AN ANALYSIS OF THE IMPACT OF THE NIGERIA OIL & GAS INDUSTRY CONTENT DEVELOPMENT ACT, 2010


Content

ABSTRACT

This project analyses the impact of the Nigerian Oil and Gas Industry Content Development Act (2010) on the country’s petroleum industry.

Prior to the NOGICD Act, the Nigerian petroleum industry was not only dominated by foreign oil exploration and production companies since the beginning of petroleum production in 1958, most oil servicing and support contracts were also awarded to foreign contractors at the expense of indigenous firms.  As a result of this, over $380bn was lost to capital flight; over 10 million direct and indirect jobs were lost; and indigenous companies lost the opportunity to develop local oil and gas capacity required for them to get contracts and retain some of the annual oil and gas industry’s spending in Nigeria.

The Nigerian Oil and Gas Industry Content Development Act (2010) is, therefore, designed to enhance the level of participation of Nigerian companies in the country's oil and gas industry. With the NOGICD Act, the government has clearly established its intention to increase indigenous participation in the industry in terms of human, material and economic resources.

The study, therefore, examines the impact of the Act on the industry.  The implementation methodology/strategy, the short-term gains, and the challenges facing the Act were also examined.

Poor implementation and low compliance by IOCs are identified as major challenges facing the Act and it was recommended that the Nigerian Content Development and Monitoring Board, the implementation agency for the Act, do more in the area of monitoring and enforcement of the law.

 


 

TABLE OF CONTENTS

PAGES

Title Page                                                                                                                                i

Declaration                                                                                                                              ii

Certification                                                                                                                            iii

Dedication                                                                                                                              iv

Acknowledgements                                                                                                                v

Abstract                                                                                                                                  vi

Table of Content                                                                                                                     vii-x

 

Chapter 1

1.1. Background to the study                                                                                                 1

1.2. Statement of Research Problem                                                                                       3

1.3. Aims and Objectives of Study                                                                                        4

1.4. Research Methodology                                                                                                   5

1.5. Significance of Study                                                                                                      5

1.6. Scope and Limitation of Study                                                                                       6

1.7. Synopsis of Chapters                                                                                                       7

1.9. Definition of Terms                                                                                                         9         

 

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction                                                                                                                      11

2.1. Historical appraisal of the Nigerian Oil and Gas Industry                                              13

2.2. Development of Oil and Gas Law in Nigeria                                                                  15

2.3. The petroleum Act                                                                                                           18

2.4. The Petroleum Industry Bill                                                                                            24

 

CHAPTER THREE

3.1. Evaluation of the NOGICD Act 2010                                                                            24

3.2. Losses due to Lack of Local Content Laws                                                                    27

3.3. Nigerian Content Development and Monitoring Board                                                  28

3.4. Nigerian Content Plan                                                                                                     30

3.5. Nigerian Content Compliance Certificate                                                                       31

3.6. Nigerian Content Development Fund (NCDF)                                                               32

 

CHAPTR FOUR

4.1. Impact of NOGIGD Act on oil and gas industry                                                           34

4.2. In-Country Manufacturing                                                                                              35

4.3. Marine Vessel Ownership                                                                                                37

4.4. Offshore Rig Acquisition                                                                                                38

4.5. Pipemill Scheme                                                                                                               40

4.6. Nigerian Oil and Gas Industrial Park Strategy                                                                41

4.7. Employment and Training Initiative                                                                                42

 

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1. Summary                                                                                                                          44

5.2 Challenges facing Nigerian Content Development                                                          47

5.3. Conclusion                                                                                                                       50

5.4. Recommendation                                                                                                             51

        References                                                                                                                      55                                                                   


TABLE OF CASES

                                                                                                                                        PAGES     

Anthony Atubie v. Shell B.P. Development Co. of Nigeria Ltd (Unreported)                     12

Chief Otuku v. Shell B.P. (1985)                                                                                           12

Chinda v. Shell BP Development Co of Nigeria Ltd (Unreported) 1974                              12

Elf Nigeria Limited v. Opere Sillo (1994) 6 N.W.L.R. (Pt. 350) 258                                    12

Gbemre v. Shell Petroleum Development Co Nig. Ltd & Ors                                              

NOGC 5(2005-2006) 51 S.C                                                                                                  12

Mobil Producing Nig Unltd v. Udo. NOGC 6 [2007-2008]                                                  12

