Nigeria is one of the world’s top ten oil producers and Africa’s leading producer, with oil reserves going at 27 billion barrels (including 1.36 billion barrels of condensates) while gas reserves is estimated at between 124- 185 trillion standard cubic feet, respectively. Daily crude oil production stands at about 2 million barrels per day. Presently, it is estimated that the live expectancy of Nigeria’s crude oil reserve is 35 years while that of gas is over 100.

Since the take-off of the Nigerian Petroleum Industry in 1956 with the discovery of the Oloibiri Field, operating companies have made several discoveries of oil and gas, some of which have been left unattended for several years. Such fields, which may or may not have been appraised, are generally referred to as Marginal Fields to underscore their limited profitability. They have remained undeveloped within otherwise active blocks or in some cases dormant blocks for one or more of the following reasons including:

• Non-profitability of the fields in question due to unfavorable price of crude oil or the size of the field or both.
• Distance from existing facilities or locations in difficult terrain. .
• Portfolio rationalization of the companies.

On the other hand, Natural gas, which has been traditionally flared at oil extraction sites for years (as at 2002, Gas flared is 21.56Bcm while gas utilized is 20.76Bcm), has increasingly been recognized as an enormous income - generating resource for Nigeria. This is now being captured for processing and sale both regionally and overseas. Going by the Table below, operators were flaring 50% of gas.

This trend of exploiting natural gas resources is expected to accelerate in 2003. It is government's intention to extract optimum volume of oil and gas from Nigerian Reservoirs to maximize the benefits of the program. As the oil fields mature, reservoir optimization programs such as Enhanced Oil Recovery, which is still at the rudimentary stages in Nigeria, would be encouraged. Stripper field production would also be encouraged as the mature fields reach their maximum production capability and attendant reduced profitability to the present operators.

In recent times, the call for specialized training, capacity building, and technology transfer for indigenous operators especially in the oil and gas industry has been a hot topic for debates. These are areas that American firms typically have a competitive advantage in Nigeria. The conventional wisdom in Nigerian is that U.S. expertise in oil and gas technology is unrivaled, therefore oil and gas service companies turn to American companies for assistance with engineering, design, consulting services, and human capital development. There is also a high demand for American managerial expertise for business ventures and projects – industrial or service oriented. Indigenous businesses are adept at securing contracts, networking with investors, and developing business proposals; however, they require assistance, with managing business processes once projects are initiated. Other times, technical expertise is expected to be manifest as a pre-requisite for bidding on oil and gas contracts.

During December of 1999, approximately 116 Marginal Fields were identified in Nigeria, all of which are located in the Niger Delta. These fields have oil reserves totaling approximately 13 Billion Barrels. However, by September 2001, 24 marginal fields were advertised and bids invited from interested indigenous Exploration and Production companies.

As at June 2002, 71 of these companies were pre-qualified for the Technical and Commercial Bid scheduled for September 2002. And pending successful presentation of technical bids, full license will be awarded to them for full operation. US Exploration and Production (E & P) businesses can capitalize on the current demand and need for technical and capital assistance required by small to medium size indigenous oil companies (production and service). This is especially important for intending operators of marginal fields and for firms interested in making competitive bids on contracts tendered by the big multinational oil companies and/ or the Nigerian National Petroleum Corporation (NNPC).

( Map of the 24 fields selected for farm-out)

Market Size

The major oil companies dominate the oil and gas industry in Nigeria.They mostly procure their oil and gas equipment, tools, and parts from the U.S., Asia and Europe. Taken on aggregate the total market size is shared among these three viz. U.S., Europe (U.K., Germany, Italy) and Asia (Japan and Korea) with the U.S. having 60%, Asia 30% and Europe 10%. The currency Naira -Dollar exchange rate fluctuates widely between official ($1- 127 Naira) and the parallel market ($1- 137Naira). It is predicted that with the coming election year, the inflation rate, which is already at 18.6 % as at last quarter, will rise as high as 23 %. The table below shows federal government expenditure on oil and gas service up till June 2002.

There are different services in the upstream and downstream segments of the oil and gas industry.

Within the upstream and downstream segment of the petroleum industry, opportunities abound in different sub-sectors related to core exploration and production, such as: drilling and manufacturing equipment, support services, marketing, construction, consulting services, insurance, legal services, facilities maintenance, and environmental management. (Upgrade/maintenance of facilities i.e. construction; Drilling Operations; Exploration & Production; Surveying & geological activities; Crude oil transportation & storage; Seismic data acquisition/interpretation; Civil works etc).

