27 August 2015
Since being established in 1995, Templars has grown to become one of the most renowned law firms in Nigeria. Could you start us off with an introduction to Templars’ operations today?
Oghogho Akpata (OA): Templars has been in existence for approximately 20 years. At the time of the firm’s inception, there was a relative dearth of cutting-edge commercial legal services, especially in the energy sector. So, when we established the partnership, we set out with the clear ambition of becoming a top-tier oil and gas firm. We brought in an unrivalled team of experts and pushed the boundaries of service delivery expected by oil and gas lawyers. Today, we do not consider ourselves a pure-play oil and gas practice: over the past 10 to 15 years we have expanded to become a full-service firm, working across various sectors of the economy and we have become well known in the areas of mergers, acquisitions, power, project financing, banking, capital markets, taxation, arbitration, energy disputes, employment and labour and the whole gamut of legal services.
Today, our headcount numbers 63 lawyers and nine partners, who are split between our offices in Lagos and Abuja. We pursue a course of both lateral and organic growth. Although the potential for internal growth is always strong, we are not shy to bring in outside experts to complement our team. For instance, we recently admitted a tax veteran with over thirty years of experience in a leading international oil company (IOC) into the partnership. Interpreting laws and statutes is only one part of our business. To ensure that we fully understand our clients’ business and offer hands-on advice, we like to hire a diverse array of professionals, from accountants to engineers and investment bankers.
Our client base has a distinctly international flavor, reflecting the international nature of the oil and gas business. As such, our people spend a lot of time meeting with decision makers in our clients’ home countries. IOCs often require highly specialized services in Nigeria so we interact with their own in-house counsels and the international advisors that they choose to collaborate with, forming a triumvirate of legal assistance. Further to this, we maintain close—though not exclusive—relationships with some major international law firms.
In the past, producing oilfields were held in joint ventures (JVs) between IOCs and the state but the past 20 years have seen a shift towards production sharing contracts (PSCs). What are the reasons behind this trend?
OA: Until the 1970s, IOCs owned oil blocks outright. When the Nigerian National Petroleum Corporation (NNPC) was formed in the latter part of the decade, the scenario began to shift. The NNPC became the holder of around 60% of the total acreages, and IOCs were invited to operate the fields in JVs. The terms of these JVs stipulated that both parties must contribute to exploration and field development costs. Across the world, states began to experience difficulties fulfilling their cash call and other obligations in this regard and on a global level we saw a transition from JVs toward PSCs. Rather than putting billions of dollars in JVs, the states decided that they could invest this money into infrastructure and social amenities by entering into a risk service/carry arrangement whereby the PSC contractor bank-rolls the state in respect of the exploration, development and production costs in return for a pre-determined portion of oil and gas produced from the field.
The first PSCs in Nigeria were signed in 1993 with ExxonMobil, Shell, Eni/Agip, and Chevron. In terms of the relative merits of each, JVs provide for joint ownership of acreage while PSCs provide for more attractive tax rates and allowances as well as allowing for circumvention of cash call constraints but the State will at all times retain proprietary interest in the acreage with the IOCs providing the relevant funding and acting as contractor.
As oil prices have fallen in recent years, decreasing government revenues, some states have begun to pursue legislation that enables them to claim a greater share of oil money. Is this also the case in Nigeria?
OA: Yes, it is. Even before the recent fall in oil prices, we have been seeing a push to adjust the statutory requirements to give the government greater control over accruals from the oil. For the past six years, government has been trying to introduce the Petroleum Industry Bill. This will drastically alter the fiscal regime that governs the hydrocarbons industry, allotting a greater share of revenues to the state. Needless to say, this is unpopular with the IOCs. But it could be argued that Nigeria’s current regime is still highly lenient, and the changes will bring the country in line with its peers.
Besides seeking to introduce new statutes, we have also seen recent attempts by the government to boost its revenues by trying to claw back certain tax incentives that it had granted to a number of industry players under the pioneer status regime on the basis that some of those incentives are not legally defensible.
Despite being Africa’s leading producer of crude Nigeria’s refining capacity lags behind. What efforts are being made to incentivize midstream investments?
OA: In recent years, there have been continuous attempts to encourage investments in midstream capacity. There was a time in which IOCs were pushed to develop refineries as part of the conditions for renewal of their leases but this move was not well received. Also, given the extent to which petroleum products are subsidized in Nigeria, it does not make business sense for private companies to invest in refining. The upfront costs are huge and if the owner must then sell his products below the market price then such a venture cannot be profitable. Thus, there have been talks about deregulating the sector and removing the petroleum subsidies. This move coupled with a favorable tax regime should hopefully incentivize investments in crude refining. The alternative is to fix the refineries in Nigeria so as to reduce our reliance on imports. The present government in Nigeria is committed to this process and, according to media reports, the Port Harcourt, Warri and Kaduna refineries have recommended production.
Aside from refineries we see a lot of interest from foreign investors who want to get involved in developing gas processing plants and pipelines. There is a pressing need to build more gas infrastructure across Nigeria so as to fully harness our natural gas resources and provide adequate fuel and feedstock for our power plants and industries. In terms of invectives, investment in gas processing and infrastructure qualify for tax holidays and other allowances for a period of up to five years.
What kind of financing schemes are coming into play to fund this new investment in gas infrastructure?
OA: Building gas infrastructure is obviously very capital intensive but international investors see the viability of the sector and recognize that the returns can be huge. Most of the arrangements are full play, non-recourse project finance with long-term off-take contracts. A few players have issued or are considering issuing project bonds to develop gas infrastructure. Seven Energy recently issued a seven-year, $300-million senior secured notes and some of the proceeds will be applied towards developing a number of gas facilities. On the part of the government, there is also the move to develop infrastructure through public private partnerships (PPPs). For instance, the Nigerian Gas Company has some huge projects like the Obiafu/Obrikom-Oben and the Calabar/ Ajaokuta/Kano (CAP/AKK) gas pipeline that takes power to the north. The current expectation is that these will be funded using the PPP model.
How do you plan to develop Templars’ business in the coming years?
OA: Thanks to our long track record of working on large transactions in the energy sphere, we are frequently called upon to advise on major projects from conceptualization through to completion. Our expertise is not just in advising project sponsors, developers and contractors, we are also involved in complex financial arrangements that require a high level of structuring, coordination and execution. We are able to work on both sides of the deal, representing either borrowers or financiers.
Given all of these and looking to the future, in addition to the great potential for future growth in the hydrocarbons sector, we are looking to develop our other areas of practice. We have seen increasing demand for corporate investigations and advisory services to foreign companies looking to set up shop in Nigeria. We are also expanding rapidly both in terms of office space and the number of fee earners. We have also set up a formidable business development and corporate communications team and executed in-house restructurings that have significantly improved our service delivery to our clients. Our expansion is continuous, and we can only get better.
|GBR CONNECT SERIES
This interview was conducted as part of GBR’s research on the oil and gas industry in Sub-Saharan Africa for its Sub-Saharan Africa’s Oil and Gas Handbook 2015, which will be published in October 2015 at Africa Oil Week in Cape Town, South Africa. A concise version of this research was published in May 2015 and can be accessed here. To participate in this report, please contact Laura Brangwin at firstname.lastname@example.org.