Sam Ikpede v. Shell B.P. (Nig) Ltd                                                                                      12

Shell Petroleum Development Company Limited v. Adamkue

(2003) 11 N.W.L.R. (Part 832) 553                                                                                        12

Shell Petroleum Development Company (Nig) Ltd v. Chief Joel Amaro & 12 Ors

NOGC 2 [1996-2000] 360 C.A                                                                                              12

Shell v. Farah. (1995) 3 N.W.L.R (Pt. 382) 148                                                                     12

Shell Petroleum Development Company of Nigeria Limited v. H.B. Fishermen

(2002) 1 W.R.N                                                                                                                      12

Shell Petroleum Development Co. of Nig. Ltd v. Isaiah (2001) 11 N.W.L.R (Pt.723)..

 Shell Nig. Ltd v. Kwame Ambah (1996-2000) NOGC 2, 271 S.C.                                     12

S.P.D.C. Nig Ltd v. Lalibo (2009) 14 N.W.L.R. (Pt. 1162)                                                  12

 

 

 

LIST OF STATUTES

v  Nigerian Oil and Gas Industry Content Development Act 2010

v  Mineral Oils Ordinance 1914

v  Petroleum Act promulgated as Decree No. 51 of 1969 (now Cap. P10 Laws of then Federation of Nigeria 2004)

v  Petroleum (Drilling and Production) Regulation 1969.

v  Mineral Oils Act No. 17 of 1925

v  Mineral Oils Act (Amendment) Ordinance 1959

v  Petroleum Profits Tax Ordinance 1959

v   Petroleum Ordinance of 1889

v  Mineral Regulation (Oil) Ordinance of 1907

v  Hydrocarbon Oil Refineries Act (Cap. H5, LFN 2004)

v  Petroleum Act (Amendment) Act 1998, (DecreeNo. 22 of 1998)

v  Associated Gas Re-Injection (Continued Flaring of Gas) Regulations 1984

v  Constitution of the Federal Republic of Nigeria (1999) As Amended

v  Niger Delta Development Commission Act 2000

v  Nigerian Minerals and Mining Act 2007

v  Petroleum Industry Bill 2011

v  Petroleum Production and Distribution (Anti-Sabotage) Act LFN 2004

v  Petroleum Products Price Regulation Act LFN 2013

v  Petroleum Profits Tax Act LFN 2004

v  Petroleum Equalisation Fund Act, Cap P11

v  Petroleum (Special) Trust Fund Act, Cap P14

v  Petroleum Technology Development Fund Act, Cap P15

v  Petroleum Training Institute Act, Cap P16

v  Oil Terminal Dues Act

v  NNPC Act

v  Oil in Navigable Waters Act.

v  Nigerian Liquefied Natural Gas Act

 

 

 

ABBREVIATIONS

§  OPEC:                                     Organisation of Petroleum Exporting Countries

§  NOGICD Act:                                    Nigerian Oil and Gas Industry Content Development Act

§  NCDMB:                                Nigerian Content Development and Monitoring Board

§  IOCs:                                      International Oil Companies

§  NNPC:                                                Nigerian National Petroleum Corporation

§  NNOC:                                   Nigerian National Oil Corporation i

§  BCF:                                       Billion Cubic Feet

§  BCF/d:                                                Billion Cubic Feet a day

§  Cap:                                         Chapter

§  DPR:                                       Department of Petroleum Resources

§  Ed.:                                         Edition

 

§  TCF:                                        Trillion Cubic Feet 

§  b/d:                                          Barrels per day

§  IEA                                         International Energy Agency

§  PSC:                                        Production Sharing Contract

§  PSA:                                        Production Sharing Agreement

§  PPTA                                      Petroleum Profits Tax Act, Cap P13 LFN 2004

§  JQS                                         Joint Qualification System

§   ECMI                                     Equipment Component Manufacturing Initiative

 



CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Though oil production in Nigeria began in 1958, the oil and gas industry in the country was initially the exclusive domain of International Oil Companies such as Royal Dutch Shell, Chevron, Exxon-Mobil, Agip and Total. For 52 years, Nigerians were unable to harvest technological, industrial and economic benefits from the oil and gas activities because the industry was dominated by IOCs, not just in exploration and production but also in trading.

