The Nigeria’s Oil Industry

Reforms: The Journey So Far

Presented By

DR EMMANUEL O. EGBOGAH, P.Eng, OON

Special Adviser to the President on Petroleum Matters

At

Special Panel Session on The Nigerian Oil Industry

Reforms, Challenges and Enduring Opportunities

Hosted by
Petroleum Technology Association of Nigeria
(PETAN)
At the 2009 Offshore Technology Conference,
Houston, Texas

Tuesday 5th May 2009

PROTOCOLS

Distinguished chairman of this event

Chairman and members of our host and organisers of this
event, Petroleum Technology Association of Nigeria
(PETAN).
Group Managing Director of NNPC
CEOs and Captains of the Oil & Gas industry here present
Chief Executives of Financial Institutions here present.
Members of the press
Distinguished Ladies and Gentlemen

INTRODUCTION & BUSINESS CASE FOR THE REFORMS

It is with profound pleasure that I welcome you all to this

event. I would like to start by thanking the organisers of
this event for the honour of inviting me to deliver this
address at this august gathering of key players in the oil
and gas industry. I also want to commend PETAN for the
tremendous efforts they have been making in promoting
Nigeria and Nigeria’s oil and gas industry. In the last few
years PETAN has become a permanent feature in most oil
and gas events, conferences and exhibitions, all over the
world promoting and encouraging business activities and
Office of the Special Adviser to the President on Petroleum Matters
Page 2 of 18
investments in Nigeria’s oil and gas industry. This could
not have been possible if not for the dynamic leadership
and dedication of the members of this association. Please
join me in giving a big round of applause to the
executives and members of PETAN.

I have been requested to speak on the topic The Nigeria

Oil Industry Reforms: The Journey So Far. As many of
you know the subject of the reform of Nigeria’s oil and
gas industry is one that I am very passionate about. It is a
common knowledge that oil exploration and production
activities in Nigeria in it’s over fifty years of operation is
yet to operate at standards and levels of efficiency
expected of a twenty first century oil and gas industry.
The oil and gas sector, though has been the mainstay of
Nigeria’s economy has not fully met the aspirations of its
key stakeholders. In addition, the operating landscape,
business and competitive environments, both locally in
Nigeria and internationally have continued to change
rapidly in the last few years that Nigeria oil and gas
industry as it is currently set up, can no longer operate in
a sustainable manner.

Office of the Special Adviser to the President on Petroleum Matters

Page 3 of 18
As a matter of fact the Nigeria oil and gas industry has
continued to evolve since its inception in the fifties. The
time from the late fifties to early seventies was a period
marked by control of the industry by international oil
companies. State involvement was restricted to quasi
regulation, primarily for control of price of refined
products, collection of fees, rentals and royalties.

Active state involvement started in the early seventies,

and was marked by Nigeria joining the OPEC member
countries. During this period, the Nigerian National Oil
Company was established, and government acquired 60%
interest equity participation in the assets and operations
of the international oil companies for the first time.

Starting from the late seventies to late eighties, the

industry witnessed the era of expansion, growth and
reforms. The Ministry of Petroleum Resources was merged
with the Nigerian National Oil Company to form the
present Nigerian National Petroleum Corporation (NNPC).
Internal restructuring of NNPC and commercialisation of
its operation started in the late eighties. NNPC was
subsequently transformed into a holding company with

Office of the Special Adviser to the President on Petroleum Matters

Page 4 of 18
11 subsidiaries, with the transfer of the Petroleum
Inspectorate to the Ministry of Petroleum Resources.

Despite the evolution, reforms and internal restructuring,

the public sector of the industry has yet to fully meet the
aspirations of the Federal Government and key
stakeholders as I already indicated. The existing structure
of the industry and enabling legislation were no longer
consistent with global standards. In parallel the private
sector of the upstream sector of the industry, dominated
and operated by the international oil and gas companies
(in joint ventures with NNPC) equally continued to face
new challenges mainly with funding and cash call
problems, as well as challenges in the Niger Delta region.