• Site surveys
• Seismic data acquisition
• Seismic data processing
• Seismic interpretation
• Basin modeling

• Geological Studies

• Biostratigraphy
• Sequence stratigraphy
• Sedimentology
• Geochemistry

• Geochemical Studies
• Geographical Studies
• Equipment supply and/ or leasing (boats, barges, house boats, etc)
• Supply of casings for boreholes

• Land Drilling Rigs, Swamp Drilling Rigs, Petroleum engineering & Consultancy Services
• Offshore Drilling Rigs (jack-ups, semi- submersible rigs, submersible rigs etc)
• Offshore Rig Towing Services, Rig Move/Positioning Services
• Drilling Mud , Chemicals, Mud Logging & Mud Logging Services
• Drilling site preparation, Well Control & Blow-out Prevention

• Under-water Inspection, Sand Control, Fish & Fishing Tools
• Dry-dock facilities for offshore supply vessels, tugboats, & offshore rigs
• Measurement while drilling (MWD) & Logging while Drilling (LWD) Services
• Casing & High Pressure Pumping ,Tubing Services ,Tools & Cased-Hole Electrical Logging
• Directional Drilling & Survey as well as Drilling & Workover
• Surface & Bottom Hole Sampling & Tubing Conveyed Perforation ( TCP)
• Fluid Filtration, Solid Control and Laboratory & Pilling Services as well as PVT Analysis
• Mechanical Wireline Services and Petrophysical & Reservoir Data Services
• Coil Tubing & Electrical Line and Production Logging
• Oil field waste management, Jetty and shore support services and Rigless Workover Services
• Well Production Testing, Wellhead Maintenance & Well Completion Services
• Supply of drilling materials and equipment (drill bits, drill pipes, drill collars, cone bits etc)

• Wireline Services & Pipeline Laying/ Inspection
• Production Chemical Supplies & Management
• Engineering Design, Procurement/Construction of production facilities
• Corrosion Engineering & Environmental Engineering Services
• Blow Out Central Services & Flow Line Construction
• Oil Expand Terminal Design and Construction & Crude Oil Lifting
• Fire Fighting system Design and installation & 2/3 Phase Meter Supplies
• Supply & Maintenance of Safety Equipment
• Gas Valve Supplies & Installation

• Consultancy Services
• Simulation
• Economic Analysis
• Complete Field Study

There are 4 refineries in Nigeria viz.:

1. Warri Refining and Petrochemicals Company Limited (WRPC)
2. Kaduna Refining and Petrochemicals Company Limited (KRPC)
3. Port Harcourt Refining and Petrochemicals Company Limited (PHRC)
4. Eleme Petrochemical Company Limited (EPCL)

The performance of the petrochemical and refining companies in Nigeria has been so truncated and inefficient that the Federal government has initiated deregulation policies in the downstream sector to liberalize refined products importation and pricing, privatization of existing refineries within the next 18 months and licensing of new refineries.

Given the new improved business climate in Nigeria, Investment and Partnership Opportunities abound in the following areas:

• Technical Partnership
• Field Development Contractor Financing
• Non-operating equity investments

• Gas utilization

Other opportunities especially within the downstream segment involve Refineries maintenance; Pipeline/ Depots construction and maintenance; Petroleum Products haulage; Petroleum products marketing. Petrochemicals; Gas Development/conversion; Butanisation project; Fertilizer plants;

Vehicular fuels and Methanol/MTBE plants.

In addition to the on-going on-shore/ mid-shore seismic activities in Nigeria, there has been increased volume of activity in the Deep Offshore blocks with several rounds of bidding for acreage. However, preliminary bidding for Bonga Phase II is tentatively scheduled for December 2002, but it is expected that the second round of bidding will fully come on stream in 2003.There is also heightened activity in the areas of gas development and utilization. This is in order to harness associated gas usually flared by the major operators and for the industrial and commercial application of the vast gas reserves yet untapped. For every project executed, the Local content value calculated in terms of involvement of competent Nigerians in the Management of the project as well as commitment to training and growth of indigenous capability, manpower and local input in the provision of materials and services to the industry shall be indicated. (See Table)

Following on the foregoing, oil and gas machinery is ranked number one due to its unrivaled potential as a source of investment opportunities for US businesses in Nigeria. Business observers believe that the oil and gas sector offers consistent opportunities for marketing essential capital equipment and technology, both for extraction and production. Drilling equipment appears to hold the most promise for U.S. exporters, with total sales in this sub-sector projected to exceed $500 million in 2003 and to increase over the next four years. This is mainly due to the increase in activity experienced in the offshore deep-sea region lease of oil blocks and exploitation of potentially lucrative marginal oil fields. The lubricant segment of the oil sector is also very lucrative, as it has not been subjected to price control.

