Nigeria - land of opportunity!
For most of the last decade, Nigeria has been one of the key export markets for businesses in Aberdeen city and shire. In the 2004 Export Survey, Nigeria was ranked as the 7th most active market for current exporters, and overall as the 4th most important export destination.
Suzanne Bird, international business executive with Aberdeen and Grampian Chamber of Commerce, has compiled this special exportlink report on the key players in Nigeria, local content legislation and where to go for export support for this challenging market…
A country plagued by poverty, corruption, violence, political unrest and general disorder, Nigeria’s reputation among the Western World isn’t favourable. However it cannot be denied that Nigeria produces most oil in sub-Saharan Africa and is ranked as one of the top 10 largest oil producers in the world.
Nigeria is also a major source of imports for the US and Western Europe and oil contributes 95% of the country’s foreign exchange earnings. With a population of over 130 million people and covering an area of over 350,000 square miles, Nigeria is Africa’s most populous country.
A recent report from the Douglas Westwood Association stated that ‘over the 2006-2010 period, West Africa is expected to be the leader in deepwater development, accounting for 40% of global deepwater spending’ . Nigeria currently produces around 2.3million barrels per day (bpd), rising to 3.0million during 2006 and up to 4.0 million by 2010.
Major industry players
A distinguishing feature between an operating company and a service contractor is that the operating company, such as Shell or Mobil/Exxon, owns the block, owns the licence, finances the operations and reaps the rewards for oil produced. Service contractors, such as Schlumberger and Baker Hughes, are hired by the operator to perform a specific service for an agreed fee.
Nigeria
- The Nigerian Government is pivotally involved in the industry through the state oil company: Nigerian National Petroleum Corporation (NNPC), which has an estimated 60% share in the upstream sector through joint ventures with the oil operating companies and its various subsidiaries. The NNPC is a commercial international corporation engaged in petroleum activities, as well as having powers and operational interest in refining, petrochemicals and products transportation. The NNPC main function is to oversee government interest in the oil and gas sector and, in addition to the main organisation, also has 12 main subsidiaries and 16 associated companies.
- National Petroleum Management Services (NAPIMS) is set up to maximise the potential from investments in joint venture contracts, production sharing contracts and service contracts with the multinationals, and also to protect the nation’s strategic interests.
- Nigerian Petroleum Development Company (NPDC) is a wholly-owned commercial subsidiary of the NNPC set up to engage in the exploration and production business nationally and internationally.
International ventures
- Shell Petroleum Development Company of Nigeria Limited (SPDC) is the largest private sector oil and gas company in Nigeria. It is the operator of a joint venture involving the NNPC (55%), Shell (30%), Total (10%) and Agip (5%) – these partners fund the operations and share the oil produced in proportion to their participation.
- Shell Nigeria and Exploration and Production Company (SNEPCO) was established to manage Shell exploration and development interests in Nigeria’s deep water offshore acreage.
- ExxonMobil Corporation has three major subsidiary companies (Esso Exploration and Production Nigeria Limited, Mobil Oil Nigeria and Mobil Producing Nigeria Limited) and together these companies employee an estimated 2,000 people.
- ChevronTexaco operates in the upstream sector through its three major subsidiaries -Chevron Nigeria Ltd, Texaco Overseas (Nigeria) Petroleum Company Unlimited and Star DeepWater Petroleum Limited.
- Agip operates through a wholly subsidiary Nigerian Agip Oil Company and activities have expanded rapidly over the years resulting in the establishment of other companies.
- The Total Group results from the merger between the former Total, Petrofina and ELF Aquitaine Groups and is subsequently known simply as “TOTAL”. In Nigeria, the upstream activities are carried out by two subsidiaries, Elf Petroleum Nigeria Limited and Total Upstream Nigerian Limited.
