NIGERIA first began producing oil 57 years ago. Today, it is the world’s 11th largest oil producer, delivering 2 million barrels a day of production into the global system. But it is only recently that local indigenous involvement in the upstream industry began to be anything more substantive than minor equity participation.
The industry has been dominated by international oil companies for decades. The financial clout and technical expertise of the world’s biggest companies kept them in monopolistic positions. While structured as joint ventures, our natural resources were, to all intents and purposes, controlled by foreign companies.
In 2012, daily production attributable to Nigerian companies was not more than 120 000 barrels of oil per day (bpd). Nigerian private sector companies owned just 6 percent of Nigeria’s daily production, despite owning more than 30 percent of licences and despite two decades of attempts to indigenise the oil sector substantively.
All that is now changing. The African indigenous private sector is no longer content to be simple minority partners.
A rapidly growing group of indigenous companies now have the financial resources and technical competence to own and operate assets independently, or to partner far more substantively with international asset owners and financiers.
Oando, for example, recently completed the acquisition of ConoccoPhillips assets in Nigeria, which collectively produce 46 000 bopd, taking its upstream production to 50 000 bpd.
But Oando is not the only one participating in this process. Since 2012, a range of upstream assets have been put up for sale by the majors, with indigenous acquirers a pre-requisite for eligibility.
Shell has already completed one divestment round and is on the verge of completing a second; Chevron has sold assets to indigenous companies as well.
More than 100 000 bpd have already been added to Nigeria’s indigenous production profile and far more can be expected over the coming years.
The Nigerian government has been very active in promoting increased ownership and participation at all levels of the industry and the Local Content Act of 2010 has driven a wave of growth in indigenous oil services companies.
The indigenous companies making upstream acquisitions are different to those of the past. They are not content to simply own the assets and earn the profits from inherited production.
They have plans to grow the assets we are acquiring, to acquire more assets and to use that production to develop a wave of mid-stream and downstream solutions to address one of Africa’s most intractable problems.
To be able do this, it was vital to establish both the financial and the technical competence to deliver against our ambitions. Production asset ownership is the beginning. It means indigenous companies can establish strong cash flows, which can be used for re-investment. At the same time, the traditional obstacle of access to capital is being overcome.
Oando made a strategic decision a number of years ago to acquire a listed company on the Toronto Stock Exchange, which holds its upstream assets and provides a route to international capital.
Seplat have followed suit with a dual listing in London and Lagos. South Africa should be looking to attract more companies to the JSE as this trend will only grow over the coming years.
The continent’s oil boom, and emerging indigenous sector, has not yet stimulated investment in the ability to process and distribute the downstream products that our populations, the consumers, rely on.
While African companies, like Oando, have successfully established themselves as traders in the upstream products they sell and the downstream products they buy; Africa still buys those downstream products from the international market.
Ultimately, Africa must build companies with the financial access and technical ability to operate integrated group’s that deliver commercially viable solutions from the upstream and midstream sectors to the downstream and power sectors.
One of the key drivers for that process will be the development of additional internal technical and human capacity to deliver the solutions that are needed. Africa will continue to require global capital, as any market, whether developing, or developed, does.
But if we can rapidly develop and retain the skills required to achieve world class project development and management, then we can retain significantly greater value within our borders.
Finally, governments have recognised the need to legislate to support the process of indigenisation, both formally and informally.
Whether it is the tacit indication that divestments must go to indigenous companies, or the active passage of local content legislation requiring the enhanced use of local services companies, the Nigerian government has provided a basis for indigenous growth over the last few years that is unparalleled in our history.
With supportive governments, an ambitious private sector and deepening skill sets and knowledge on the continent, the stage is set for an African oil and gas revolution.
Wale Tinubu is the group chief executive of Oando, Africa’s leading indigenous energy solutions provider listed on the Nigerian and Johannesburg Stock Exchanges. He serves on the board of various blue-chip companies as chairman and director. In 2007, he was named a Global Young Leader by the World Economic Forum, Geneva, in recognition of his achievements as one of the leading executives under 41.