Oil Gas Investing In Africa

Local Content: Examining The Nigerian Approach

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Posted: 07/05/2010

Oil-rich Nigeria is a major area of exploration for upstream oil companies despite being dogged for many years by political instability and regional disputes.

According to the Organisation of Petroleum Exporting Countries, the oil sector provides 20 percent of the country's gross domestic product (GDP) and around 65 percent of budget revenues.

Crude oil exports from Nigeria are currently estimated to be around 2,098 barrels per day, while natural gas exports total 20.55 billion cubic metres.

For many years there were concerns regarding the distribution of funds provided by upstream oil companies within the country; however, reforms to the upstream oil industry in recent years have meant that GDP has steadily been rising.

The latest step to be taken to improve the upstream oil industry in Nigeria was the creation of the Local Content Act.

Local Content Act

Signed into law in April 2010 by acting President Goodluck Jonathan, the Nigerian Oil and Gas Industry Local Content Development Bill 2010 places obligations on upstream oil companies in the areas of finance, community and local workforce.

Senator Lee Maeba, who initiated the bill, stated that the process of introducing the legislation first began in 2007 when he studied the local content guidelines in different upstream oil industries around the world.

"I saw that there is no law guiding the activities of Nigerian companies in the oil and gas industry and because of that, there has been a capital drift...and that is the reason why there is poverty in Nigeria in spite of the fact that we are the sixth largest producer of crude oil," Maeba added.



Provisions laid down in the act required upstream oil companies operating in Nigeria to place ten percent of their annual profit in Nigerian banks and contract their legal and insurance services to Nigerian companies.

While the law has been hailed as a step towards bringing peace and prosperity to the Niger Delta, there are still concerns regarding its implementation.

Impossible Targets?

The African nation of Ghana also intends to implement similar legislation creating a requirement for local content for upstream oil companies.

Recommendations laid out in the Local Content and Local Participation in Petroleum Activities Policy Framework for Ghana are for local firms to control activities in 90 percent of the upstream oil and gas industry by the year 2020, allAfrica.com reported. Ghana has proved oil reserves of around 15 million barrels.

Kwame Jantuah, a member of the Steering Committee of the Ghana Civil Society Platform on Oil and Gas, said in an interview with Public Agenda in the capital Accra that this target is "not possible" due to issues with capacity.

"The whole framework that is going to govern the oil and gas industry is not in place," Jantuah said.

"Seriously, we need to build capacity in our local content companies. That is so important. And to build capacity, we need direction, we need bold leadership."

He added that it was likely that the local content contracts would not be within the upstream oil industryitself, but rather in the service sector, stating that no local firms seem to be looking at sectors such as manufacturing for contracts.

Gayheart Mensah, communications manager of Tullow Ghana Limited, told the news provider that the upstream oil company is set to meet its target of having a 90 percent Ghanaian workforce by the time it finishes its third year within the country.

Upstream Oil Companies Hitting Local Content Targets

Shell Petroleum Development Company (SPDC) of Nigeria Ltd won an award earlier this year for its work within the field of local content.

The Petroleum Technology Association of Nigeria named the company the best local content policy implementer in the country, thanks to the "visible steps" it has taken to involve local companies in the industry.

The upstream oil companyallocated $718 million (£475 million) in funding to Nigerian contractors of 2009, with 52 percent of this funding going to the Niger Delta.

Marine logistics, surveillance, flowline construction and information technology were all covered by the contracts already issued and SPDC said it is now looking to branch into engineering, fabrication, wells and drilling services, and inspection and testing.

SPDC's general manager Nigerian content development, Simbi Wabote, said: "SPDC's Community Content initiative is designed to promote the use of human, material resources and services from local communities in the Niger Delta, without compromising quality, health, safety and environmental standards, in order to stimulate the development of the area."

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By:
Posted: 07/05/2010

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