The Joint Venture Zone – Nigeria and Sao Tome & Principe
The Joint Venture Zone (JDZ) is shared by Nigeria and its neighbouring country, Sao Tome & Principe, and there is an agreed share of the oil revenues on a 60/40 basis. This Joint Venture Zone contains 23 exploration blocks, which could hold up to 14 billion barrels of oil reserves.
The increasing reserves of oil and gas and the move towards deep offshore exploration and production are likely to ensure the industry will have another 25-40 years of growth, providing significant opportunities for UK companies with proven technologies from North Sea exploration and development.
Objectives, Local Content and working in Nigeria
The Department of Petroleum Resources (DPR) is the regulatory body responsible for licensing, monitoring and regulation of the industry. To do business in Nigeria, all companies must be annually accredited by the DPR. This annual accreditation is only granted to foreign companies registered in Nigeria or in alliance with a locally registered company.
Primary objectives of the industry are to maximise oil and gas sector value to the economy, including improving Nigerian capacity and content, addressing environmental issues and making the transition from an oil industry to an integrated oil and gas industry.
Recent changes to Nigerian legislation include amended and enforced Nigerian Local Content Laws emphasising that all oil and gas contracts are to be awarded to Nigerian registered companies only. This can be achieved by any or a combination of the following: local equity ratio, independent local presence, locally performed and sub-contracted work, locally sourced materials... to list a few options. The key element is local - local material, local labour – enhancing the Nigerian infrastructure benefiting the country as well as the investor. ‘New to market’ foreign investors are strongly advised to seek further advice and guidance before pursuing opportunities in Nigeria.
Local Content laws are only some of the issues associated with working in Nigeria. As major multinational companies are dominant and logistical infrastructure limited, Nigeria boasts some of the highest market entry costs in the world.
As well as expectations of local content and indigenous labour there are concerns with security, corruption and cultural differences. Government legislation can be complex, and taxes and invoicing invariably need professional input.
But Nigeria expresses a genuine demand for proven UK technology, the market is still at the formative stage and there is the joint attraction of long-term potential and higher profit margins for those UK companies prepared to accept the challenges.
Support available to UK companies
For companies in the oil and gas industry Nigeria has enormous potential, not only regarding its oil and gas reserves but also because of the scale of investment that the government is attempting to incorporate into the infrastructure of the country. The long-term potential of Nigeria presents real opportunities for UK companies and the market is accessible - providing it is approached through the correct channels.
UK companies interested in Nigeria’s lucrative oil and gas market can obtain a substantial amount of support and information (including trade missions and networking events) from the UK West African Action Group (run under the auspices of the Aberdeen and Grampian Chamber of Commerce), UK Trade & Investment and Scottish Development International.
Useful contacts
Suzanne Bird
UK West African Action Group
(t) 01224 343 921
Ian Lockhart
UK Trade & Investment
(t) 0141 228 3626
Hadi Fawzy
Scottish Development International
(t) 0141 228 2684
A guide to doing business in the Nigerian oil and gas sector
The African oil and gas unit at UK Trade & Investment in Glasgow has produced a guide to doing business in Nigeria, aimed at reasonably experienced UK exporters who are new to, or wish to expand their interest in, the Nigerian Market. It has been written primarily as a guideline and contains pages of information on market size, market opportunities and key contacts. Please contact Kirsty Adams at UK Trade & Investment to request your copy:
Kirsty Adams
UK Trade & Investment
(t) 0141 228 6315
Sources and acknowledgement
With special thanks to UK Trade & Investment, Yomi Audifferen from City Partners, Port Harcourt and the information sources from the UK West African Action Group (UK WAAG) at the Aberdeen & Grampian Chamber of Commerce.
This feature was produced by Suzanne Bird, International Business Executive, Aberdeen & Grampian Chamber of Commerce, Greenhole Place, Bridge of Don, Aberdeen, AB23 8EU. Telephone: 01224 343921 or e-mail suzanne.bird@agcc.co.uk
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