Nigerian govt. starts implementing new oil reform law, in bid to boost output in 2022

Africa's largest oil producer Nigeria has finally kickstarted the process to implement its new oil reform legislation as it hopes to boost its beleaguered oil sector, which is suffering from major production setbacks and a wave of divestments from international oil companies, a government official said Jan. 5.

This comes as President Muhammadu Buhari on Jan. 5, appointed members of the board of the newly created state oil company, Nigerian National Petroleum Company Ltd. replacing the earlier Nigerian National Petroleum Corporation.

Buhari also appointed the senior management of the other new oil industry regulatory agencies created under the Petroleum Industry Act (PIA), previously known as the Petroleum Industry Bill.

"There are timelines in the PIA, which must be accomplished within one year, and the appointments and inauguration of the board of NNPC Ltd. is one that signifies a major step the government has taken towards implementing the Act," the government official told S&P Global Platts.

"It means the board and management of the new oil company will have ample time to work out and submit the plans and programs for the new company by the first quarter of this year as provided in the law."

President Buhari signed into law the long-delayed energy legislation the Petroleum Industry Act, last August, and was expected to turn the state oil company Nigerian National Petroleum Corp. to a private company within six months in order to make it easier for the struggling company to raise funds for oil exploration and production.

The new NNPC can now start to seek funds from the global capital markets, and be required to pay taxes and dividends to its shareholders.

The President appointed Margret Chuba Okadigbo and Mele Kyari as the Chairman and Chief Executive Officer respectively of NNPC Ltd.

Okadigbo is a senator from southeast Nigeria belonging to the ruling All Progressives Party. She is also the wife of late former Senate President, Chuba Okadigbo. Kyari was previously the Group Managing Director of the state-owned NNPC.

Buhari, according to a statement by his spokesman Femi Adesina, also named new members of the boards of the Nigerian Upstream Petroleum Regulatory Commission, the Nigerian Midstream and Downstream Petroleum Regulatory Authority and the Midstream and Downstream Infrastructure Fund. "The appointments take effect from the date of the incorporation of the NNPC Limited," Adesina said.

Urgent implementation

Analysts have said Nigeria is under pressure to implement the PIA as soon as possible, failing which the OPEC member may have to contend with a gale of divestment by oil majors.

The Nigerian government is aiming to attract much-needed investment to bolster oil exploration and production and increase reserves and output to 40 billion barrels and 3 million b/d, respectively, by the mid-2020s, but these targets are starting to look unattainable.

Nigeria has the capacity to pump around 2.2 million b/d of crude and condensate, but in 2021 output has been languishing near 1.55 million b/d due to a slew of operational and technical issues.

Ongoing field and pipeline issues, fiscal stress and insecurity in the Niger Delta are likely to continue to threaten the growth outlook for Nigerian oil output, according to S&P Global Platts Analytics.

Nigerian oil supply will grow to 1.7 million b/d by mid-2022, up from 1.3 million b/d in December, but down sharply from levels of 1.9 million b/d in April 2020, Platts Analytics said in its recent forecast.

In 2021, the OPEC member suffered several disruptions on major grades in the due to theft related pipeline sabotage, unplanned maintenance and technical issues.

Many oil majors are also already starting to divest legacy oil and gas assets in Africa as they target net-zero carbon emissions while hanging onto their most efficient and often largest oil projects.

Nigeria could be the worst hit as Shell, Chevron, and ExxonMobil are close to selling their onshore assets in the West African country.