Energy work has long powered Nigerian law firms, but slow progress on legislation is holding up the sector’s growth
Oil and gas have, for many years, been Nigeria’s lifeblood. In 2012 the production and export of crude petroleum and natural gas contributed 37 per cent of the country’s GDP.But that was a drop of nearly four percentage points from the previous year. Crude oil production also fell. Nigeria produced 2.14 million barrels a day in Q4 2012 compared with 2.44 million in the same period of the previous year.
A government report on the economy blamed vandals and oil theft for disruption to the sector, although it noted this was balanced out by international price stability.
Another reason for the decreasing importance of oil could be legislative limbo. In December 2008 the Petroleum Industry Bill (PIB) was introduced into the lower house of the Nigerian parliament, but failed to progress. Last July a revised draft was introduced, but it has progressed only as far as committee stage and a first reading in the upper house or Senate.
The bill proposes a series of far-reaching changes to the regulatory and fiscal structure of Nigeria’s oil and gas industry. The scope of the changes has come in for criticism, with some international oil companies (IOCs) warning that tax rises may deter investment in the sector.
“It’s creating a lot of uncertainty,” confirms Tade Oyewunmi, a senior counsel in Adepetun Caxton-Martins Agbor & Segun’s energy team.
Templars managing partner Oghogho Akpata agrees, saying the fact the bill has not been passed is preventing IOCs from developing assets they own in Nigeria.
“We believe it’s going to be passed ultimately, but it’s going to take a while,” adds Akpata.
He says the PIB could be split into chunks that are implemented separately. For example, the restructuring of the Nigerian National Petroleum Corporation (NNPC) and implementation of the new fiscal regime could be split out of the main bill.
The lack of legislative movement means deals have been in short supply in the past year or so, say law firms. The little M&A activity there has been has predominantly involved the divestment by IOCs of Nigerian assets.
Last year Total sold a 20 per cent stake in an offshore oil field to China Petrochemical Corp (Sinopec) for $2.5bn (£1.7bn), ConocoPhillips agreed to sell its Nigerian assets to domestic company Oando for $1.79bn, and Royal Dutch Shell is looking to get rid of onshore oil and gas concessions in the country.
However, for Nigeria’s law firms, the PIB is generating work.
“It’s given us a lot of advisory work,” says Akpata. He reports that both Nigerian and international clients want to know how the bill will impact them. They want to ensure they have appropriate protection under bilateral investment treaties and can, if necessary, trigger arbitration to deal with problems.
“Asking questions needs legal counsel,” Oyewunmi agrees. “It’s a question of a proper cross-benefit analysis and being able to maintain your business objectives.”
The Nigerian oil and gas sector will certainly change as a result of the PIB, but also thanks to the Oil and Gas Industry Content Development Act, or the Local Content Act, implemented in 2010. Templars partner Adewale Atake says the act has encouraged investment and development by Nigerian companies.
“We are seeing a lot of local Nigerian companies come on stream and participate in the upstream sector more and more,” Atake says.
This is due partly to advantages provided by the Local Content Act and to divestments made by IOCs. The act also requires legal advice to be given by Nigerian firms. As a result, although energy clients for Nigerian firms have traditionally been international, firms say they are seeing more work from domestic companies. It is a good time to be a local lawyer.
“Nigerian law firms are playing central roles in these deals now because they’re not necessarily procured out of Houston, Beijing or Oslo,” says Akpata. “The headquarters of these companies are in Nigeria and Nigerian law firms know the principals.”
Despite the uncertainties created by the PIB and competition from other African states that are beginning to develop their oil and gas industries, lawyers believe Nigeria can still play a dominant role in the energy sector.
“We have a window of a couple of years before the likes of Angola catch up and overtake us,” predicts Akpata. “The PIB is definitely the key in moving forward.”
Key figures: Nigeria
GDP (2011): $244.4bn
Annual inflation (Jan 2013): 9%
Population (2010): 162.5m
Life expectancy at birth: 52
Unemployment (Jan 2012): 23.9%
Source: World Bank, National Bureau of Statistics