Nigeria: Outlook For The Nigerian Oil And Gas Market

Last Updated: 16 September 2015
Article by Raj Kulasingam, Danielle Beggs, David Tennant, Humphrey Douglas and Tim Pipe

Nigeria needs to do more to promote the gas industry so that it becomes an integrated oil and gas producing country that generates as much revenue from gas as oil.

When a conversation with my Nigerian friends and colleagues turns to oil and gas, it inevitably involves the following questions:

  • How is Nigeria going to survive in a world with low oil prices?
  • How should the Buhari regime react to this and related issues (including the perennial issue of corruption in Nigeria)?
  • What are the key issues that are affecting and will shape the Nigerian oil and gas sector?
  • How can the Buhari regime help develop and build Nigeria to achieve its true potential?

Nigeria's oil and gas industry is the largest on the African continent, yet in 2014 it only contributed about 14 percent to Nigeria's economy. Whilst Nigeria's economy is more diversified than most people realise, the Federal Government still relies massively on oil revenues. 70 percent of government revenues and 95 percent of foreign exchange earnings come from oil.

In its 2015 budget, the government assumed US$53/barrel; which was down from US$78/barrel used in the 2014 budget. However, the IMF says that Nigeria needs US$119/barrel to balance its 2015 budget. So with oil prices hovering in the US$50 to 65+/barrel range, the country is already running a deficit and will need to come up with other sources of revenue.

Nigeria needs oil to stop its reliance on oil

Nigeria needs to continue to diversify its economy and stop its reliance on oil revenue. Whilst this diversification requires strong leadership, good policies and political will, it also requires money. So ironically, income from oil is required to diversify Nigeria's economy - to fill the infrastructure gap, to provide power and to create and grow other industries that are holding the country back.

Better tax collection

However, oil revenue is not the only source of revenue for the Nigerian government.

Any Nigerian company looking to come to the international capital markets would do well to take on board the lessons from Afren and Seplat when preparing to come to the market.

According to the World Bank, the country collected the equivalent of less than 2 percent of its national income in tax receipts in 2012; compared to an average of 16 percent for emerging markets and 18 percent for Sub-Saharan African economies.

The IMF also reported that non-oil tax revenue in Nigeria stood at just 5 percent of non-oil GDP. Whereas the average oil producing country collects around three times as much. The solution to this issue is complex and requires all layers of government to cooperate and have coherent policies. However, one fundamental issue is the need to change mindsets and have a culture of tax payment as the norm and part of each citizen's moral and civic duty.

Gas is the way

Nigeria needs to do more to promote the gas industry so that it becomes an integrated oil and gas producing country that generates as much revenue from gas as oil. Take the example of Qatar, which is the world's most dominant gas exporter. It has the highest per capita GDP which is mostly driven by natural gas.

Increases in gas production require investment in gas infrastructure which in turn requires gas pricing that provides the necessary return on investment that is also stable and predictable. The knock-on effect of getting gas onshore is well known, with gas-to-power plants the first in line, and benefits for other sectors such as fertilizer, petrochemicals, cement, etc. This will have a huge impact on the domestic economy through improved GDP, import substitution and employment generation.

Today, the majority of Nigeria's natural gas is still being flared off. It is estimated that Nigeria loses US$18.2 million daily from the loss of the flared gas. For more details see Yet gas flaring has been prohibited in Nigeria since 1984 under the Associated Gas Re-Injection Act Number 99 of 1979. The things required here are both carrot (in terms of attractive gas pricing and incentives to invest in gas infrastructure) and stick (in terms of enforcing this legislation).

IOC divestments and the rise of the Nigerian indigenous oil company

So what is happening in the Nigerian oil and gas industry?

The multi-national international oil companies (including Shell, Total, Eni and Chevron) have been divesting their interests in oil blocks and marginal fields for some time. Many of these assets are Nigerian onshore assets that have been plagued by industrial-scale oil theft, insecurity and spillages.

This divestment programme, together with local content legislation, positive government policies and Nigerian entrepreneurs' ability to raise capital and form alliances with foreign technical partners, has resulted in the rise of the Nigerian indigenous oil and gas companies. The corollary of this has been increased technical competence, job creation and a reduction in capital outflow from the country. Yet there is more to be done on all fronts.

Successes have ranged from the completion of the US$1.5 billion ConocoPhillips asset purchase by Oando to Seplat's landmark listing in Lagos and London in April 2014. Other deals are awaiting ministerial consent and financing. On completion of the divestments, we could see Nigerian indigenous companies controlling 20 to 25 percent of the country's oil production (currently 10 – 15 percent). One thing is certain: the IOCs are going to continue divesting assets in Nigeria and there are clear opportunities for indigenous Nigerian oil and gas companies to take advantage of this.

