During the Nigeria Oil and Gas Conference and Exhibition (NOG), the International Association of Drilling Contractors (IADC), Nigeria Chapter, in a good will message eulogized the organizers of the conferece, for giving enabling environment where regulators, operators, drilling contractors, and other services and stakeholders can meet to discuss and understand issues and challenges in today’s market.
IADC noted that NOG Conference remains among the topmost forum for national conversations geared towards improving the Oil and Gas sector.
OBJECTIVES OF THE IADC NIGERIA CHAPTER
The IADC Nigeria Chapter, like its parent body was established to undertake activities for the benefit of the Oil and Gas Drilling Industry, to promote safety, environmental preservation, and advances in drilling technology.
The Nigeria Chapter was inaugurated in 2012 and was founded on the back of a need to improve drilling efficiency, safety standards and training.
This Includes; environmental protection, advocacy for sensible regulation and relations with regulatory agencies.
Also, the drilling association strives to improve industry stature of drilling companies and increase the value and efficiency of services rendered in the sub-sector. The association was established, especially, to provide a forum for discussions of government regulation and policies as may from time to time become necessary. The overall objective is to boost oil production in the country and as much as practically reduce NPT projects for various drilling projects.
INTRODUCTION & OVERVIEW
Rig contractors are among the top employers of labour in Nigeria and not just on the rig operations, IADC has other associated services that accrue to the value chain.Following current unemployment statistics in the country (where youth and informalunemployment are particularly high), the dependency ratio of employed Nigerians are almost in different families.
Rig projects will help to reduce this dependency by providing employment in different areas of services in a drilling project.
IADC knows that projects are capital intensive, therefore it applauds the laudable initiatives of the Engr. Simbi Wabote led Nigerian Content Development and Monitoring Board (NCDMB), and the contributions made so far to the Nigeria Content Development Fund (NCDF). Companies can and should be able to access this capital through the Bank of Industry (BOI) to fund their projects.
According to Goldman Sachs Group, the case for higher oil prices “remains intact,” forecasting that oil prices was still set to hit $80 per barrel this year even if Iranian supplies are restored. Crude oil has rallied this year as investors expected that the roll-out of vaccines will turn the tide against the Covid-19 outbreak in key economies. While the market is anticipating the Iran’s supply will pick up again by late summer, the demand recovery will be strong enough to absorb it.
The demand recovery in most of the developed markets is helping offset weaker South Asian and Latin American consumption.
Seasonally, the industry is coming into a strong demand period, and overwhelming concerns on supply.
With the U.S. continuing to reopen, air travel picking up and Europe lifting pandemic-driven lockdowns, it is more than likely those additional barrels expected from Iran can get absorbed.
SOME GOOD NEWS
Some rigs have gone back to work, giving credence to earlier forecast of an imminent and eventual market recovery. Department of Petroleum Resources (DPR) rig licenses application and processing has been migrated online on the OGISP portal.
This has made it a lot simpler to initiate and conclude the licensing process and achieving compliance in a timely fashion.
The issue of credible arbitration has been an ever teething one in the industry. The DPR initiative in inaugurating the Alternative Dispute Resolution Centre.
Rig contractors and indeed other services companies render services and end up not getting paid – there are several cases like that in the industry. According to DPR, “The centre will leverage industry technical experts, Alternative Dispute Resolution Practitioners and resources of the National Data Repository to provide fair and balanced resolutions of industry-related disputes from an informed position.”
While most government parastatals are yet to resume fully, nominated inspectors are always willing to undertake quarantine protocols to attend rig inspections. It is expected that the New Marginal Field allocations will boost drilling projects and ultimately increase utilization for rigs in-country.
RIG COUNT & TREND
Following the chart, there is a slight increase in the number of active rigs within the country. We have moved from 10 active rigs in February to 12 active rigs as at the beginning of May 2021.
As the first vaccine roll out were largely successful, most organizations have gone back to work. While the presidential task force continues to outline guidelines to remind people to take precautionary measures during operations and gatherings, it is believed that the Federal Government has no plan to impose a fresh lockdown in Nigeria.
IADC continues to encourage companies and indeed its members to continue to put in place measures to ensure and protect the health and wellbeing of all employees, visitors, and thirdparty contractors.
OPERATIONAL STATUS OF RIGS
Looking further on the rig trends, the different types of rigs in-country and their operational status.
As at May 2021, Nigeria has 57 rigs in-country – Land, Swamp and Offshore. 35 land rigs are available in-country and only 5 of them are active, 14 are on Standby/Demobilized, while 16 are stacked.
