1. What conditions necessitated the Nigerian Content Development (NCD) Act? What is the current situation of Nigeria’s upstream industry?

ERNEST NWAPA: The government recognizes that the ultimate goal of policy is to impact the wellbeing of its people. The oil and gas industry is the main driver of the economy, and translating our natural resources to wealth and value has been a discussion since Nigeria gained independence. We have looked at the past 50 years as a government and the performance of the oil and gas industry has been measured primarily in terms of revenue, production, reserves and things like that.

However, when we looked at total value that has been left in the country, when we looked at the impact the whole oil and gas industry has on the overall economy, there was always a short fall. For this reason the government felt it was necessary to pass through some legislation to bring the implementation of the local content policies into sharper focus. That can be said to have been the driving force for Nigerian content.

2. What is being done to ensure Nigeria’s hydrocarbons wealth benefits its people?

BAMIDELE OGEDENGBE? I have a clear picture of the upstream situation in Nigeria, and I have discovered that since 2002, there has not been any net reserve addition, even though there have been discoveries of additional reserves. Generally in the oil and gas industry, assets enter into a state of progressive decline after plateauing, and today we have some 70 percent of the country’s oil reserves in assets that are in declining phase. On top of that, we have a low level of exploration. What we are discovering is far less than what we are producing.

3. What is the potential contribution of indigenous operators to Nigeria’s oil and gas industry?

FELIX AMIEYEOFORI: The first thing to look at is the vision which has been to bring the Nigerian companies into upstream to add to the growth of the industry. To date, this has not been very successful. The first marginal field bidding round in 2003 came up with 24 fields and 31 companies with five fields added later. For marginal field companies, the challenges are first, the ability to secure funds. I remember that when we were trying to secure close to $1 million for a construction project, no bank would give us a loan because we did not have a credit history. We had to go round and round to get financing. Just a handful of marginal field operators are producing, many are out of production, and we know most of them are stranded. The other contributing factor is that even if you do not have the cash, there are ways to turn things around. It is not every time you need $50 million or $100 million. We have been creative in our operations by cutting costs of development. No one will bail us out of the process of getting our oil to the terminal, which requires a level of experience and expertise. To operate a marginal field, there has to be some level of both technical and business experience.

TONYE COLE: A lot has changed with indigenous participation over the years and it is taking time. It has been a learning process with a very steep curve. Indigenous players are here to stay, there is no way they are going anywhere. They are moving forward, but it taking a long time. Lessons were learnt the hard way with very little support. Some things have helped as the years have gone by. I think one of them is that the NCD was passed, which made access to seismic studies and data and rigs easier to obtain. Prior to that, as Felix said, you needed a face with a history, someone who knows you. Whenever you are dealing with people who have no idea who you are, it makes life very difficult. Access to any kind of services depended more on a professional basis of having an established track record. Most of the indigenous players that came in did not have any track record, and support for such companies was not there. Another thing that has helped is that the banks over the years have gotten a bit stronger. We had to talk to them over and over again, but they had slowly started doing things that 12 years ago, they never would have done. Today, we find that there is a bit more lending and support coming from the banks, which is probably because of the NCD.

4. What are the risks of an opaque business environment for a multinational company?

EKE U. EKE: The very first element is that there needs to be a long term investment horizon. Investors in any industry want to see that there is a long-term, stable regime and regulatory framework. The second element is that the regulators need to be seen as been inclusive in their approach, because there is quite a role to be played both by the local players and international players. I will say, a lot of credit goes to the Nigerian Content Development and Monitoring Board (NCDMB), as they have improved in that direction. However, more still needs to be done, because at the end of the day, we have a huge oil and gas landscape in this country, and we actually need a healthy amount of players to have a competitive environment. The third thing is that Nigeria needs to encourage more engagement between the local services sector and the international players here. Naturally, there is a certain level of suspicion between the two groups, but I think they and some of the stakeholders need to encourage more interaction and engagement. This is what will lead to projects being put on stream by means of joint investments or co-investment.

5. To what extent has transparency issues held back local companies from participation in business activities?

FELIX AMIEYEOFORI: The Petroleum Industry Bill (PIB) is trying to make the table flat and even for everyone. The industry is living under a lot of political influence and making the industry more accessible is not easy. The Nigerian National Petroleum Company (NNPC)) and the regulatory bodies are merged in this as well. The PIB is working to separate the NNPC and the regulatory bodies from political influence. One of the things in the bill is to make everything public: accounts will have to be published and operational data acquired will have to be taken to the data bank. One area that is surprising for me, and I hope it works, is that there is now a policing force in the regulatory body that would go and search or even arrest without warrant, which is what the PIB is trying to do. Reforming the NNPC is a major solution, and so its separating its bodies into different agencies or corporations to make them subject to public scrutiny. Otherwise, we will still be in the same model in the post-PIB era. The tax regime must be more transparent too.

