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Worries over Nigeria’s oil sector reforms could affect investment sentiment

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Nigeria’s oil and gas sector may be affected by the delay in passage of a petroleum industry bill, policy uncertainties, security, and decline in the price of crude, Players in the industry has said.

Industry stakeholder noted that the President Buhari’s decision to delay to ascent the PIGB won’t help investment sentiment, but shouldn’t affect offshore activity in the near term.

According to the stakeholders, Nigeria’s latest effort to reform governance of its oil and gas industry seemed to be going unusually well. The Petroleum Industry Governance Bill (PIGB)—the first and possibly most important of four related pieces of legislation—passed through both houses of the legislature earlier this year, raising hopes that the whole bundle could be on the statute books before presidential elections.

However, Industry pundits in a position, ahead of the general elections, similarly advised politicians to abstain from remarks that may well further reduce investment inflow into the sector, adding that the non-passage of the Petroleum Industry Governance Bill, would affect the growth in the sector.

The Nigerian Natural Resource Charter (NNRC), last month, disclosed that Foreign Direct Investment (FDI) in Nigeria’s oil sector dropped by $17.12 million in the third quarter (Q3) of 2018 from $24.85 million in Q2.

Executive Director, Institute for Oil, Gas, Energy, Environment and Suitability (OGEES), Prof. Damilola Olawuyi, predicted an uncertain outlook for Q1 2019, given the triple challenges of policy uncertainties, security challenges, and slump in crude price at the international oil market.

“Election periods in Nigeria are typically associated with heightened uncertainties, which generally impede business decisions and slow down economic productivity. “Prudent investors in the sector will naturally want to act cautiously by consolidating ongoing projects and awaiting post-election signals before embarking on ambitious upstream investments,” he said. Olawuyi however noted that while the uncertainties might stall growth in the sector, but won’t result in major shifts in current investment trends.

Partner, Odujinrin and Adefulu, Adeoye Adefulu, argued that the bulk of investment inflow into the sector will only maintain existing investments, adding that government must take steps to attract new investments.

“Unfortunately, after Egina, there is nothing in the horizon that we expect in the future. We will have investment but the kind of growth we require to achieve economic goals will not come until there is clarity in the sector. That is why the passage of the PIB is very important,” Adefulu noted.

He also urged politicians to be mindful of their comments on the sector, adding that some comments are only to canvas for votes not minding the impact.

On his part, Managing Director, International Energy Services Limited, Dr. Diran Fawibe, noted that investors are currently adopting a wait-and-see attitude due to the prevailing investment climate.“There will be slow down in investment. It will be a temporary phenomenon. The key thing is for us to maintain our political stability,” he said.

Calling on political actors to desist from using NNPC and the entire sector in their programme, Fawibe said: “If we say things that will make the international investors lose faith and confidence, it will not end well for us as a nation, particularly our economy.”

Also commenting, Chief Executive Officer, Footprint to Africa, Osita Oparaugo, said until political instability is addressed, investors may no longer come into Nigeria on a long term basis until the elections were over, while the existing ones are pulling out.Oparaugo said: “The body language that comes out of Nigeria every four years before the election is scary. Nigeria lacks stability and investors want their money in a place where they are sure of their investment. They prefer to have 10 per cent return on investment in a place where the situation is not volatile than a place where they get 100 per cent but very volatile.”

Prof. Wunmi Iledare, of the Nigerian Association for Energy Economics (NAEE), said Nigeria’s declining investment passes very negative signal and warning that the worse could be ahead if urgent actions are not taken.“There’s so much uncertainty in terms of the rule of law. The engagement process is not clearly defined. No matter how holistic the geological basin is, government must make effort so that people come to look for it,” he said.

Meanwhile, Global think-tank, Wood Mackenzie noted that volatile oil prices and bearish equity markets would impede growth in the upstream sub-sector.The group’s latest upstream outlook said prevailing development could create a barrier to deal flow by creating uncertainty in upstream merger and acquisition.

Indeed, experts at the research firm noted that the development has resulted in widening the bid-ask spread, altering financial conditions and making companies re-think near-term strategies.According to the experts, Q4 2018 witnessed a dropped in deal count to its lowest level since Q1 2015, with December the slowest month since January 2015

It could be recalled that NNPC’s inability to meet funding commitments for projects has been a long-running bugbear for oil companies-one that the new revenue allocation to the revamped bodies running the industry was, in part, intended to address.

Also, there has been much media speculation over recent months that the president was also concerned that the PIGB would unduly reduce his power over the industry—he also acts as oil minister—by giving more control to the independent regulator. Buhari is not a natural delegator, preferring to keep a firm hand on the tiller of state, though Ita Enang, a senator and close presidential aide, has denied that maintaining control was a motivation.

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