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Local Content: Firms Strategise to Optimise Capacity

After years of executive and legislative tinkering with the Nigerian Content Bill, President Goodluck Jonathan recently signed into law the legal proposal designed to domicile the bulk of the petroleum industry jobs and spending in the country as a means of stimulating rapid industrial and economic development.

Before the bill came into law, it was estimated that only five cents of every dollar spent by the Nigerian petroleum industry trickled down the local economy in terms of patronage to local goods and services and this alienated the benefits of the country‘s huge petroleum resources from the rest of the economy.

The situation no doubt threw up the challenge of how to evolve and efficiently deploy workable strategies to arrest job and capital flights by judiciously harnessing and optimising the nation’s petroleum resource potentials for rapid economic development.

However, with the Nigerian Content Act now in place to provide the needed opportunity for access to greater assets and jobs for the indigenous oil firms and oil service contractors have demonstrated world-class capacity.

Under the new legislation, a set of national aspirations in the petroleum industry was drawn to step up activities in the industry to yield more revenue to the government, grow indigenous capacity, domicile industry jobs for in-country execution and create capacity for job creation.

Essentially, it was designed to target 75 per cent local content of the upstream petroleum industry by the end of this year, as part of the broader national aspirations and objectives for the petroleum industry.

Minister of Petroleum Resources, Mrs. Diezani Allison-Madueke, has assured that the new law, which emphasises patronage and acreage allocation to indigenous firms would not shut out foreign direct investments in the Nigerian petroleum industry but encourage partnerships between local and foreign firms in a manner that would not compromise the policy objectives.

Managing Director of Platform Petroleum, Mr. Austin Avuru, had at a recent oil conference in Abuja called for allocation of bigger assets to marginal field operators that have demonstrated capacity for world-class standards, warning that the objectives of the marginal field programme might be defeated if the operators are limited to marginal assets.

Executive Director of Weafri Well Services, Mr. Chris Onyekwere, who is also the Financial Secretary of Petroleum Technology Association of Nigeria (PETAN), has also called for the efficient implementation of the Local Content Act to achieve the primary objectives of stimulating internal economic growth though empowerment of corporate employers.

Optimising Hydrocarbon Reserves

Apart from domestication of oil industry spending, other related national economic aspirations that set 2010 targets for the upstream petroleum industry include the drive to build the nation’s crude oil reserves to 40 billion barrels, increase production capacity to 4.0 million barrels per day (4.0 mbd), commercialise the nation’s vast natural gas resources, and end routine gas flaring at oil production sites.

Others are to make oil-producing communities stakeholders in the hydrocarbon exploration and production business, attract private sector funding in the operations of the industry, attract foreign direct investments into the sector, and increase the nation’s oil output quota in the Organisation of Petroleum Exporting Countries (OPEC).

The national aspirations and targets for the operators in the industry were conceived in response to the limited impact of the huge budget activities in the industry on the local economy – a situation that limited the links between the upstream oil and gas industry with the host economy.

The aspiration for increased local content of the industry is therefore seen by industry analysts as the critical policy objective in driving efforts and activities in achieving associated industry targets expected to collectively yield the desired result in driving the nation’s economic progress.

But achieving the national aspiration in the petroleum industry would require bold and active initiatives of indigenous and foreign private investments in key areas of the industry, and domiciliation of their operational activities in-country to create the cross-sectoral economic impact that would see a cumulative mass leap in the economic progress of the country.

Capacity Utilisation

In pursuit of the objectives therefore, government has over the period activated programmes that would not only ensure domestication of industry jobs where capacity exists but also afford opportunities for capacity growth.

The programmes include the marginal fields programme, proposed deregulation of the downstream petroleum industry, mandatory execution of classified upstream oilfield service jobs and field development packages in-country.

Under the marginal field programme, government arranged farm out arrangements with deep pocket multinational oil firms to allow indigenous firms with little funds, capacity and experience to cut their teeth in exploration and production, using pockets of finds left as sub commercial by the big firms.

A further step in delivering the objective but less effective so far was the introduction of the local content vehicle in award of oil blocks in both the conventional and challenging terrains.

Under the arrangement, government offers mandatory equity interest of up to 10 per cent of an oil block operated by major operators to indigenous firms to enable them understudy operations and develop capacity.

Besides, the policy directives, which preceded the new law domesticated execution of all service jobs ranging from seismic acquisition, interpretation, drilling, well services, pipelines, supplies of consumables and equipment accessories to fabrication of facility modules and construction of structures during field development projects.

In delivering these services in country, the law does not however, permit low standards, an indication that only local companies with world-class capacity and capability stand the chance to draw benefits from the new law.