As a result of this, over $380 billion was said to have been lost to capital flight in the past three decades of oil exploration in the country, and this was said to have been aggravated by the loss of over 10 million direct and indirect jobs; loss of investments in development of local fabrication yards and facilities; and loss of the opportunity to develop local oil and gas capacity.1In view of this, Nigerians are always complaining that they have not been able to see the economic benefits of oil companies operating in the country.2

Generally, Nigeria lost the opportunity for industrialisation through oil and gas activities and currently lacks capacity in building drilling rigs, pipelines, valves, pumps, production platforms, marine vessels, as well as Research & Development that are very critical to oil and gas operations.

The oil and gas sector is the driving force of the nation’s economy and the development of local capacity in critical areas of the industry will ensure that Nigerians benefit from the multi-billion dollar investments circulating in the oil and gas industry and those expected to flow into the country after the passage into law of the Petroleum Industry Bill.3

In April 2010, therefore, the Nigerian Oil and Gas Industry Content Development Act was signed into law to increase indigenous participation in the oil and gas industry. The key thrust of the NOGICD Act[1] is to maximise utilisation of Nigerian made goods, human resources and Nigerian owned assets in the petroleum industry. It is also expected to link the oil and gas industry to other sectors of the economy, ensure participation of indigenes and oil producing communities in all aspects of oil and gas business, and foster institutional collaboration.[2]As a basic principle, therefore, the Act gives preferential treatment to all Nigerian companies operating in the industry. It also requires that the promotion of the Nigerian content development shall be a major concern in all projects and operations in the oil industry.

More succinctly, the Act provides that Nigerian independent operators shall have first consideration in the award of oil blocks and lifting licenses, among others, in all projects for which contracts are to be awarded.

In other words, the law applies to all spheres of the industry not only contracting but job creation, training and domiciliation of capacity, technology and services; and the development/upgrade of facilities and infrastructure.

Practically, the Act aims to increase local asset ownership, supplier and infrastructure development, manufacturing, training and research and development.

Following  the passage into law of the NOGICD Act in 2010,  the Federal Government had issued short term targets to the oil and gas industry  and by 2015, expects that $10 billion  out of the $20 billion  average annual oil and gas industry spend should be retained in Nigeria. Other targets include the creation of over 30,000 direct employment and training opportunities; establishment of three to four new pipe mills to service industry demands; development of one or two dockyards and utilisation of existing shipyards; transformation of ownership profile of the marine assets supporting offshore operations; integration of indigenes and businesses residing in the oil producing areas; and capturing of over 50 – 70 per cent of banking services, insurance risk placements and legal services in the petroleum sector.[3] The NOGICD Act, often called the Nigerian Content law, is being implemented by the Nigerian Content Development and Monitoring Board.

By establishing local content requirements for 285 separate goods and services[4]  the NCDMB[5] aims to retain $10 billion locally of the annual $20 billion in oil and gas investment and create some 300,000 new direct jobs.

Operators are thus required to give first consideration to local contractors and award them contracts if their pricing is within 10 per cent of the cheapest rates available internationally. All else equal, local firms with a proposal of 10 per cent more expensive should still win the contract.[6]

Though the NCDMB has at various times canvassed strong arguments to justify the local content initiative of the government, not much study have been done on the impact of the Act on the oil and gas industry so far, especially as it affects indigenous operators. It is therefore hoped that this long essay will examine the impact of the NOGICD Act on the oil and gas industry, give a better understanding of the dynamics of the act, and thereby results in a better appreciation of the subject matter.

This study is an evaluation of the short-term impact of the Act on the oil and gas industry and it is expected to be an independent assessment of how much of indigenous participation has been achieved so far on the country’s oil and gas landscape.   

1.2 Statement of Research Problem

This study analyses the Nigerian Oil and Gas Industry Content Development Act, 2010; its impacts on the country’s oil and gas industry regarding indigenous participation and the attendant capacity development benefits expected to accrue to local oil companies as well as host communities.

The challenges facing local content development in the country underscore the research problem that is the focus here.

 

1.3  Aims and Objectives of the Study

An attempt will be made to evaluate the oil and gas industry prior to the passage of the NOGICD Act and the post-NOGICD Act milieu in view of how well indigenous operators have done vis-a-vis contributions to the Nigerian economy by Nigerian oil and gas concerns.

The study will specifically examine the developments so far recorded across different verticals of the oil and gas industry following the commencement of the implementation of the NOGICD Act.

How the Act has helped in promoting the increased utilisation of indigenous skilled manpower and encouraged training of Nigerians in meeting the increasingly complex needs of the oil industry will also be a major focus in this study.  

