Olufola Wusu

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It was reported in the news that the Federal Government of Nigeria accused oil majors operating in Nigeria of not being sincere in their plans to downsize their workforce, stating that profit motive is the main aim in their quest to sack workers.

The Minister of Labour and Employment, Chris Ngige, at a parley with labour and oil companies was reported to have criticised some foreign oil firms operating in Nigeria, stressing that their motive for profit usually supersedes the need to give back part of their proceeds in the sector.

Without dwelling on the veracity or otherwise of these comments, shall we take some time to examine some of these issues?

It is probable that the Honourable Minister may have been making a veiled comparison between the NNPC and the oil and gas companies operating in Nigeria…

Consistent losses + Government subventions = No job losses

The NNPC is one of the few oil companies in Nigeria that has not downsized regardless of the drop in oil prices. It has consistently declared stupendous losses yet it has not trimmed its operations, in fact it plans to expand its retail footprint across Nigeria.

The big question is; what are the possibilities if the Federal Government can no longer afford to subsidize the operations of the NNPC? (The presumption of government funded subventions is premised on the NNPC’S continued operation and planned expansion in the face of consistent losses that the NNPC has declared in recent times. “Most private companies will fold up if they consistently make losses”)

The question is can the government which depends on income from the oil and gas industry; afford to give subventions to the entire oil and gas industry? Your guess is as good as mine.

Capex vs. Downsizing

Most oil and gas companies have severely cut their capex, as the oil prices drop some more, oil and gas companies both international oil companies “IOC’s” and indigenous companies may be forced to further cut capex and downsize.

Labour Unions in a catch 22 situation

As for the labour unions, they may be in a catch 22 situation.

On one hand the unions need to justify their existence, by fighting for the jobs of their members regardless of the economic reality facing the IOC and indigenous oil and gas companies.

On the other hand if the unions are adamant, they may pressure the companies to incur expenses that may cause them to go under in the long run and trigger total job losses industry wide rather than job preservation.

This may have been the error the “United Automobile Workers” made in the Detroit auto industry. The demands of that powerful labour union may have succeeded in pricing the vehicles of their employers out of the market. Poor management on the part of Big Three in Detroit and the labour union’s oversight plus other factors cost the whole of Detroit dearly.

Strategic Companies

Some argue that more strategic companies will keep their staff during the dip in oil prices with the knowledge that the oil price will rise again. That may be a valid argument but should it not be left to the oil and gas companies to decide how “adventurous” they want to be with their capital?

The IOC’s may have a war chest to withstand that kind of strain, it’s the indigenous companies I am worried about, they may not have the financial depth or the operational width to withstand a prolonged dip in oil prices. Perhaps this incident will trigger off a wave of Shell/BG like mergers within the indigenous oil and gas companies…

IOC Strategy: Oil and Gas + IP = Sustainable profitability

Besides the IOC have both tangible and intangible assets to bank on, Shell is reported to have the most valuable brand in the oil and gas industry while ExxonMobil is reported to have collected more than US $129 million in 2011 from licensing its IP to third parties, and this number is increasing every year.

Innovation/Intellectual Property is crucial for sustainability; the IOCs can pledge their IP as collateral for fresh facilities.

Indigenous Oil and Gas Companies Strategy:

Oil and Gas – IP = Non-Sustainable profitability?

Meanwhile, our indigenous oil and gas companies may not have any oil and gas IP; they typically engage technical partners with great fan fare.

Some have been in existence for over 30 years but I am not sure we have many indigenous oil and gas company with research and development departments much less a cache of oil and gas IP. Once the returns from their tangible assets i.e oil rigs dwindle they cease to be very profitable, worse still they barely have any intangible assets i.e IP to leverage on. They end up waiting for oil prices to rise before they can return to profitability.

North Sea oil and gas companies’ strategy

Innovation/IP+ new markets = sustainable profitability

Their government is supporting the oil and gas companies by encouraging them to invest in other markets like Africa, quite a few North Sea oil and gas companies were at the Offshore West Africa 2016 to explore the possibility of investing in Nigeria. The Investment Promotions Agencies around the North Sea areas were all on hand to guide and educate oil and gas companies on doing business in Africa. The UK government has completed plans to restructure the UKTI, it’s doing well in my opinion but their government thinks it can do better.

Besides their government is encouraging the North Sea oil and gas companies to innovate and protect their innovation. This is based on the premise that innovation will help a company ride through trying times and boost its profitability even more when oil prices stabilize.

Mini case study: Innovation/IP + Oil and Gas= Sustainable Profitability

Qatar LNG is arguably the biggest LNG company with 20 trains, Nigeria LNG has 6 trains. Qatar LNG has developed indigenous LNG technology making it easier and cheaper for it to produce its LNG on a very large scale. Large scale production of LNG comes with the benefit of price flexibility, ability to meet demand and its immense LNG storage facility gives it increased security of supply. Recently QatarGas LNG was able to give prices rebates to win a contract worth $18 Billion from Pakistan.

QatarGas has huge technological advanced LNG vessels that enable it to deliver one single cargo to two different locations at a time.

Most LNG companies can only deliver one single cargo to one location at a time.


The challenges facing our oil & gas industry ranging from the fall in crude oil and natural gas prices to the changing global energy landscape make it needful for active collaboration between all stakeholders in nudging the oil and gas industry towards a needed renaissance.

These are my thoughts, comments anyone?

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos

Olufola Wusu Esq. © 2016

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…