Nigeria has 8 jack up rigs in the shallow water space, 3 of them are active, with about 5 jack-up rigs on standby/demobilized. The swamp market has a total of 13 rigs in country with only 3 active, 5 swamp rigs on standby and another 5 stacked.
Only one drillship remains in the Deepwater space in-country, and she is active.
Regulatory Challenges – there had been a couple of proposals and amendment bills recently, seeking to increase the regulatory framework. The mule is being over saddled with statutory cost increases.
Following Nigeria National Petroleum Corporation (NNPC) proposal to cut production cost down to $10 per barrel, these indirect increase in production cost would likely be passed on to the oil producers eventually.
There are various other regulator fees and charges at state and federal levels posing a challenge to doing business for the drilling contractor.
Obviously, no need to belabor the insecurity issues in the country currently. Security considerations for personnel and equipment is a constant worry for IADC various operations in Nigeria and has a direct impact on the operating costs of almost every organization.
Fiscal uncertainty – aside multiple taxation: VAT increased; FX unstable and not able to support businesses effectively, operating companies have been forced to pull a hard stop to their different projects and currently implementing rigorous budget cuts.
The pandemic has indeed pushed many companies into survival mode.
Corporate governance – if the collective mechanisms, processes, and relations used by various parties to control and operate business is not properly configured, it is only a matter of time before the business will collapse.
Corporate governance relates to how well a company is managed with regard to compliance and ethics, corruption and fraud controls, board independence, business strategy and salary practices.
Escalating costs – The sudden fall in oil price in 2015 and the ongoing COVID-19 pandemic has had a negative impact on the drilling industry and reduced appetite for crude oil exploration and production. Global inflationary trends and the impact of the COVID-19 pandemic on all business has resulted in an all-round increase on the cost of goods and services required by the drilling contractor to operate.
Finally, are the global sustainable development goals – how do we intend to tackle Environmental Social and Governance factors in today’s global climate. Climate change is real!
Most oil and gas companies are now changing their names from Oil to Energy companies and vigoriously promoting activities and operations that will help reduce their carbon foot print.
POSSIBLE BUSINESS SOLUTIONS
Considering PESTLE analysis which envelops the entire solution sphere from a Political, Economic, Sociological, Technological, Legal and Environmental Standpoint.
IADC will continue to engage and apprise government regulators on the various challenges and pains the drilling contractor faces. Innovative security solutions with dedicated oversight by the government, investors and other stakeholders, will alleviate the challenges of insecurity in the sector.
Cost effectiveness and optimization will help organizations as the pandemic has shown that companies have to ride the tide.
Robust corporate governance – Any organization without a strong result oriented corporate governance structure will eventually die. It is only a matter of time, but the organization will collapse.
Legal, compliance and Ethics is the bedrock of an organizations business, to build credibility, integrity, and reliability.
Sustainability is a topic that is becoming increasingly important for the growth of most businesses around the world. Nigeria is not insulated to the world on Sustainable Development Goals.
Industry operators must continue to seek environmentally friendly ways to conduct their operations.
IADC KEY GOALS
Key goals include that of deepening the relationship and partnership with regulatory agencies; DPR, NNRA, NCDMB, NIMASSA, etc.
IADC will continue to partner with educational institutions for accreditation and facilitation of very important trainings on Well Control, Drilling and Completions.
Collaboration with OEMs on building capacity in-country with facilities capable of recertifying some of the biggest equipment spend of any rig asset, the Blow Out Preventer (BOP).
IADC had earlier held talks with GE about building up their facility in Calabar as a recertification centre for Hydrill BOPs.
With the Local content discussion at the conference, the country has NOV, Cameron, and other OEMs in the country who can invest and build these facilities.
Why would drilling rig operators have to ship their BOPs out of the country for re-certifications?
IADC will continue to work with its member companies to achieve a significant reduction in industry Non-Productive Time by December 2022.
In the 3rd quarter of 2021, IADC will host a Technical Session in PortHarcourt to further its awareness campaign within the drilling space.
The association will support the DPR 19th International HSE Biennal conference and exhibition to be held November 25th in Abuja.
IADC membership count continues to grow as more companies continue to identify with the association either as operators, rig contractors, or services providers.
The association’s current membership portfolio is 47 as of May 2021 and this is outside other organizations that has indicated interest to join the Nigeria Chapter.
Prospective members are free to visit IADC website www.iadcnigeria.org for more information on the association.