It is for this and many other reasons that the Federal

Government of Nigeria embarked on a journey of a
comprehensive reform aimed at re-positioning Nigeria’s
oil and gas industry to foster a long-term sustainability of
the sector, ensuring greater efficiency and effectiveness
to meet the aspirations of Nigerians and all the
stakeholders, and also ensuring global competitiveness.

Office of the Special Adviser to the President on Petroleum Matters

Page 5 of 18
We also know that the oil and gas sector accounts for
about 30 – 40% of GDP, 80% of government revenues
and 95% of foreign exchanges earnings, and is also the
backbone of Nigeria’s national development plan.
Efficient management of the industry will therefore have
a significant impact not only the well being and future
prospects of the Nigerian economy, but also on the
security and stability of global energy supply and the
growth of global economy.

I will therefore like, as has been requested of me, to

outline the progress so far made with the reform agenda.
This I believe will stimulate the rest of the discussions at
this event. However, please permit me to first use this
medium to briefly talk about Nigeria’s hydrocarbon
potentials, for the benefit of those of us here who are not
familiar with the Nigeria oil industry,

NIGERIA’S HYDROCARBON PORTFOLIO

With about 38 billion barrels of oil reserves, Nigeria has

the tenth largest proven oil reserves in the world, and
accounts for about a third of Africa’s oil resources. The
volumes are contained mainly in the onshore Niger Delta
Office of the Special Adviser to the President on Petroleum Matters
Page 6 of 18
and the offshore deepwater basins of Nigeria. However,
significant upsides still exists in deeper geological plays
and in Nigeria’s ultra deepwater. We also have to
remember that Nigeria’s success rate in deepwater
exploration is second to none in the world.

Also, Nigeria is endowed with huge gas reserves. It is

believed that Nigeria is more a Gas country than oil.
Current estimate of proven gas reserves is about 187
trillion cubic feet, which makes Nigeria the world’s 7th
largest gas reserves holder in the world. However, a US
Geological Survey (USGS) study estimates that the gas
reserves potential in the Nigeria could be as high as 600
trillion cubic feet. To date, there has not been dedicated
exploration for gas and all the proven gas reserves were
discovered during exploration for oil. It is therefore not
unlikely that with focused gas exploration, the USGS
estimate of gas reserves can be realised. This will easily
put Nigeria in the league of top 4 gas reserves holders in
the world. Of particular interest is the fact that Nigerian’s
gas is rich in natural gas liquids.

This large resource base has positioned Nigeria as one of

the key players in the global energy supply and demand
Office of the Special Adviser to the President on Petroleum Matters
Page 7 of 18
mix for now and in the future. However, the extent to
which these vast hydrocarbon resources can be efficiently
exploited and effectively connected to both the huge
domestic and export markets, will determine the extent
to which the full potential of these resource can be
exploited for the development of Nigeria and to the
benefit of stakeholders.

CURRENT REFORMS AND PRESENT STATUS

In order to effectively address the challenges of industry,

the current reforms now in the process of implementation
will require structural, legislative, commercial and
operational changes in order to bring the industry in line
with global trends and standards.

The present reform started with the inauguration of the

Oil & Gas Sector Reform Implementation in the year 2000
by former President Olusegun Obasanjo. The committee
started work immediately and this lead to preparation of
the Draft National Oil & Gas Policy in 2004. The singular
objective of the policy was to make far reaching changes
and ensure the fundamental transformation of Nigeria’s
Oil and Gas Industry, such as to bring it in line with 21st
Office of the Special Adviser to the President on Petroleum Matters
Page 8 of 18
century global industry performance as well as form the
bedrock upon which Vision 20-2020 will be anchored.

The Oil & Gas Sector Reforms Implementation Committee

was re-constituted in 2007 by President Umaru Musa
Yar’adua under the Chairmanship of Dr Rilwanu Lukman,
and was charged with the responsibility of implementing
the National Oil and Gas Policy approved by the Federal
Executive Council, and to actualise the reform. In
pursuance of this a Petroleum Industry Bill was drafted, in
line with the Policy, as an all-encompassing legislation to
regulate major aspects of the Nigerian petroleum
industry.