Another lucrative area for U.S. investors is the Gas segment of the industry. With ultimate recoverable gas reserves of about 182 trillion cubic feet (TCF) and additional undiscovered natural gas potential conservatively estimated at about 45-100 TCF, Nigeria is a gas surplus country. Within the last four decades, about 23 TCF of gas has been produced, with remaining recoverable reserves of about 159 TCF.

Nigeria, as a gas surplus petroleum nation, is still relatively underdeveloped in terms of gas utilization. The result is the large-scale flaring of the associated gas (AG) produced in the Niger Delta. The gas consists of Methane (70-90 %) with same percentage of propane, ethane, pentane and butane – Natural Gas Liquids (NGL). Flaring of gas is turning a beneficial but depleting asset into a wasting resource. More than half of the associated gas produced in the Niger Delta is flared. The rest is channeled into various utilization projects including re-injection for production optimization, other oil field operations, and sales to downstream customers. Current statistics indicate that Nigeria accounts for about 19% of the total amount of gas flared globally.

The Nigerian government insists that gas flaring would be phased out by the year 2008. As a result they have over the past three years, been promoting the use of gas as energy source both for home and industrial use. This is excluding the $3.8billion Liquefied Natural Gas project, the Mobil and Chevron gas projects worth over $800M and $700M respectively. The West African Gas project when on stream is expected to process 185 million scf/d of gas from Nigeria to service Ghana, Benin Republic and Togo. In view of the foregoing, opportunities abound for joint ventures in harnessing gas that had been flared over the years. Some of the investment options that exist are in these markets:

• Production, transmission, distribution of Natural Gas –independent ownership
• Natural Gas Liquids (NGLs) – these liquids have high market value and find application either in their raw state as solvents, feed stock (for production of various chemicals) and liquid fuel or fractionated into their components, viz.: LPG, Natural Gasoline etc.
• Natural Gas-Fired Equipment
• Independent Power Plant (IPP)
• Industrial market, commercial market and residential market.

This will mostly be in the provision of gas pipelines and the infrastructure for the production and utilization of Liquefied Natural Gas, Compressed Natural Gas (CNG), Natural Gas Liquids (NGL), Gas to Liquid Conversion (GTL), Methanol etc.

Other business options that are in line with Federal Government’s utilization/monitization objectives and in which they are willing to enter into joint partnerships with companies are: the establishment of gas-based fertilizer plant, natural liquids extraction and domestic use of natural gas. Theses will be in terms of provision of services for:

• domestic natural gas sales and distribution,
• the Nigerian Liquefied Natural Gas projects (NLNG),
• compressed natural gas as automotive fuel, and
• Ammonia/fertilizer plants.

The Federal government has enacted a gas policy with fiscal and tax incentives to encourage investments in this sector. It addresses all the different phases of the gas chain: production, transmission, distribution and End-user stage.

One key issue worth mentioning is the Government’s emphasis on local content and indigenous participation of in the oil and gas industry, which is presently below 10% and is expected to increase to 50% by the year 2010 (See table below).

This therefore means that a number of these indigenous operators will necessarily require foreign technical partners. No doubt the U.S. with its advanced technology in the oil industry will be fertile ground for meeting this requirements.

The Oil and Gas industry is a capital-intensive industry, which involves huge amounts of investment (technical and assets) as a result; majority of the service companies are foreign, albeit they have registered their companies in Nigeria. The smaller indigenous companies are usually involved in supply of equipment/machinery, which is sourced out of the country.

Although production and export of crude oil has always been the traditional focus of the Nigerian petroleum industry, the Federal Government in the current dispensation, has put in place several fiscal and tax incentives to attract foreign investors into the oil and gas industry. In the course of exploration and production, a slew of ancillary support services are also required and these present a number of investment opportunities, which cut across the entire industry spectrum of oil and gas upstream and downstream segments.

