According to Mr. Austin Avuru, a renowned geologist and Executive Chairman of AA Holdings, the Nigerian Oil and Gas Industry would require an annual Investment of at least $20 billion to $25 billion in order to maintain crude production at 2 million Barrels Per Day (bpd) and 10 billion cubic feet (cf) of gas daily. The declining investment in the industry has led to a decrease in production levels, emphasizing the urgent need for increased financial support. Avuru shared his thoughts in a keynote paper titled ‘Exits, Divestments and New Players: The Role of Indigenous Players’, during the quarterly discourse organized by the Harvard Business School Association of Nigeria (HBSAN) in Lagos.
Avuru recounted a time of prosperity in the oil industry decades ago when production consistently ranged from 2 million bpd to 2.5 million bpd. This was largely due to the significant investments made by International Oil Companies (IOCs) who held a prominent position in the market. However, a decline in production became apparent once these IOCs started to withdraw from onshore and shallow water operations. The industry regulator also failed to effectively handle the shift of assets from multinational corporations to local companies, causing a delay in regular investments on maintenance and monitoring by the major companies.
Poorly executed shifts of ownership caused challenges.
Shell and Chevron sold off a total of 20 assets to 15 Nigerian independent producers between 2010 to 2022. Despite this significant transition, only a handful of the local companies were able to effectively maximize their acquired assets. The industry faced challenges due to the poorly executed shift of ownership from the international oil companies to the indigenous players. Avuru counter claims that the decrease in production was due to divestment by the IOCs, stating that such actions are simply standard business practices in well-established oil fields.
He believes that the transition from majors to independents was mishandled, with power dynamics taking precedence over qualifications. Instead of following clear guidelines, decisions were based on political connections. He suggested that Nigeria develop a strategic plan to reach production goals of 3 million bpd and 10 billion cf. According to him, implementing the drill or drop provision from the Petroleum Industry Act (PIA), along with consistent licensing rounds, fair competition regulations, and improving execution capabilities could help improve the currently poor performance.
Activating the ‘Drill or Drop’ rule in the PIA is crucial.
Furthermore, Avuru emphasized the importance of transforming the NNPC into a proficient administrator of its extensive resources, rather than focusing solely on operations. There is also a need to establish effective partnerships based on value and functionality in the current industry landscape. He further praised the federal government and the upstream regulator for their recent regulatory and policy actions, expressing optimism about the industry’s current direction. He specifically pointed out the divestment guidelines released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in Nigeria, emphasizing that they were long-awaited and called for additional measures to be taken by the commission.
Also, the recent executive orders from President Bola Tinubu regarding the oil and gas sector was cited by the geologist, pointing out that they will revive Deepwater projects, stimulate gas exploration, target the deficiencies of the Local Content initiative and enhance operational efficiency. Likewise, Mrs. Oritsemeyiwa Eyesan, NNPC Executive Vice President, Upstream, said activating the ‘Drill or Drop’ rule in the PIA would signal the end of companies holding onto oil resources without utilizing them, a practice that is causing a decline in production within the industry.
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In order to restore order in the industry, she noted that regulators within the industry should double efforts to confirm that new players have the necessary technical and financial capabilities before granting approvals. When asked if NNPC will take part in the upcoming bid round, Eyesan confirmed that the company will indeed submit a bid. He mentioned the possibility of NNPC partnering with trustworthy and ethical companies, which may not necessarily be international oil companies.