As I already indicated, the restructuring is aimed at re-

positioning Nigeria’s oil and gas industry to foster a long-
term sustainability of the sector, ensure greater efficiency
and effectiveness to meet the aspirations of Nigerians
and all the stakeholders, and also ensure global
competitiveness.

The reforms seeks to transform the Nigerian National

Petroleum Corporation (NNPC) into an integrated,
international, commercial oil and gas corporation driven
Office of the Special Adviser to the President on Petroleum Matters
Page 9 of 18
by revenue generation and profit oriented motives, in
such a way that it will be divorced of some of its current
conflicting roles of policy regulation and national assets
management, to function properly as a profit-oriented,
commercial and duly capitalized limited liability company
with rights to raise funds for its projects and operations.

To achieve the above objectives, a new institutional

structure has been developed and shall comprise of the
following:

• One Policy Body, National Petroleum Directorate

This body will be charged with the responsibility for
detailed policy initiation, formulation and development
for optimum resource utilisation. This will also serve as
secretariat for the Minister.

• Three Regulatory Agencies:

1. National Petroleum Inspectorate; this will be an
autonomous stand-alone Technical regulator and
will replace the Department of Petroleum Resources,
DPR.
2. National Petroleum Assets Management Agency: will
manage the petroleum assets, undertake costs and
commercial regulation of the industry with aim of
ensuring the nation derives maximum value from its
oil and gas resources
Office of the Special Adviser to the President on Petroleum Matters
Page 10 of 18
 3. Petroleum Products Regulatory Authority: will
regulate the commercial aspects of the downstream
sector of the industry
• One Commercial Centre, Nigerian National
Petroleum Company Ltd; will have strict commercial
orientation and focus, vertically integrated and capable
of competing both locally and internationally in all
elevant segments of the oil and gas industry

• One Research & Development Centre, NPRC, will

be responsible for research and development,
promoting capacity building and maximising local
value addition.

• One Manpower Training Centre, Petroleum Training

Institute

• Two Fund Organisations:

Petroleum Equalisation Fund, and
Petroleum Technology Development Fund

• Frontier Exploration Services: to be responsible for

regulating and stimulating petroleum exploration
activities in the unassigned frontier acreages of
Nigeria. These acreages are defined within the
Office of the Special Adviser to the President on Petroleum Matters
Page 11 of 18
 Petroleum Industry Bill as the Anambra, Benue Trough,
Bida, Chad, Dahomey and Sokoto Basins.

The reform also provides for the conversion of all the

existing unincorporated joint ventures into incorporated
joint ventures (IJVs). Each IJV will be a corporate entity to
be incorporated under the laws of Federal Republic of
Nigeria, and the incorporation process including
capitalisation and restructuring will be carried out through
negotiations with the respective International Oil
Companies (IOCs) during the reform transition period.

Apart from immediately eliminating problems of cash call

constraints, the IJV concept will free up funds, which will
be available to the Federal Government to invest in other
areas of social and economic development of the country.

The Petroleum Industry Bill (PIB) on the other hand is a

comprehensive, all-encompassing piece of legislation
given the role of oil in our National economy, the size of
capital involved and the level of emotions and
controversies surrounding the industry. It captures all the
experience of past 50yrs in addressing all institutional
matters: policy, structure, legal and governance. It also
Office of the Special Adviser to the President on Petroleum Matters
Page 12 of 18
endorses clear separation of roles and responsibilities
across various directorates, companies and agencies.

The PIB incorporates the emergence of gas as key

element of the value chain, and accordingly, considers
new fiscal frameworks that are more robust to withstand
changes

The report of OGIC committee which details the reform

proposals was completed in 2008. This has subsequently
been approved by the Federal Executive Council. The
proposals together with Petroleum Industry Bill were
formally submitted to the National Assembly in January
2009 for legislative consideration. The Bill has already
passed the 1st and 2nd readings, and public hearings are
scheduled to start in May 2009. Meanwhile stakeholder
engagements with the stakeholders are currently
ongoing.