Marginal fields – why are we waiting?

I wrote about the marginal fields bid process in the first half of 2014. A year or so later, nothing seems to have changed. To recap, under the Petroleum (Amendment) Act No. 23 of 1996, the President has the power to declare a field as a marginal field – i.e. where a discovery has been made but the field has been unattended after 10 years of discovery. For a time, there was considerable hope that the marginal fields programme will further bolster the indigenous oil and gas industry in Nigeria.

However, the marginal fields promise has not reached its full potential. For example, because of the:

  • lack of progress on the current marginal fields licensing round almost two years after. Then-Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, launched the bid process in December 2013 (announcing that the bid round would be completed by March, 2014); and
  • lack of development of some of the marginal fields awarded in the first round of bidding more than ten years ago (see below).

Revocation of marginal field licences – just do it!

In April of this year, it was reported that about 18 of the 30 marginal oil fields awarded to indigenous companies as marginal fields were at risk of being revoked, as the deadline for the development of the fields expired at the end of March 2015. Only nine of these fields have so far been developed and are producing in over 12 years since their awards. These account for just 2.1 percent of the country's total daily crude production.

The question remains as to why these licences have not been revoked and re-auctioned especially given that there has been a two-year (unexplained) grace period extension of the 10-year development requirement which would have ended in 2013. If the intention is for greater local participation, it must be in the interest of the country to re-auction those assets that have not been developed. Perhaps with President Muhammadu Buhari's promise to fight corruption, his administration will be more rigorous in terminating licences that are in default.

There are deals to be done on these non-performing marginal fields to bring them into production. However, with the spectre of a potential licence revocation, any such deals are unlikely to get much airtime.

What does the current slump in oil price mean for Nigerian indigenous companies?

The reality of low oil prices is that there are going to be winners and losers in the Nigerian oil and gas sector.

One notable loser from this cauldron of events is Afren. At the start of 2014, the company was valued at £1.9 billion, or 169p a share and was one of the leading Nigerian oil and gas companies. Today its shares are trading around 2p a share brought about by the fall in oil prices, a boardroom corruption scandal, security issues in Kurdistan, slowing production in Nigeria and a technical default on payments to bondholders. However, the key factors that resulted in Afren's trouble were its high leverage and its debt bill.

The Afren story could easily be replayed with other indigenous Nigerian companies if they are not able to manage their costs and debt profile. However, one person's troubles could well be another's opportunity. Those companies that are inefficient have high production costs or high finance costs aregoing to find it difficult to survive. This gives other companies who have lower production costs and/or lower cost of capital the opportunity to buy into or merge with these other companies – unfortunately for Afren, no such white knight appeared and the company seems to have been handed over to its bondholders.

Governance and transparency

Perhaps one major lesson from the Afren story is the need for good governance and transparency. At a recent event held at the London Stock Exchange (in conjunction with the Nigerian Stock Exchange), this was listed as the biggest concern for international investors. Whilst Afren has suffered, the Seplat story has gone from strength to strength. Increasing investor confidence in its management and corporate governance and the appointment of a diverse board with strong non-executive directors has helped Seplat become the Nigerian poster child for the London and Nigerian Stock Exchanges.

Any Nigerian company looking to come to the international capital markets would do well to take on board the lessons from Afren and Seplat. The prize is access to capital that most Nigerian companies need to grow and to take advantage of the opportunities such as IOC divestments, marginal fields bid rounds and consolidation in the industry.

What else?

I could write pages on what else could be done on the issues I touched on this month but I am rapidly reaching my word limit. So here is a quick summary of some other points for action:

  • carry out a root-and-branch reform of NNPC and the Department of Petroleum Resources;
  • take steps to rout out rampant crude oil theft and trace the proceeds (President Buhari has said that "250,000 barrels per day of Nigerian crude are being stolen and people sell and put the money into individual accounts");
  • deal with the high level of piracy in the Gulf of Guinea;
  • review and pass the Petroleum Industry Bill. (According to Wood Mackenzie, the delay in passing this Bill has denied Nigeria about US$37 billion in private sector investments in the oil and gas industry in the last five years); and
  • put in place clear and coherent laws and policies with strong independent regulators.

The future?

If you are an ice hockey fan, you may have heard of Wayne Gretzky. He summed up his secret to success when he said:

"go where the puck will be, not where it is [now]."

With the puck of oil prices forecast to stay low for the foreseeable future, what Nigeria needs are laws, policies and mechanisms to reduce its reliance on oil revenue.

This article was first published in the August 2015 edition of Financial Nigeria magazine, a monthly development and finance journal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions