Local oil firms risk collapse amid low price – Punch

By Femi Asu

The participation of local firms in the Nigerian oil and gas industry may have fallen significantly as the slump in global crude oil prices has left many of them without contracts.

The sharp drop in prices has forced oil companies, including the big ones, to cut capital expenditure budgets, lay off employees and suspend some projects.

Global benchmark Brent crude, which peaked at $115 per barrel in June 2014, fell to as low of $27 per barrel in January this year. It traded around $45 per barrel on Wednesday.

Industry experts, who spoke with our correspondent in separate interviews, described the sustained low oil price regime as a major threat to the gains recorded by the Nigerian local content initiative.

The Nigerian Oil and Gas Industry Content Development Act or local content, which came into existence on April 22, 2010, has boosted the participation of local firms in the industry in recent years.

The Act, which directly affects operating companies, contractors, sub-contractors and service providers, seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials and to promote the employment of Nigerian staff in the industry.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said, “One of the key segments that we saw a lot of local players participating in, which has been affected by the oil slump, is drilling .”

He said a lot of Nigerian companies, because they couldn’t access oil fields, went into provision of drilling services.

“But unfortunately, the slump in crude oil prices has now forced a lot of oil companies to cut their drilling programmes. So, their needs for this particular type of services have dropped significantly.

Citing data from Baker Hughes, Oni said the rig count for Nigeria dropped to just six (four offshore and two onshore) in February, as against 33 rigs or more at a time in the past.

He said, “Clearly, that industry has really taken a major hit. Most of the drilling companies are complaining that they have rigs but no jobs.

“Another segment that we saw a lot of Nigerians going into was marine logistics. But it had been manageably okay because whether you are exploring, appraising or doing field development, as long as your site is offshore, you will need boats and helicopters.”

Oni said some of the local firms “have been going under water already,” adding, “Just that because that segment is very private – they are not public or quoted – we don’t hear those stories. A lot of them have had to look at other lines of business, move out of their core business because there is absolutely no business there again. A lot of them have laid off staff.”

The President, Nigerian Association for Energy Economics, Prof. WumiIledare, noted that the activity level in industry had gone low because of the low oil price regime.

He said, “There is not much activity in the industry. The people providing most of the national content-driven services, there is no job for them to do.

“If you look at the drilling companies, the wireline services companies, even the indigenous oil and gas companies are grossly affected because of this low oil price regime. More so, when they have to depend on foreign exchange to be able to execute some of the things they are doing.”

The professor of petroleum economics noted that the oil slump might force some local firms out of operation, saying, “What will you do if you can’t keep your door open because the service you want to render is not being demanded?

“In order to prevent that from happening, government needs to look at what they can do in order to sustain indigenous participation in the oil industry.”

Iledare said under a low oil price regime, government could put in place incentives to encourage oil and gas companies to engage in activities that they would otherwise shy away from at a time like this.

“This will make it possible for local companies to be engaged and it will have a multiplier effect on the economy.”