A Review of the Nigerian Energy Industry

Indigenous operators call for acreage allocation

Kunle Kalejaye & Ediri Ejoh

06 November 2012, Sweetcrude, LAGOS – ONE of the key promises of the earlier versions of the Petroleum Industry Bill, PIB, was to reduce the stranglehold on inactive acreages by International Oil Companies, IOCs. However, there is no clause in the new bill under consideration at the National Assembly that sets aside any acreage category for indigenous participants.

Indigenous operators in the oil and gas sector are of the opinion that the Nigerian Content policy did not really address acreage allocations and acquisitions, rather, the policy focus more on services.

Speaking with Sweetcrude on the sideline of a PIB workshop orgainsed by Ernst &Young in Lagos recently, the Executive Director of Pillar Oil Limited, Mr. Seye Fadahusi, argued that small companies must have access to acreage in other to grow.

“The Nigerian content policy does not really address acreage allocations and acquisitions, as such, it focus more on services.

“For acreage allocation, if you have indigenous companies who usually are small firms, if they don’t have the possibility of growing because oil is a finite resource, when you are producing from acreage if it finishes, everybody goes home.

“So essentially, you must be able to get additional acreage and grow and that is one of the things we want to see on the PIB to ensure that serious indigenous companies have access to acreage,” he said.

He, therefore, reiterated that granting Nigerian independents acreage access will stimulate the development of the otherwise small and stranded fields for commercial benefits for the government and the nation.

“It will also lead to the development of midsized independents with substantial ripple effects on the economy, boost Dom gas availability and by extension, power generation, leading to the eventual actualisation of the Gas Master Plan and contribute to local capacity building with national energy security implications.”

With regard to some of the provisions of the bill, Fadahunsi said, “Some of the terms have changed in the middle of the game and I guess some of the IOC will not be happy about that, some of the initial terms were not favorable, that is zero royalty.

“There must be a way where the government and the IOCs can meet in the middle to make the commercial terms mutually agreeable between both parties, I think that is probably the way forward, and there must be a negotiation.

“Also both parties need to come to the table with their economic runs and compare things because what government is quoting as the increase in their stake is totally different from what the IOC are quoting as what government is taking from them, so there is a disconnect there. So both parties meet in a room and actually table their module only then we will be able to come to reconciliation.

“One thing is for sure, changing the rules in the middle of the game requires both parties to come to an agreement and that is possibly the way out of this,” he said.

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  • The oil and gas industry is one where there is only one standard. Indigenous operators cannot in good conscience expect a different standard to be created for them, especially when they are known to have abused privileges specifically created and sustained for them in the past. 18 Marginal fields where given out to them in the past and only two of them could bring their allotment to production. Recently, we were informed by the Kalu Idika Kalu Task Force on refineries that of the 35 licenses granted to indigeous operators, 28 shouldn’t have been granted because they lack the capacity to set up a refinery. Our investigation revealed that these operators obtain Oil Prospecting licenses and use them as collateral to obtain credit facilities to run other businesses, same thing apply to those who get refinery licenses. The national assembly must see this call for what it is – self serving, and discountenance it.