Nigeria: 2014 Review Of The Nigeria Oil & Gas Industry

Last Updated: 9 December 2014
Article by Uyi Akpata


PwC Nigeria's analysis of developments in the Nigeria oil & gas industry draws upon the valuable experience and views of industry players including Independents and International oil companies operating in the country with the view to providing insight into the latest developments in the industry and how they impacts their business.

This year's survey looked at key developments in the industry in the last 12 months and covered issues around the regulatory environment, security and pipeline vandalism as well as the appraisal of capital investment and how it impacts revenues and operational effectiveness. The survey was conducted using structured questionnaires administered to Finance Directors of the surveyed oil companies and compiled by the PwC Nigeria Oil & Gas team.

Key Findings

Petroleum Industry Bill

On the regulatory environment, there is no consensus among operators on the impact the draft Petroleum Industry Bill (PIB) - which proposes changes to the tax regime, royalty structure and onshore operations - will have on their business. While international oil companies with deep water assets are more concerned about the regulatory and fiscal provisions, others with more significant onshore assets believe the law will have adverse effect on current and future earnings as a result of reduced incentives, higher taxes and community development levies. There are some nonfiscal issues that have been identified by the operators that require more attention from the lawmakers to ensure the viability of the industry. These include the terms of the licenses and leases, provisions relating to the incorporated joint venture arrangements, discretionary powers of the minister of petroleum resources, dispute resolution framework, measurement point, domestic gas supply obligations and the roles of the National Oil Company. In general, there is a call that the version eventually passed into law is balanced and fair to all stakeholders. It is not expected that the PIB will be passed into law before the expiration of the term of the current National Assembly in May 2015.

Local Content and Human Capital Deficit

Local content has become a significant issue for the oil & gas industry, especially across Africa. Given the drive by governments to enable locals play more significant roles within the energy sector, we would expect increased pressure on operators to justify the utilisation of 'non' local resources.

Nigeria has recorded some measure of success in this light. A report by the Nigerian Content Development and Monitoring Board, an enforcement and Implementation body for the local content law states that engineering in the oil & gas industry is now done 90% in country, fabrication of all the field development facilities now has 50 per cent of the tonnage done in Nigeria. There is however scope for improvement in manufacturing which is where the knowledge and technology resides.

There are also concerns about the implementation of the requirements of the Nigerian Oil and Gas Industry Content Development Act NOGICDA on asset ownership for subsidiaries of non-resident companies and other indigenous companies. It does not seem that there is funding capacity in the industry to drive the acquisition of some of the extremely expensive equipment in use in the Industry.

The quality of projects executed by local service contractors in line with provisions of the (NOGICDA) does not raise major concern among operators. There appears to be a general consensus on the need to increase in-country capacity notwithstanding the higher cost associated with locally executed projects. There are however concerns about human capital deficit due to non-availability of world class manpower locally. Operators hope to overcome this through continuous investment in attracting, retaining and training the right people as well as long term commitment in building local capacity in key technical skills through support extended to relevant educational establishments.

Security, Oil theft and Pipeline Vandalism

Security issues, sabotage and crude oil theft continue to present significant challenges in the industry, and adversely impacting on onshore oil and gas production as well as the challenge to deliver same to market. The situation however appears to have improved in the last 12 months and impact on production is expected to be minimal. The companies also continue to create awareness about the negative impact of vandalism, crude theft and illegal refining and are working closely with government security agencies to police Right of Way in addition to engaging community surveillance teams.

IOC Divestments in Nigeria

It is estimated that by the end of 2015, the International Oil Companies operating in Nigeria will have sold at least 250,000 barrels per day worth of equity in onshore and shallow water producing assets in the oil producing Niger Delta region.

These divestments represent the single largest opportunity for indigenous companies to participate in the upstream oil and gas industry. The transfer of operatorship to the buyers of these assets will go a long way in demonstrating government's commitment to the local content policy. This will in turn unlock enormous local contractor, financing and other opportunities.