In the Oil Service sector, the end users are normally the major oil companies, which are:

1. The Shell Petroleum Development Company (SPDC) Nigeria Limited
2. Exxon-Mobil Nigeria
3. ChevronTexaco Nigeria
4. TotalFinaElf
5. Nigerian Agip Oil Company Limited
6. Pan Ocean Oil Corporation Nigeria
7. Addax Petroleum Development Nigeria Limited
8. Statoil Nigeria
9. Conoco Energy Nigeria Limited
10. African Petroleum

And the Federal Government of Nigeria through its agencies: Nigerian National Petroleum Corporation (NNPC) and Pipelines and Products Marketing Company Limited (PPMC), National Petroleum Investment Management Services (NAPIMS).

Companies foreign and local, who intend to operate in the oil and gas industry in Nigeria, especially if they expect to do business with NNPC and other multinational oil companies, are required to first register with the Department of Petroleum Resources (DPR) through filing an application. DPR is the statutory body for policies and regulations relating to the oil industry.

In addition, indigenous E & P companies are also required to show evidence of technical competence, including a factual evidence of a relationship with a foreign firm with the necessary technical skill in the area of a particular contract they wish to bid for. As a result of the above pre-qualification conditions, Nigerian firms operating in the oil sector often invite foreign firms, including and especially U.S. firms to partner with, while submitting an expression of interest for an impending, or (an anticipated) contract. The procedure and conditions for registration can be obtained from DPR at their website: www.dprnigeria.com and / or at their office located at:

# 7, Kofo Abayomi Street

Victoria Island, Lagos

Tel: 234-1- 3200440, 3200441, 3200442, 3200443, 3200444, 3200445, 3200446, 3200447, 3200448, 3200449

For inquiries they may be reached at: publicaffairs@dprnigeria.com or at any of the following addresses:

Warri- warri@dprnigeria.com

Kaduna- kaduna@dprnigeria.com

Port Harcourt- portharcourt@dprnigeria.com

Field Offices:

Warri- Warri Sapele Road, Warri, Delta State (Near NPA). warri@dprnigeria.com

Port Harcourt- 49, Moscow Road, Port Harcourt, River State. portharcourt@dprnigeria.com

Maiduguri- State Sport Council Premises, Bama Road, Maiduguri, Borno State. maiduguri@dprnigeria.com

Ibadan- NBCI Building, Ring Road, Ibadan, Oyo State. ibadan@dprnigeria.com

Yola-Federal Secretarial, Jimeta/Yola Road, Jimeta, 149/146 NPA Road, Yola State. yola@dprnigeria.com

Sokoto- Federal Government Secretariat, Kaduna Road, Sokoto State. sokoto@dprnigeria.com

Ilorin- Federal Government Secretarial, Ilorin Kwara State. ilorin@dprnigeria.com

Lagos- 7, Kofo Abayomi Street, Victoria Island. Lagos State lagos@dprnigeria.com

Enugu- 37, Abakaliki Road, Enugu, Enugu State. enugu@dprnigeria.com

Kano-Federal Government Secretarial, Katsina Road, PMB 3115, Kano, Kano State. kano@dprnigeria.com

Eket- Ekpene Ukpa Avenue, Eket, Akwa-Ibom State. eket@dprnigeria.com

Kaduna- 24, Gobarau Road, GRA, Kaduna, Kaduna State. kaduna@dprnigeria.com

Abuja- 49 Hella Sellasie Street, Asokoro, Abuja abuja@dprnigeria.com

Makurdi- 35, Bank Road, Makurdi, Benue State. makurdi@dprnigeria.com

Other Email Addresses: info@dprnigeria.com , Employment@dprnigeria.com webmaster@dprnigeria.com

There is considerable number of Nigeria oil and gas service companies operating in the industry. The Federal Government on its part is advocating for more participation going by its policies and current stand on Local Content and Indigenous Participation. It is now mandatory for a certain proportion of the contracts awarded to be sub-contracted to indigenous companies. Many countries offering their expertise in the oil and gas sector include:

USA

UK

France

Italy

Norway

Germany

Switzerland

Netherlands etc.

All the services offered are to the 7 major oil companies. This is normally done through tendering for contracts, which entails initial registration with the oil major in question. There are normally internal committees that ensure transparency and equity in the selections.

There are no restrictions or impediments to importation of oil and gas field equipment, parts, and services. The Federal Government strictly handles all imports of petroleum products and has provided fiscal/tax incentives for Foreign Direct Investment in the industry.

The normal working week is Monday through Friday, 8.00am –3.30pm but for private sector it is usually 8.00am to 5.00pm.

The U.S. Commercial Service in Nigeria organizes business delegations to specific conference and/ or trade shows in the U.S. One of such is the Offshore Technology Conference (OTC) which is normally held in Houston, Texas.