Chief Investment Officer, VNL Capital Asset Management, Dr. Ifeanyi Uba, says the Federal Government’s new framework for deep offshore investment could unlock up to $50 billion in investments, describing the figure as an upper-band estimate that could be achieved through the development of multiple projects.
Speaking during an interview with ARISE NEWS on Thursday, Uba said the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) had identified more than 22 projects that could benefit from the framework, with the first major project estimated at about $10 billion.
He said the $50 billion target could become achievable if several of the identified offshore projects were developed.
“The $50 billion mark is more or less like an upper band. The NUPRC has identified over 22 projects that meet this, and the first project, the Bonny Light, is around $10 billion. So essentially, we just need four to seven projects for it to be a feasible mark of $50 billion in terms of investment into offshore production.”
Uba said the development of the Bonga Southwest project would be significant for Nigeria, particularly as it could signal renewed activity in the country’s offshore oil industry and attract additional investors.
“It’s actually significant in terms of signalling. This is going to be one of the first major offshore projects in a while.”
He said increased offshore investment could generate employment, expand local expertise and create wider economic benefits, while greater transparency in the investment process could help attract more investors.
“Apart from that, the cascading effect of employment and transparency around the process could attract more investors and also expand the economics of the deal.”
Addressing concerns about crude oil demand and the timing of the investments, Uba said the projects should be viewed as long-term investments rather than efforts to take advantage of current oil prices.
“Most of these projects are usually long-term. So starting a project this year will probably end around 2030, 2031, which even from OPEC’s current report, the demand expectation is expected to be modest during that period.”
He said the investment programme should therefore be viewed as positioning Nigeria for its next oil production cycle rather than simply responding to current market conditions.
“This is more or less positioning for its own cycle rather than Nigeria chasing the bag.”
Uba said the proposed tax incentives could significantly improve the economics of offshore projects, particularly when combined with the government-contractor revenue-sharing arrangement.
“The tax incentives are something almost like $11.5 on every barrel. And aside from that, we still have the 70-30 split between the government and contractors. That is actually a huge incentive on the economics.”
He, however, identified security, regulatory processes and negotiations as factors that could still affect the attractiveness of the investment framework to contractors.
“There are other burdens that affect the average contractor. And these are in terms of security, in terms of processes and negotiation.”
Uba said greater transparency and consistent implementation would be critical to ensuring that the framework succeeds in attracting the scale of investment being targeted.
“This new investment scheme makes it easy to be transparent, where investments are not treated on a project by project basis, but there’s a framework and there’s a bit of transparency.”
He said increased investment in offshore projects would create opportunities for local businesses while strengthening domestic expertise and expanding local participation.
“This will create opportunities for local businesses and also help us to build expertise domestically.”
Uba said the successful implementation of an initial $10 billion project could send a positive signal to other investors and encourage further investment in Nigeria’s oil sector.
“If it starts by one project with $10 billion and signals to other people that this is something good, it is actually going to be superb for Nigeria.”
He, however, cautioned that incentives alone would not be sufficient to attract investors, noting that Nigeria’s history of currency devaluation remained a factor that could influence investment decisions.
“There is a dollar currency devaluation history that still plagues Nigeria. Even though we have seen some stability, we need to see still some stability going forward for investors to actually push.”
Uba described the investment incentives as a step in the right direction but said the government would need to attract sufficient investment volumes to maximise its earnings from the sector.
“The incentive is a good step in the right direction. The government has decided to take a haircut on what they were supposed to gain using the formal framework, but it is a volume game.”
Goodness Anunobi
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