6. What should be done to ensure the continued success of the gas master plan and what further incentives need to be in place to encourage the Nigerian gas industry?

TIMOTHY OKON: The problem is the lack of credible buyers for gas and gas infrastructure, so the issue of domestication of gas has to do with creating the necessary conditions for people to build pipelines and other infrastructure. Also, having a pricing framework that is commercial means the domestic obligation is supposed to be delivered obligation. I am not sure we are implementing what was in the October 2008 obligation. What is a delivery obligation? If you have an obligation, you either build a pipe or get third parties to do so. Or will third parties do so if they have the commitment that there is a credible cost to take the gas? Because you need the infrastructure, you need gas transportation agreements.

Secondly, we do not have a clearly defined midstream, which is where the PIB comes in. The PIB must concentrate on making sure that there is a regulator for the midstream. Currently, you have the Department of Petroleum Resources (DPR), which is in technical regulation and has no commercial regulating function. Therefore, you have a supply obligation without a regulator in the midstream to manage the conduct of those who want to use the pipeline and ensure open access, as well as ensure the rules are necessary. So we have people from the upstream side who are willing to supply because we are in the business of selling gas, so we have a physical system that works. This is called the Associated Gas Framework Agreement and I do not know of anybody in the upstream who is complaining of this agreement. A regulator, a clear contract and obligation, as well as gas transportation agreements and gas processing agreements need to be in place. There are some gas supply agreements that have been signed mainly for selling o the power-generating industry, but again, that is where the challenge is, commercial regulation and understanding that the supply obligation is a delivery obligation. It is not supposed to be something that you carry along and then wait until the pipeline gets filled. You need a regulator to ensure open access, because without that you will still have the problems that we see today.

7. How important is the participation of local investors going to be for the overall success of Nigeria’s gas master plan?

EMEKA ENE: I think it is extremely critical. What is going on now with the gas master plan is that it is being rolled out the same way the gas network was created or the way product pipelines were created: driven by government. There is a need for infrastructure, and they give contracts, as well as lay out a network that is not private sector driven. Nigeria has roughly the same population as Brazil, but we only generate 5 percent of the electricity that Brazil generates. The thing is that we keep throwing money away at a problem. If the government says that they can legislate, or they can actually create this network and the results will be taken care of. However, stop for a moment and think that more than 2000 kilometres of pipeline are going to be laid. Has anybody stopped to think of where those pipes are coming from? So, if all we are interested in is how to create a market, we have to jack up the grids and we have to build a pipeline, because at present, all the pipes, the valves, the connections and the T’s have to be imported. Without thinking through a strategy of integrating local investment, particularly on the local content side to roll out a gas master plan, it will not be sustainable. We will just be going down the same road as we went with the product pipeline network. Two other strategies that will help are low-hanging fruit, such as flared gas, pockets of gas stranded all over the country and associated gas, which today, the DPR says its 12mcm (1.2 bcf). Some people claim it is 17mcm (1.7bcf). Whatever the number, the fact is that just one flare is almost equivalent to 200,000 thousand litres of diesel being burnt everyday, so you can imaging the economic value added by the process if you allow the private sector to provide flared gas solutions to all these pockets of gas all over the place.

8. What do you think local communities need and want from contractors on the ground?

CHARLES NWANKWO: Local communities need to be part of the development. They need to feel that ownership is part of their heritage. We need to have regulation that makes it possible for the local communities to actually participate.

KINGS AKUMA: From my experience, communities want to be part of the development and progress that they see. When Nestoil went to do a lot of projects, we aligned ourselves with the local community. Before the communities will feel exploited; where the international oil companies are working on oil, every facility around there had electricity. They have everything and next to this site the community lives in huts.

TONY OKON: I think we should not be overly too enthusiastic about these issues. Nigeria has a long history of special funds, so let us not assume that a special fund will be successful by itself; governance is more important. There is sufficient money in the Niger Delta, there really is. It is the governance that is the most critical element; regardless of the funds you are setting up, including the participation of those communities.

