The Petroleum Technology Association of Nigeria (PETAN) has warned that lengthy contract approval processes, high borrowing costs and delayed payments by oil producers are undermining indigenous service companies and slowing the development of Nigeria’s upstream petroleum sector.

The association said the challenges were frustrating efforts to strengthen local participation in the oil and gas industry, despite President Bola Tinubu’s Presidential Directives on Local Content introduced in March 2024.

PETAN members raised the concerns in Lagos during a pre-conference workshop organised by the Nigerian Association of Petroleum Explorationists (NAPE), themed “Navigating Nigeria’s Upstream Future: Exploration and Development Approaches vs. Energy Security Demand.”

Speaking on the execution capacity of indigenous service providers, PETAN’s Publicity Secretary, Dr Joan Faluyi, argued that claims about local firms lacking the capacity to deliver projects often overlook the financial and procurement challenges confronting them.

She identified prolonged tendering, contract awards and mobilisation as major obstacles, noting that projects could take years to move from bidding to execution, leaving companies exposed to changing costs and market conditions.

Faluyi said the situation undermined the objectives of the 2024 presidential directives, which were designed to shorten contract timelines, accelerate tendering and approvals, encourage investment and boost crude oil production.

She also raised concerns about the implementation of the measures by the Nigerian Content Development and Monitoring Board (NCDMB).

According to her, indigenous contractors face a difficult financing environment in which local banks charge double-digit interest rates but may provide funding for only one year, even when the underlying projects span five years.

She added that oil producers often expect contractors to deliver services at narrow profit margins despite rising operational costs and lengthy payment cycles.

“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.

She explained that equipment suppliers could incur substantial financing costs while waiting for contracts to be approved, rigs to be imported and operations to commence, with further delays arising when payments take up to 90 days.

Faluyi added that some producers prescribe the profit margins contractors are allowed to make, further limiting their ability to absorb unexpected expenses.

She warned that bids submitted several years earlier could become financially unviable before execution because of foreign exchange fluctuations, changing prices and geopolitical developments.

The PETAN official called for faster procurement processes and better coordination between contract timelines and financing arrangements, noting that Nigerian service companies were able to execute projects more promptly when operating in other markets outside Africa.

She said the concerns were widespread among the association’s members, stressing that improving local capacity required addressing the financial and administrative constraints facing contractors.

The NCDMB had yet to respond to the allegations as of the time of filing the report. Its General Manager of Corporate Communications, Dr Obinna Ezeobi, had promised to respond to enquiries but had not done so.

Meanwhile, Chairman of Energia Limited, George Osahon, said oil producers depended on service companies for the technology and expertise required to execute projects, making their operational capacity critical to the industry’s performance.

Osahon recalled that Shell’s operating model discouraged oil producers from owning drilling rigs to prevent conflicts of interest and improve efficiency.

He, however, said operators had a responsibility to ensure that contractors possessed the technical expertise and financial resources needed to complete projects, warning that poor performance could lead to mounting debt and production losses.

According to him, wells that should take between 25 and 30 days to drill sometimes require as long as 60 days, compared with previous periods when ExxonMobil could drill development wells in about 10 days.

He attributed the decline in performance partly to weakening technical competencies and the loss of training opportunities, including Shell’s Intership Training Programme, which previously helped develop skills across the industry.

Osahon also acknowledged that service companies were particularly vulnerable during industry downturns, explaining that falling crude oil prices and financial pressures on operators could lead to delayed payments.

He cited the period when oil prices fell to $10 per barrel, saying some operators postponed payments because of financial difficulties and non-performing loans rather than deliberate attempts to frustrate contractors.

However, he noted that activity in the sector was gradually recovering, with the number of operating rigs doubling over the preceding two years.

On regulatory oversight, Osahon said Nigeria still had gaps to address in monitoring drilling operations, contrasting the country’s monitoring systems with Saudi Aramco’s real-time drilling control facilities, where drill bits can be remotely directed.

Earlier, Vice President of Exploration at Renaissance Africa Energy Company Limited, Dr Johnbosco Uche, who delivered the keynote address on behalf of the company’s Managing Director, Tony Attah, said Nigeria’s energy security depended not merely on the resources available underground but also on the economic value generated from them.

Uche said the country needed a continuous cycle of exploration, development and production to replenish reserves while meeting current energy demands.

He explained that exploration represented an investment in future supply, while development and production were necessary to meet immediate energy needs.

According to him, Renaissance now positions itself as an energy security company, focusing on safely managing and expanding its assets through infrastructure-led and near-field exploration strategies intended to shorten the time between discovering resources and bringing them into production.

“Pace matters. A resource that arrives too late cannot solve today’s energy challenge,” Uche said.

He identified natural gas as a major resource for Nigeria’s industrialisation and economic transformation, adding that human expertise and innovation would be as important as technology in achieving the country’s energy ambitions.