I want to also re-state that the Government of Nigeria

recognises the crucial role that gas plays in any economy
and also that gas has a significant potential to alter our
economic destiny as a nation. Despite the huger gas
resources available in Nigeria, we have not been able to
Office of the Special Adviser to the President on Petroleum Matters
Page 13 of 18
effectively exploit the huge potential in such a manner
that the domestic economy will benefit from the
multiplier effect of gas. Consequently, the Federal
Government has embarked on the reform of the gas
sector through the implementation of a Gas Master Plan.

The Gas Master Plan aims to address some of the

challenges confronting the Nigeria gas sector, notably
that of inadequate infrastructure and commercial
framework, which have had a strong impact on the ability
of the sector to supply as rapidly as the market
opportunity dictates.

The gas master plan provides for an Infrastructure

blueprint for the development of an extensive backbone
for the Nigerian gas grid. The fundamental strategy is the
creation of a gas infrastructure that concurrently supports
the supply of gas to the domestic, regional and export
markets. This approach provides for flexibility and
scaleability of supply, and cost effectiveness. Other
competing countries have managed to develop such
integrated networks.

Office of the Special Adviser to the President on Petroleum Matters

Page 14 of 18
At the core of the proposed infrastructure are 3 gas
gathering and processing systems each of which will
gather gas across a delineated area, process the gas into
a national specification and export the dry gas into the
network of gas transmission systems. The processing
facilities will enhance the LPG capacity in the country and
hopefully address the issue of LPG availability within
Nigeria.

Three transmission systems are proposed. The first is a

western transmission system comprising the existing
Escravos-Lagos Pipeline System (ELPS) and a proposed
offshore extension to supply Nigeria’s dominant market in
the west as well as the West African regional market. The
second is the South-North system that will ultimately
progress to be the Trans-Saharan pipeline when mature.
The third system is the inter-connector system that will
be the link line between the East, West and the South-to-
North.

With the proposed network of infrastructure, it is

expected that the ability to supply will increase rapidly
and flexibly, and Nigeria will be better positioned to

Office of the Special Adviser to the President on Petroleum Matters

Page 15 of 18
respond to growth in demand both domestically,
regionally and for export.

Implementation of the Gas Master Plan is in progress.

Following expressions of interest, a shortlist of selected
core investors have been compiled, and these ‘core’
investors are in the process of forming consortia in
readiness for submission of formal bids.

CLOSING

I want to conclude this presentation by stating that the

current reform represents a clear demonstration of
Federal Government’s desire to re-position Nigeria’s oil
industry. Sceptics have often asked how this reform will
be different from previous internal restructuring of the
public sector. I would like to state that there is a clear
vision of this reform to “maximise the net economic
benefit to the nation from our oil and gas resources, while
meeting the nation’s need for fuels at a competitive cost,
and accomplishing all in an environmentally acceptable
manner.”

Office of the Special Adviser to the President on Petroleum Matters

Page 16 of 18
The reform programme is about harnessing opportunities
and addressing the challenges. It is a very comprehensive
and radical transformation aimed at ensuring that Nigeria
gets the maximum benefits, directly and indirectly, across
oil and gas value chains

It opens up horizons for wider participation of

stakeholders including the financial institutions, big and
small players and individuals.

Nigeria is entering a new phase in the exploration and

exploitation of its vast hydrocarbon resources. An era in
which the oil and gas resources will play a key role in
shaping the economic future of Nigeria, as we aspire to
become one of the top 20 economies of the world by the
year 2020. An era in which Nigeria’s oil and gas industry
will be a key player in the global energy supply and
demand mix for now and in the future.

I therefore urge you all to support the efforts of the

Federal Government in re-shaping Nigeria’s oil and gas
industry.

Office of the Special Adviser to the President on Petroleum Matters

Page 17 of 18
I thank you all for listening and wish you a successful
event today and for the rest of OTC here in Houston.

Office of the Special Adviser to the President on Petroleum Matters

Page 18 of 18