 have trebled from those seen under previous contractors working on the same block. It clearly demonstrates the potential within indigenous oil companies that will only be enhanced by a more favourable regulatory environment.
We are also seeing improved relations between indigenous oil and gas companies and the NNPC, similar to the strong working relationships that international companies have enjoyed in the past. Recent reports from the NNPC recognise the excellent work being undertaken at a local level and their commitment to ensuring probity and accountability in their own operations. It feels as though reforms are really beginning to take place in earnest across the oil and gas sector, the crowning achievement of which would be the passing of the PIB.
And quite aside from years and years that have passed since the PIB was first proposed, the timing is now more crucial than ever. Industry analysts have long regarded the passing of the PIB as one of two pillars integral to the recover of Nigeria's petroleum sector. The other is foreign exchange markets. The progress in this area in recent weeks has been vast, with the naira hitting a six-month high on the black market of 400 to the dollar. The gap is still wide between this and the official rate, which sits around 300 mark. But the fact that the naira is in a much stronger position than the rate of 520 to the dollar it sank to a month ago, shows that Central Bank reforms are really taking hold. But this could all be academic for the oil and has sector unless the PIB is passed: forex progress must be accompanied by the industry reforms if the sector is to recover.
At the microeconomic level, process for awarding new oil blocks will begin next months. Whilst the NNPC has already made a statement of intent regarding the treatment of joint ventures with international companies by shedding the upfront payments, it is far from a given that indigenous companies will be favoured in May. The stronger regulatory environment that the PIB will engender will mean stronger and more reliable service provision from local suppliers. If Nigeria is serious about competing on the world stage it must make sure it leads from the front, which means prioritising a strong domestic sector.
So, the stage is set for economic revival in Nigeria's most profitable industry. All that remains to be seen is if the current administration can seize the opportunity to enact the reforms that may well come to judged by history as those that saved the oil and gas sector.