Public scrutiny and regulatory compliance in the post-BP-Deepwater Horizon environment

Growing regulatory compliance requirements in many developing countries post the April 2010 Deepwater Horizon disaster in the Gulf of Mexico, is forcing companies to recognise Security, Health, Environment and Quality (SHEQ) as a serious area of business focus or face the consequences of non-compliance by way of significant fines and penalties. Multinational oil companies are also driving SHEQ requirements within their own companies as they require their business units around the world to implement their stringent policies no matter where they operate.

The oil companies operating in Nigeria are well aware of the requirement to develop formal health and safety measures for any major oil & gas facility and are striving to maintain strict adherence to quality standards in line with global best practice. There is also a focus on continual strengthening of safety culture among employees and contractors.

Fraud and Corruption

Fraud and corruption ranked high as an impediment to companies achieving operational excellence. The perception of the oil & gas industry is that it is one of the sectors where companies are more likely to be confronted with corrupt activities.

Some of the reasons given for engaging in questionable practices is to bypass customs bureaucracy inefficiencies and the related cost of delays to companies. Others include mismanagement, lack of skills, dealing with public institutions, government employees who are often poorly paid, difficulty with monitoring in remote locations, huge tender and bid profit possibilities and supplier kickbacks.

A positive sign is that some respondents indicated that they are prioritising and spending money on prevention of fraud and corruption with more on ethics and business conduct training and senior management locally and globally encouraging companies to be legally compliant in all countries where they operate.

Capital Investments and Investment Appraisal

Capital overruns do not appear to be a major challenge as the oil companies have implemented advance planning and robust capital budgeting process to avoid it. However, overruns on large capital projects are due to the nature of the projects, but this is being closely monitored and controlled.

There have been delays in some major investment decisions within the industry as a result of the uncertainty with the contents of the PIB that will be eventually passed and the impact that the provisions may have on these decisions.

Revenue Growth and Operational effectiveness

Despite current decline in oil prices, operators are positive about revenue growth over the next 3 years. It is expected that the industry will continue to be profitable based on an average bench mark oil price of $85-$90 per barrel. In addition, operators are implementing cost reduction strategies and focusing on operational excellence and innovation as a way of increasing their profitability despite declining revenue. Furthermore, it is not expected that the status of the United States as net exporter of crude oil will have any significant effect on the profitability of oil companies operating on the continent.

Gas Utilisation

Gas flaring is also expected to continue to be a challenge. However, there has been some improvement with some their facilities by about 75% between 2003 and 2012 and flaring intensity by around 60% over the same period. Also, some Gas to liquid projects that are coming on stream are expected to make positive impact as regards flared volume. There is a need however, for increased investment in gas utilisation and the creation of a viable market for gas. The government is expected to take the lead on this.

National Oil Company-International Oil Companies Partnership

The primary concern of operators is centered around significant cuts to the budget and delay in budget approval. There is also the consequent challenge of alternative funding.

Operational Excellence

Government interference is the factor respondents believe most severely hinders their companies' attainment of operational excellence. Indeed, it has been identified as the single most important reason for underperformance. Besides government interference, other issues identified that severely hamper operational excellence relate to factors that are also not in their control such as lack of infrastructure, fraud and corruption and regulatory compliance. Local content regulation ranked seventh. The other factors identified all relate to internal organisational development areas, which all companies can continually strive to improve upon. The most prominent of these were inadequate planning, lack of skills, lack of project governance and the disconnect between operational activities and business strategies.


The outlook for the industry is positive and operators can look forward to an exciting and dynamic future with an ever-changing competitive landscape characterized by divestments and new acquisitions as new market entrants continue to seek a share of the industry's significant growth potential.

The onus however sits with governments to ensure that they continue to provide acceptable regulatory environments with attractive fiscal systems. The main difficulty that investors have is the risk associated with uncertainty. Should uncertain regulations persist especially surrounding the passage of the PIB, the country might become less attractive to new investments which is considered very important in increasing the country's revenue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions