Nigeria’s indigenous oil services companies say major oil projects are not moving fast enough
TAR: What were the factors that led up to the 2010 passing of the local content act?
Bank-Anthony Okoroafor: There was a genuine need to increase the participation of indigenous companies in the oil and gas sector. Prior to the act, the level of participation was less than 5%. And there was also a desire for local value-creation by increasing what we call backward linkages in terms of procurement, so using locally produced input materials to create more opportunities for the locals.
There has been some $300bn in capital flight over the past 50 years from oil and gas activities. That’s why we need to push to keep some of the spending in-country. Without the bill, business opportunities would be captured primarily by foreign companies – a situation where 95% of the service sector spending goes to foreign firms.
Indigenous service companies’ participation had been flat in Nigeria over the previous 50 years. Without a strong legal framework that pushes our internal fabrication and manufacturing base, real local content growth cannot be a reality.
How have companies responded since the bill was passed?
A lot of progress has been made […] in terms of equipment ownership and capacity development. […] You now have indigenous marine vessel companies like Marine Platforms, Starzs, Elshcon and Vhelbherg, and indigenous rig companies like Uniterm, Tecon and Tasaniola. More fabrication tonnage is now done in-country, with companies such as Aveon, Dorman Long and Energy Works. And, importantly, we have seen the domestication of floating, production, storage and offloading vessel integration capability in Ladol, the first of its kind in Africa. Some 80% of engineering is now carried out in-country, training in-country has increased considerably, as well as seismic processing and integrated reservoir studies done in-country, with companies like IDSL, CB Geophysical and VerityGeo.
How have some of these companies taken the opportunity to evolve?
Several companies have executed contracts above $100m and have built excellent facilities. For example, Nestoil and Oilserv have both constructed several sorts of pipeline and developed themselves into full engineering, procurement, construction and installation companies.
How have oil services companies coped with cheap oil?
The service companies were hit terribly when the oil price dropped. With the oil price inching up slowly, we do hope the activities will pick up. The major projects like Bonga SW and Zabazaba do not seem to be moving as fast as needed. Nigeria has the lowest well services activity ratio. We as a country need to increase our drilling and well services if we really want to achieve our planned 4m barrels per day and 40bn barrels of reserves. This does not happen by talk alone. In terms of financial effects on the companies, we have not seen a wave of consolidations. None of our members, for example, has gone bust. Banks have rescheduled most of the debts.
What are the three things that the government could do that would most help your members?
Create lasting sustainable peace in the Niger Delta, ringfence the exploration budget to do more exploration, drilling and well services, and remove bottlenecks on most big projects so that capacities and capabilities built are not lost.
Are you happy at the passing of the first tranche of the Petroleum Industry Bill?
We are happy that progress has been made by the legislators after several years of front and back. It is a step in the right direction. But we still want them to go ahead and pass the fiscal bill. Most investors want to know what the fiscals are before putting in their money. Passage of this bill and the fiscals will encourage investment in the Nigerian petroleum industry.
This article first appeared in the March 2018 print edition of The Africa Report magazine