The shifting landscape of Nigeria’s oil and gas industry continues to throw up more opportunity for local contractors and suppliers, who are now being keenly supported by international players - under the watchful eye of the government
The national content policy is designed to garner more benefit for Nigerians themselves from the natural resources sector, and to help develop a more sustainable, long-term industry, one where wealth is no longer siphoned off abroad.
It follows the passing of the much-awaited Nigerian Oil and Gas Industry Content Development Act last year.
And its not only in the energy sector: the government is targeting 40 per cent local content in the roads business by 2015, for example, the public works minister, Arch Mike Onolememen, stated recently.
But as Nigeria’s primary industry, the oil and sector is much further ahead. It is something that the multinational oil companies - the likes of Shell, Total, ExxonMobil and Chevron - have learned to live with and, publicly at least, predominantly support.
New jobs, new wealth
By generating new jobs and wealth for local communities it is hoped that the policy will even defuse tensions in some of Nigeria’s oil hotspots, especially around the Niger Delta region although clearly this is a long-term process.
As well as encouraging small services and support industries, the intention is also to boost local upstream operators, giving them first consideration in the award of oil blocks.
Shell - the country’s biggest foreign oil investor - has been among the first to respond.
In 2010, Shell-run companies awarded contracts worth over $947mn to Nigerian entities, some 96 per cent of the overall number of contracts it awarded.
The figure was slightly up on than the $892mn awarded by Shell firms in 2009.
The European-based oil giant also employs thousands of staff across all of its various operating subsidiaries.
Upstream units
Upstream units Shell Petroleum Development Company in Nigeria (SPDC) and SNEPCo employ more than 6,000 employees and contractors directly, about 90 per cent of them Nigerian.
The new content law requires all operators and service companies to employ only Nigerians in their junior and intermediate cadre.
Shell’s various upstream projects also help to create tens of thousands more jobs for external contractors and supporting industries.
Significantly, the contracts now being awarded to local companies show how Nigeria’s services sector is moving steadily up the value chain, to provide ever more sophisticated support to the oil and gas industry.
It is a sure sign that local content initiatives are beginning to make headway.
This is supporting the growth of Nigerian companies and building local capacity in a wide range of oil and gas activities, from design and engineering work, through to complex exploration and drilling activities.
Shell’s Bonga project, for instance - the country’s first ever deepwater venture - helped create a first generation of engineers with experience in this ultra challenging environment.
And a glance through recent contracts awarded by Shell illustrate the rising level of complexity that indigenous firms are now able to embrace.
Oil operations
Among the bigger contracts, SNEPCo and SPDC awarded work to Nigerian-owned Caverton Helicopters to provide helicopters and associated services for oil operations.
The five-year contract is worth $694mn.
Others include a $26.7mn contract to Sonar Limited for offshore seismic work; a $59mn deal to Baywood Continental for brownfield engineering services and pipeline maintenance; and a $41mn deal for for brownfield maintenance of the Bonga and EA floating production storage and offloading vessel (FPSO) to Dorman Long Engineering.
All of these contracts are now supporting the ongoing development of these local companies, and providing much-needed work to ordinary Nigerians.
And these contracts are in addition to various other Shell community commitments. Last year, SPDC and SNEPCO together gave more than $161mn to the Niger Delta Development Commission (NNDC) to fund initiatives in the restive Delta region plus a further $71mn to directly supported community projects.
Shell says the local content policy makes good business sense in that by developing a skilled Nigerian workforce it can help lower operating costs long term.
Going local may not always be the cheaper option in the short term, however. The local content rules state that contract awards are not to be squarely based on the principle of the lowest bidder.
When bidding for contracts, where a Nigerian indigenous company has the capacity to execute the work, it cannot be disqualified provided the value does not exceed the lowest bid by 10 per cent.
Local content initiative
SPDC’s managing director, Mutiu Sunmonu, reaffirmed in July the company’s commitment to the local content initiative, with plans to build on Shell’s 60-year presence in the country.
“In this period we have remained a strong engine of the economic growth for the country,” he said. “Our contribution to the economy of Nigeria is very significant, about 90 per cent of our revenue after tax goes to government.”
Between 2006 and 2010 it contributed some $31bn to the government.
SPDC has also emerged as the largest independent power producer in the country, generating about 20% of the nation’s power capacity, as well as about 70 per cent of its domestic gas supply.
But the message has hit home far and wide with other oil companies and leading international contractors now routinely sourcing work to trusted local suppliers.
There are clear and visible signs of progress.
In August, Transocean’s 65-foot GSF Rig 140, docked at Lagos from Equatorial Guinea for repairs at Nigerdock, Snake Island.
The project was handled by indigenous freight forwarding firm, Talod Oceanair Freight.
It marks the second major offshore rig relocation by the local company for the world’s largest offshore driller.
“The successful handling of the rig in Nigeria is a further attestation of the competence of indigenous practitioners in line with the local content act,” said Alhaji Hakeem Olanrewaju, Talod Oceanair’s managing director.