Thursday, January 17, 2019 10:02:18 AM- Nigerian Stock Exchange.

  Oil and Gas’s upstream sector - PIGB takes one step forward and another backward.


29 JUNE 2018 ( Lagos ) : Regulatory reform remains the missing piece in Nigeria’s oil & gas jigsaw and analysts were hopeful after the break-up of the Petroleum Industry Bill (PIB) into four separate bills and in particular, the progress made on the Petroleum Industry Governance Bill (PIGB) – approved by the National Assembly in April 2018, but it has been one step forward and another backward so far.

There was brief joy when the National Assembly (NASS) approved the Petroleum Industry Governance Bill (PIGB) and directed it for transmission to the Presidency in April 2018. However, a review by the Directorate of Legal Services of the National Assembly found “fundamental issues” with the Bill, forcing it to be returned to the overseeing committee on Petroleum Industry and Governance. 

NASS did not disclose what these issues were so it is difficult to estimate how long the process would take before the PIGB is finally sent to the Presidency. 

The PIGB primarily deals with the regulatory framework of the oil & gas sector and proposes three key changes: 

  • Establish the Nigeria Petroleum Regulatory Commission (NPRC) as the single industry regulator in place of the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA) to make regulation more transparent and coherent 
  • Unbundle the Nigerian National Petroleum Corporation (NNPC) into three commercial entities, with a view to partly privatise one of them (Nigeria Petroleum Company) 
  • Reduce the powers of the petroleum minister by restricting it to policy formulation and monitoring, with some of the minister’s previous functions to be transferred to NPRC. 

Passage of the PIGB would be beneficial to the sector as the governance bill would partially outline the new regulatory landscape, particularly with regards to demarcating the role of NNPC as industry regulatory and participant, and may help jolt quicker passage of the remaining bills.

Smooth implementation of the PIGB proposals would also signal to industry stakeholders that the sector is primed to handle the changes to be imposed by the aggregated PIB. But at this stage, the PIGB is unlikely to see the light of the day before the end of the year, particularly as electioneering begins to vie with legislative governance. 

Even PIGB passage would not be enough 

Analysts see some issues in the PIGB. Firstly, the bill is much less potent without the corresponding Petroleum Industry Administration Bill (PIAB) which acts as an operating manual for the NPRC and this could create a regulatory vacuum. 

On another note, the PIGB proposes that the Petroleum Equalisation Fund should be funded through a 5% levy on petroleum products sold in the country – as opposed to the current cross-subsidy approach where some marketers pay into the Fund. 

It is unclear how such a levy would work under the current pricing template and analysts do not think the levy would be imposed in the current subsidy climate. In short, passage of the PIGB without the PIAB may introduce further complications, particularly in the downstream sector. 

Attention shifts to testier elements of original PIB – to no avail? 

Analysts note that some progress has been made on the other bills from the unbundled PIB – Petroleum Industry Host & Impact Communities Bill (PIHICB), Petroleum Industry Administration Bill (PIAB), Petroleum Industry Fiscal Bill (PIFB), with a 3-day public hearing held on their proceedings at the start of June. The respective bills are aimed at: 

  • PIHICB: Addressing Host communities mainly through a fund set up by IOCs with 2.5% of annual operating expenditure into the Trust 
  • PIAB: Setting out scope of NPRC particularly in terms of the power to grant and revoke licenses, liberalize downstream sector 
  • PIFB: Changing the taxes and royalty rates to be paid on oil & gas enterprises 

Nevertheless, analysts do not expect these bills to make much progress until the Senate transmits the resolved PIGB to the Presidency. Moreover, public hearings have been held in previous years – original PIB in 2013, PIGB in 2016 – and in the PIGB case, preceded eventual NASS passage by over a year. 

These bills are still at the 2nd reading in the House and are likely to be dragged out for longer as they contain the most controversial oil & gas industry reforms. Analysts consider it unlikely that these bills would make much headway before the 2019 elections and see the PIGB as the key reform pillar for the sector in the near-term – noting that the PIGB is not as potent on its own. 

In their view, electioneering brings added risk of legislative vacuum, and anticipate further delays to passage of all elements the PIB which still holds key to government revenues, regional development, and sector growth. 

Strong prices, stable production forecast for H2’18 

Analysts maintain a bullish outlook on oil prices for the rest of the year. Their H2’18 forecast is $67/bbl, compared to $70/bbl average in the first five months of 2018 and $55/bbl in 2017, and they expect this jump to spur topline growth across upstream players. 

However, they are more cautious about volumes given disruptions to crude evacuation and ahead of the 2019 elections. The Trans-Forcados Pipeline, the major trunk line in the Forcados Pipeline System that feeds the major Forcados Terminal, was shut-in for two weeks in May as the pipeline operator (Heritage Oil) declared Force Majeure as a result of a major leak, putting c.200,000 barrels of oil a day at risk. 

The Force Majeure has been lifted despite another leak, suggesting that the new leak is not material, though it may lead to higher reconciliation losses for operators that transport crude through the pipeline and continues to delay loadings to the Terminal. Meanwhile, Shell Petroleum Development Company of Nigeria (SPDC) also declared Force Majeure on Bonny Light exports after finding four major leaks on the Nembe Creek Trunk pipeline that feeds Bonny Light crude.


Analysts highlight that a number of upstream players are better suited to handle these shocks as a result of adjustments made following the 2016 militant crisis. A few companies have explored a number of alternative crude evacuation arrangements in recent time. 

They highlight that SEPLAT has implemented multiple evacuation routes and reduced its reliance on Forcados lifting; Warri jetty route is functional though at a limited capacity and more expensive whilst the Amukwe-Escravos pipeline route is expected to come online in Q3’18 and would have comparable cost to Forcados. In the same vein, some majors may take advantage of current oil price outlook to invest in alternative evacuation arrangements. 

Despite the looming spectre of the 2019 elections, analysts are cautiously optimistic that 2018 would be a good year for oil & gas infrastructure and production. Though they expect election season to awaken militant threats, they foresee the Federal Government pulling out all the stops to quell any uprising – most likely through further appeasement – given the political and fiscal collateral damage of a negative production shock. 

Therefore, whilst analysts are slightly perturbed by persistent infrastructure integrity issues in the space, they are positive on the efforts made by industry players in mitigating these risks and expect these to yield fruit. 

Source: Analysts at Vetiva Capital Management

Reporting for EasyKobo on Wednesday, 27 June 2018, in Lagos, Nigeria.

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