• PETAN flags double-digit bank rates, 90-day payment delays stifling capacity
Peter Uzoho
Indigenous oil and gas service companies have raised alarm over long tender approval cycles and delayed payments by upstream producers, a situation that negates President Bola Tinubu’s Presidential Directives on Local Content introduced in March 2024.
Service providers under the aegis of Petroleum Technology Association of Nigeria (PETAN) also complained that high bank interest rates was hurting them, warning that the bottlenecks are stifling local capacity and slowing Nigeria’s upstream growth.
They raised the concerns in Lagos at the Nigerian Association of Petroleum Explorationists, (NAPE) Pre-Conference Workshop themed “Navigating Nigeria’s Upstream Future: Exploration and Development Approaches vs. Energy Security Demand.”
Publicity Secretary of PETAN, Dr Joan Faluyi, who spoke on execution capacity of her members, said the blames that Nigerian service providers lack capacity ignore the financial and procurement realities they face.
Faluyi said the biggest problem was cycle time, with tender approval, award and mobilisation taking years to materialise, distorting pricing and execution.
Curiously, the 2024 presidential directive is meant to accelerate oil and gas contract timelines, fast–track tendering process and approvals, incentivize investments in the sector and increase Nigeria’s crude oil production, bringing to question the implementation of the policy by the Nigerian Content Development and Monitoring Board (NCDMB).
Faluyi flagged procurement issues, long lead times, budget constraints and hostile financing environment where local banks lend at double-digit rates even for one year on a five-year project, while producers demand delivery at thin margins.
She cited instances where a tender quoted four years ago becomes unexecutable due to foreign exchange shifts, price changes and geopolitical events, including situations where global shocks alter costs before mobilisation.
“Our banks’ interest rates is double digit. You have a project that is five years, and they’re willing to finance one year. And these producers want you to deliver whatever service at a very small margin,” Faluyi said.
“Some of them even specify your margin and say, you have to make nine percent. Someone that is producing or delivering a rig, it takes him so long to get that rig into the country? His bank is already counting. Then it takes him to mobilise, the bank is counting. Then it now takes him another 90 days in which these producers are saying they’re going to pay you whatever money they’re owing. At the end of the day, where is the profit?”
She said the squeeze leaves service firms without ability to deliver, yet they are labelled as lacking capacity.
She called for faster bid processing and alignment of finance and timing, noting that the same companies secure jobs outside Africa with short cycles and produce immediately.
She said all members of the association share the same complaint that finance and timing must be aligned for effective production.
NCDMB did not respond to the claims as its General Manager, Corporate Communications, Dr Obinna Ezeobi promised to get back to THISDAY but never did as of the time of filing this report.
However, in his contribution to the discourse, Chairman of Energia Limited, Mr George Osahon, said the oil industry cannot work without service providers who hold the technology, recalling that Shell’s operating model discourages operators from owning rigs to avoid conflict of interest and inefficiency.
Osahon said operators also face pressure to ensure contractors have capability and wherewithal to avoid debt and production losses, citing cases where a 25 to 30-day well takes 60 days, compared to the past when ExxonMobil drilled development wells in 10 days.
He attributed part of the drop in performance to declining competencies across the industry, loss of training grounds like Shell’s Intership Training Programme (SITP) that previously built industry-wide skills, and dwindling industry-wide capacity building efforts.
He also admitted that service providers bear the brunt of industry downturns, as when crude crashed to $10 per barrel, operators under financial pressure delayed payments due to non-performing loans, not out of wickedness, but due to the rollercoaster nature of the business.
He noted the situation is now improving with rig count doubling in the last two years.
On regulation, Osahon said regulators cannot monitor enough, contrasting Nigeria’s war room with Saudi Aramco’s real-time drilling control rooms where drill bits are steered remotely, saying Nigeria still has gaps to close.
Delivering the keynote on behalf of Managing Director of Renaissance Africa Energy Company Limited, Tony Attah, Vice President Exploration, Dr Johnbosco Uche, said energy security is not defined by resources underground but by value created above ground.
He said Nigeria must sustain a continuous cycle of discovery, development and production, stressing that exploration is an act of belief in the future that replenishes reserves, while development and production solve today’s needs.
According to him, Renaissance now views itself as an energy security company, with philosophy to safely receive, stabilize and grow assets, leveraging Infrastructure-Led Exploration and Near-Field Exploration to reduce time from prospect to production.
“Pace matters. A resource that arrives too late cannot solve today’s energy challenge,” Uche said, adding that gas remains Nigeria’s most powerful tool for industrialisation and transformation, while people and innovation, not just technology, will determine success”, Uche said. .