9. What can large contractors do to have a lasting impact upon the employment rate of host communities?

VITO TESTAGUZZA: Being a large contractor in Nigeria, we know the huge challenges as well as opportunities. Most of it is between managing expectations versus what really can be offered. I look at it from a local community contractors’ perspective mainly, as they always come with a lot of willingness to come and work, whereas, we come with a lot of work to be done that requires specific quality, certain timing and within a budget. One of the biggest challenges is that we have to manage this kind of balance, and it takes a lot of commitment throughout the organisation. Part of our success as the main contractor is making community contractors grow. Looking at opportunities, what we gain as contractors, if we put in this kind of commitment, is the best working environment that we could have and I think that is the best for success in working in Nigeria. By working with this approach, the opportunities are more plentiful than the challenges, so I think that is the way to go.

10. What are the achievements in promoting Nigerian Content the NCDMB has made?

ERNEST NWAPA: At the end of the day it all boils down to what I said before: impact upon the people and what this means for the industry. It is the application of knowledge and employment. Traditionally, people look up to the operators but we know now that the operators cannot be relied on to employ large numbers. Instead, we must continue to rely more on the services companies and the technology providers, which is the way the industry is moving. The proper local content measurement by any means is the amount spent in the Nigerian economy in proportion to the total amount spent. When you do that part, you only get 12 percent, and even then, you are not taking care of other costs. So, to trap more money in Nigeria, you have to do more in the country. But it goes beyond value retention; you need to create facilities in Nigeria where people will work productively. The industry had better start creating facilities and insisting that work be done in Nigeria at all costs. Once you do that, the industry will progress and we have seen it happen already: where the work is being done in Nigeria, the costs are going down. We have created new pipe mills, and new investors are coming in. Fabrication capacity has increased, and Siapem and Nestoil, presently here today, are good examples of that. Investments in local facilities have reached $2 billion. We have to go in and start looking at manufacturing; there is enough business in that sector, that much is clear. Yes, investors worry about power, about bad roads, about insecurity but their greatest worry is whether the Nigerian government, the NNPC or the industry are going to insist that you use what they have invested in. Once they get that sorted we will see them moving ahead. The components manufacturing initiative is working quite well. Shell has taken over and we have seen some 25 original equipment manufacturers, including companies such as GE, Cameron, Aker Solutions and other global companies setting up facilities in Nigeria. These technologically advanced facilities also offer a chance to develop the skills of Nigerians without having to send them abroad.

We also have focused on asset ownership. Approximately $4 billion worth of spending on marine vessel and rigs was just going out of the country. Most people leased vessels so you come in and even the Nigerian companies just lease vessels For every $100 that is paid for those services, a Nigerian will take $2, whereas $80 to $95 was paid to the economy where those vessels came from, and that has stopped. For two years we have worked to reverse that trend. The banks that thought Nigeria could not afford marine vessels, today, every week – I am not exaggerating – are willing to support marine vessel initiatives by putting up money. The questions come back again: how do we put these marine vessels to work?

11. How do international oil companies see the role of the state-owned NNPC changing in the near future?

KINGSLEY OJOH: We always hear in the press about the position of the Petrobras, Sonatrach and the likes, and how they have been able to stand their ground as corporate outfits for their countries. The NNPC has all the potential when you see the level of locals who are working in private oil companies. We think that the NNPC has what it takes to compete at the same level as Petrobras and Sonatrach. We think that it will be very good for the NNPC to be able to compete as an independent outfit.

12. What are the specific challenges indigenous services providers faces in the process of trying to build capacity?

EMEKA ENE: People tend to complain about what I will call access to work. This is because they do not have the workforce capacity and, as a result, in trying to build capacity, they find another way of a partnership arrangement where it either succeeds or fails depending on how it is structured. The act in itself envisages a model: plan, do, check and act. People tend to enter into the “do” part about it without bothering to go through the process of planning first, which causes problem down the road. A Nigerian company with capacity should have work and that work should not disappear somewhere else.

13. What are the Problems associated with transferring capital intensive assets such as rigs to local ownership?

GABRIEL ORAMASIONWU: I think we need to look at the drilling rigs as an asset and work on making the asset resident within the Nigerian economy. If you actually look at it, it is not an issue of it being of shareholding or local ownership, but of complying with the law. I can give you a specific example of a case point; Indigo Drilling, a Transocean subsidiary company.