This study will not be complete without looking at the execution strategy of the Federal Government through the NCDMB, the implementation agency of the local content law which has been mobilising for the development of indigenous capacity in the oil and gas industry.

One of the greatest problems facing the NOGICD Act is low compliance by IOCs operating in the country. Recent developments have shown that these international players deploy certain strategies through which they circumvent the laws at the expense of indigenous manpower that should directly benefit from the Nigerian content initiative.[7]As such, attention will also be paid to the challenges facing the NCDMB in the implementation of the Act via-a-vis strict compliance to its requirements in awarding contracts for oil and gas projects in the country.

1.4  Research Methodology

This work employs the analytical research methodology, and it relies basically on primary sources of information such as the NOGICD Act, available reports and paper presentations by the NCDMB responsible for the implementation of the Act and monitoring of stakeholders’ compliance with the provisions of the Act.

Currently, there are limited studies on the NOGICD Act and its impacts on the oil and gas industry, but readily available newspaper articles, position papers by law firms and legal analysts were also relied upon.

Authorities on the Nigerian oil and gas law were cited in order to give the study a broader perspective since the NOGICD Act is one critical aspect of the laws governing the oil and gas industry in the country.

1.5       Significance of the Study

The decision to carry out a critical analysis of the impact of the NOGICD Act, 2010 could not have been made at any better time than this because it is the first attempt by the Nigerian Government to drive increased indigenous participation in the oil and gas industry through deliberate policy development embedded in the Act.

Before the passage of the NOGICD Act, the Federal Government had largely relied on royalty and petroleum tax from IOCs operating oil fields under Joint Venture and Production Service Contract arrangements with the former through the Nigerian National Petroleum Corporation. Oil exploration and production support services in the areas of vessels provisioning, drilling, supplies, analysis, dredging, technology, communication and fabrication were largely contracted to foreign firms. The implication of this, however, is that the activities of international oil giants in Nigeria are being responsible for a very huge capital flight at the expense of the Nigerian economy.

Though the oil and gas industry is Nigeria’s biggest revenue earners, the benefits accruing to indigenous companies have been so inconsequential over the years, hence, the NOGICD Act (2010).

Considered as a game changer in the country’s oil and gas sector, the need to critically examine the implications, impacts, gains and the challenges of the NOGICD Act cannot be over emphasised. 

More so, the government had set targets for the industry to reduce capital flight, create more jobs and generally increase the take of indigenous companies in the oil and gas value chain.

Since it is very critical for Nigeria to maximise value from oil and gas activities in order to increase local participation in the industry’s value chain, throwing more light on how this target is being propelled is very germane and this exemplifies the purpose of this study.

 

1.6 Scope and Limitation of the Study

The scope of this study is quite wide and it analyses the impact of the NOGICD Act, its implementation strategies, the compliance level and the challenges.  In other words, it dissects the provision of the Act as a basis for the regulation of petroleum industry activities as they relate to indigenous companies.

It also focuses on the impact of the Act on the industry as well as verifiable growth trajectory across various verticals of the oil and gas industry.

 Apart from core oil exploration and production, the study aims at reviewing and revealing the development recorded as a result of the Act in oil service industry such as drilling and offshore vessel service provision, engineering, pipeline manufacturing, fabrication, offshore welding and repairs, safety, Information and Communication solutions, Environmental Impact Assessment and laboratory analysis, among others. 

However, this is not in isolation as the study also delves into historical perspectives on the Nigerian oil and gas industry while looking at different laws that have guided the operations of the industry from the colonial era till the passage of the NOGICD Act in 2010.

The study is not without its limitations. Considering the fact that the NOGICD Act is just four years old, critical studies on the Act are almost non-existent. This study, however, attempts to set the tone for future studies of the Act.

1.7. Synopsis of Chapters

This study is organised along thematic lines and broken into five chapters summarised as follows

1.7.1. Chapter One

The first chapter gives a brief background to the study emphasising the imbalanced benefits received by local companies and indigenes of oil producing communities from oil exploration and production activities in the country compared to the largess enjoyed by International Oil Companies operating in Nigeria.

It also focuses on how the NOGICD Act, 2010 was passed to serve as a game changer by reversing the trend of huge capital flight through increasing local participation in the industry.

The aims and objectives of the study, research methodology as well as the justification for the study are clearly highlighted.  The study’s scope and limitation precede the chapters’ synopsis as well as definition of terms.