The local content policy and associated programmes recognise the rapidly rising capacity of indigenous and local companies in delivering challenging industry jobs, and the bursting energy of restless indigenous professionals and investors who have succeeded in most challenging tasks while in the services of multinational firms.

As more and local firms integrate upstream activities, it became clear that local and indigenous firms only needed chance to prove their mettle, and the Local Content Policy provided the needed opportunity boost.

A number of indigenous exploration and production companies have since strategised to pool significant production that have enhanced the country’s gross domestic product, job creation, crude oil revenue receipts, domestic capacity development, foreign direct investments and ancillary business opportunities.

In the exploration and production operations, firms like AMNI International, Platform Petroleum, Britannia-U, Oando, and many others have pushed through development stages to put some of their fields on stream.

In fabrication and construction, firms like Nigerdock and Dorman Long have set world records with jobs delivered in Nigeria with local technicians. And in oilfield services, Oando, Weafri, Weltek, Waventure and many others stand out with exceptional services.
However, in view of its huge upstream assets, expectations are high on the nation’s integrated energy group, Oando Plc, to lead other indigenous industry players in realising the full aspiration of the country in using the petroleum industry to drive rapid industrial and economic development of the country.

In rig operations, Oando also stands in the front row of the league of indigenous rig service providers alongside others like Lonestar.

Also, before the new legislation was enacted, many indigenous companies have proved their capacity to play in the highly competitive global arena.

But Oando’s integrated assets portfolio stands the company tall as the Nigerian indigenous energy champion with proven world-class capacity and capability as manifested in its meteoric rise in capital strength, expansion and diversification of portfolio, products and services.

In the downstream petroleum industry, Oando Marketing prides itself as leader in the retail business with a network of over 600 outlets spread across the country to provide homes and businesses with diverse fuel products, derivatives, bitumen and lubricants.

With strategically located terminals and ever-expanding distribution system, the company has continued to be the major provider of petrol, household kerosene, diesel, lubricants, fuels oil, aviation kerosene and cooking gas.

The company is also a leading provider of bitumen to the nation’s construction industry and insecticides to keep homes safe from pests.

Oando Supply and Trading Limited and Oando Trading Bermuda Limited are also well- positioned in the global trading and supply of crude oil, refined products and related commodities. Whereas Oando and Trading collaborates in meeting Nigeria’s fuel needs, a sister company, Oando Trading is strategising to dominate regional and other markets with supply of petroleum and related products.

Another downstream business arm of the company is Oando Gas and Power, which engages in commercial distribution of natural gas and power generation initiatives in Nigeria and West Africa.

The energy group has also maintained a focus on the future of the industry, positioning to take over strategic refinery and terminals segments of the industry as government presses on with the liberalisation of the market.

The company has already floated its refinery and terminal subsidiary to participate in commercial opportunities in solving the nation’s long-term dependence on imported petroleum products.

With three business arms in gas and power, including Gaslink Nigeria Limited, Akute Power Limited, East Horizon Gas Company and other special purpose vehicles, Oando claims a strategic focus in creating Nigeria’s domestic gas grid and leverage the infrastructure to be the prominent local gas and power provider.

In the upstream sector of the industry, Oando has floated a stream of strategic business entities to position the company as the nation’s biggest energy services concern with operating tentacles spread across drilling services, supply of drill bits and drilling fluids.

In the capital intensive, technology dominated and management challenging exploration and production portfolio, it has rapidly advanced from the rear to lead indigenous capacity in development and production of proven reserves.

Oando Exploration and Production Limited, Oando OML 125 & 134 Limited, Oando Akepo and Oando Production and Development Company form the group’s pillars of strength in asset acquisition and exploitation.

The company has also moved further to become Africa’s fastest growing indigenous exploration and production firm with selective investment strategies that have seen it plug into streams of juicy non-operated assets, thus providing the firm with a variety of business models ranging from operations of multinational majors to others by peer indigenous independents.

Oando subsidiaries today have interests in six operated and non-operated assets onshore and offshore Niger Delta. The assets include 15 per cent interest in oil mining leases (OMLs) 125 and 134 operated by Italian major, Nigeria Agip Exploration.

The group also holds 45 per cent working interests in the Obodoeti/Obudugwa Field in OML 56; 30 per cent interest in Akepo Field in OML 90; and 60 per cent interest in three prospects identified in oil prospecting lease (OPL) 278 including the Ke field.

Oando’s subsidiary, Oando Exploration and Production Limited, is also leading exploration in virgin oil blocks including OML 236 where it holds 95 per cent working interest and operatorship of the block, which is located onshore Akwa Ibom State in the Niger Delta. It also holds four per cent equity in OPL 282 operated by Agip in the conventional offshore area, Bayelsa State.

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