What we had to do was to form a relationship between our existing support company, Transocean Support Services Nigeria, and integrate our Nigerian shareholders to the extent that they actually own the new company. Through that ownership, we are able to transfer the assts straight into Indigo at the beginning of the contract. That opens a lot of doors, such as financing opportunities for Nigerian institutions. We are presently looking at how to purchase a rig for Indigo, and Nigerian banks are working with us on this. This in turn creates trickle-down effects. The challenge is that when you do this kind of transaction to justify your effort and commitment, meaning that we as an industry have to start thinking about what the duration of our contract is. I would like to have a drilling rig that is inside a Nigerian entity and working here in the country its entire working life. We also need to look at best practices from around the world. I have seen Norwagians and Brazilians offering seven-year contract with multiple options. These are areas we should encourage here in Nigeria in order to provide incentives for the asset residency to continue to happen.

14. What are the capabilities and short of indigenous service providers?

EMEKA ENE: PETAN as an organization represents 55 of the top Nigerian oil service companies. Nestoil happens to be a member of PETAN, just to give you an example of the reach and extent of PETAN. We offer more than 250 discrete technical services, thereby, recovering the full value chain from drilling exploration and all the way to production and facilities. Indeed, the framework for growing the industry is through what I will call a hybrid partnership model; in other words, growth by PETAN and Nigerian services industries at large is actually a magnet for that process. In terms of capacity, when we look at the act and compare it to the actual in-country capacity today, there is almost a $40-billion difference. It should be both an attraction for foreign investment and also, a challenge to grow capacity. However, there are three challenges, which we call the three C’s. The first one of course is growing capacity. The second one is capitalization, where we come into alignment for bankable projects and longer-term contracts. The third one is consistency in government policies where you have the taxes and import duties on unfinished vessels that are lower than imports on sheet steel. Those inconsistencies are what we need to bring into alignment and the NCDMB is well-positioned to achieve them.

GABRIEL ORAMASIONWU: There are some capacities in Nigeria. Is it enough? No. We have places to go but we have to start on this journey. I will give you an example. A few years ago, the idea of doing shipyard work in Nigeria was only a mirage and there were excuses of different kind why it could not be done; there is junk in the channels; the water depths are too shallow. In November 2009, we did the first shipyard maintenance for our Adriatic rig. It was the engagement of all stakeholders and at the end of the day, the debris in the channel was removed. We worked together with Nigerdock and it was a successful project, making it an example of the multiplier effect.

15. What is Nigeria’s record in exporting local talent to the oil and gas industry globally?

TONYE COLE: Nigerians are a people on the move. We are comfortable in any country, so that is one of the skills that we already have. One of the things I know we are good at as a people is entrepreneurship, but it is not something that we export very well. Once we leave the shores of Nigeria, we are faced with a barrage of people who believe we are all corrupt, that we are all criminals and that we cannot do anything right in that environment in an honest way, which is very wrong? It is insulting to Nigerians and it is something that we have to address. We have always found Nigerians to be extremely intelligent; you would see that they would rise within the organization they represent and the managing directors of Schlumberger and Transocean are good examples in that regard. We need to work extremely hard on that misconception to show that it is a very small percentage of Nigerians that are causing the general perception. The likes of the NCDMB, the NNPC and the government must understand how we can drive out this perception and make exporting Nigerian content a national issue. Once the NCDMB does what they have to do in Nigeria, I can assure you, as soon as Nigerians begin to understand that they can succeed within Nigeria, they will venture abroad to neighbouring countries, Equitorial Guinea, Angola, Ghana and beyond.

EKE U. EKE: I will echo what my fellow panelist has said on this subject. In terms of abundance of intelligent human capacity in Nigeria there is no question that there is also a good measure of expectation of Nigerian talent. However, I am not aware that there is really an articulated framework to be able to support that. Considering the quality of people we produce in Nigeria, we need to look at a number of industry training institutes geared towards providing talents for the oil and gas industry. Secondly, we need to think beyond exporting people, we need to look at exporting services, and if you want to export services, you also need to think of using Nigeria as a hub to do that. This can be done by both international and local companies but to enable exportation of services, we need to look at regulatory frameworks. Today, we have a ban on exporting what is brought into Nigeria, which means if I have a company with equipment in Nigeria and I secure a project in Cameroon, I would not be able to use that equipment to support the project in Cameroon because there is a law that prevents me from doing so. We could also make an exclusion in this regulation for oil and gas industry. Some neighbouring countries have enabled companies to create free zones within their own facilities. A Nigerian company with operations outside the country should have the ability to set up a free zone of their own which they can utilize to serve those activities outside of the country without having to incur extra taxes going back and forth.