1.7.2. Chapter Two

The second chapter sets the tone for the study appraising the Nigerian oil and gas industry, and the development of the law governing activities in the sector, while focusing on the current legal framework for the industry. This dovetails into the Petroleum Industry Bill, which will subsume all the current laws guiding the oil and gas industry when passed into law.

The second chapter  evaluates the NOGIGD Act, 2010 and attempts to quantify/ assess the losses recorded in the oil and gas sector due to lack of local content laws. The Nigerian Content Development and monitoring Board, the implementing agency and the driver of the local content initiative is dissected in this chapter vis-a-vis its structure, medium term targets, and implementation strategies of the Nigerian content laws.

It also looks at the Nigerian Content Monitoring and Evaluation Process where attention was paid to intervention, compliance and performance monitoring processes.

 

1.7.3 Chapter Three

The chapter three looks into the implementation methodology under the NOGICD Act in areas such as capacity development, equipment components manufacturing, marine vessel ownership, offshore acquisition strategy and pipe mill scheme.

Others are employment and training as well as other veritable initiatives such as the Nigerian Content Joint Qualification System, Nigerian Content Development Fund, Expatriate Quota Management, and the Nigerian Oil and Gas Industrial Park Strategy.

 

1.7.4 Chapter Four

Chapter four takes an analytical evaluation of the impacts of the NOGICD Act on the oil and gas industry, looking at how far indigenous players have gone in offshore construction, offshore support vessel acquisition, dry-docking and shipbuilding and in-country manufacturing. The analysis continues by looking at the impacts of the Act regarding local capacities in logistics and rig maintenance, and employment and training initiatives.

The chapter also looks at the various challenges bedevilling the Nigerian Content Development initiative as well as the litigations cases, if there are, over Local Content compliance in the country.

 

1.7.5 Chapter Five

Chapter five rounds the whole exercise off. IT summarises the discourse while focusing on the challenges facing the local content development drive of the Federal Government and recommending viable steps to take in achieving the Nigerian Content target in the country’s oil and gas industry 

 

1.8. Definition of Terms

1.    NOGICD ACT

According to Section 107 of the Act, NOGICD Act means the Nigerian Oil and Gas Industry Content Development Act, 2010.

2.   NIGERIA CONTENT

In Section 106, the “Nigerian Content” is defined as “the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through deliberate utilisation of Nigerian human, material resources and services in the Nigerian oil and gas industry.”

3.  NIGERIAN COMPANY:

A “Nigerian Company” is defined as: “a company formed and registered in Nigeria in accordance with the provisions of Companies and Allied Matters Act with not less than 51 per cent equity shares by Nigerians.”

4. MINISTER:

“Minister” means the Minister of Petroleum Resources.

5.  NNPC JOINT VENTURES:

“NNPC Joint Ventures” means oil companies that executed various petroleum agreements with NNPC;

 

6. NIGERIAN OIL AND GAS:

“Nigerian oil and gas industry” means all activities connected with the exploration, development, exploitation, transportation and sale of Nigerian oil and gas resources including upstream and downstream oil and gas operations.

7. OPERATOR:

“Operator” means the Nigeria National Petroleum Company (NNPC), its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and gas company operating in the Nigerian oil and gas industry under any petroleum arrangement;

8. PARTNER:

“Partner” means any foreign company working on any project in partnership or as major contractor to an operator.

9. PLAN:

“Plan” means a Nigerian content plan submitted in compliance with any aspect of the NOGICD Act.


 



[1] NOGICD Act stands for the Nigerian Oil and Gas Industry Content Development Act.

[2] Nwapa, Ernest. 2013. Nigerian Content Development. An unpublished paper presented at the 3rd Practical  

   Nigerian Content Conference in Yenogoa, Bayelsa State.

 

[3] Nwapa, Ernest. 2013. Nigerian Content Development. An unpublished paper presented at the 3rd Practical 

   Nigerian Content in Yenogoa, Bayelsa State.

[4] Schedule to the Nigerian Oil & Gas Industry Content Development Act, 2010,

[5] NCDMB is the acronym for the Nigerian Content Development and Monitoring Board, the implementation   

   agency monitoring the development of the local content law in Nigeria.

[6] NOGICD Act, 2010.

[7]  Dayo Oketola, “Non-enforcement, Nigerian Content’s greatest threat“ (April 24, 2014) available at    

    http://www.punchng.com accessed on 17th June, 2014.

Order Complete Project