Nigeria is set to auction new deep offshore oil and gas licenses for the first time in 15 years in indeed is expected to relaunch the country into its pride place of topping other African oil producers.
Angola is officially the biggest oil producer in Africa, with the oil-rich nation producing the highest output on the continent for the fourth month in a row.
Since overtaking in May 2022, Angola has managed to maintain its output, with new developments currently underway set to increase production figures even further.
For Angola, high production levels can largely be attributed to the stability and security of the sector.
In August 2022, the Organization of Petroleum Exporting Countries estimated the country’s average daily output to measure 1.17 million barrels, compared to Nigeria’s 1.13 million barrels during the same period.
While Nigeria’s output has been significantly impacted by high levels of crude oil theft and pipeline vandalism with the Nigerian Upstream Petroleum Regulatory Commission estimating that production more likely measured 972,000 barrels a day in August 2022 Angola’s sector security has translated into strong production.
Despite production declines from 1.18 million barrels to 1.16 million barrels from April to May this year, security across the Angolan hydrocarbons industry has ensured the country’s output has not only been resilient but has actually increased, now measuring 1.17 million barrels.
The Nigerian National Petroleum Company Limited, NNPCL, said recently that thieves from all levels of society, including religious groups, were stealing 200,000 barrels of crude oil per day.
Oil and gas expert Emmanuel Afimia said Nigeria’s its position as Africa’s biggest oil producer has consequences.
“It actually sends a wrong signal to the global oil market,” Afimia said. “The country may slowly be losing its influence in the global market, and it may be difficult for Nigeria to contribute to decisions in the global market as time goes on. And most importantly, buyers may start to panic, because if you look at the reasons behind the decline, the buyers will think Nigeria is slowly losing its grasp.”
The lost production also translates into billions of dollars in lost revenue. Global oil prices skyrocketed in March soon after Russia’s invasion of Ukraine, and oil is still trading at around $96 per barrel.
At that level, crude oil is trading 36 per cent above Nigeria’s benchmark for its 2022 budget.
But in July, the NNPC reported zero revenue from crude oil exports, compared with $5.96 million earnings in June.
President Muhammadu Buhari, in response instituted a Committee on National Economy and immediately discussed issues of oil theft with the new team.
He said the theft is putting the country in a precarious economic position.
“The fall in production is essentially due to economic sabotage,” the president said. “Producing at about half our OPEC quota has deprived us of much-needed revenue and foreign exchange. The government is working tirelessly to reverse this situation.”
Afimia said authorities must address theft and invest more in oil production before companies can raise monthly output.
“Once the country is able to increase its surveillance and improve security as well, it will really encourage existing firms to maximize their production. That confidence will be restored,” he said.
Recently also, Nigeria’s oil workers union said massive crude oil theft was putting worker safety and jobs at risk and threatened to go on strike if the issue is not addressed.
The federal government said it has improved surveillance of oil assets, especially in areas prone to bunkering and vandalism.
Moving To Upscale Production
The federal government in a strategic move to reverse the trend had announced it will launch a bidding round for seven deep-water blocks in November.
This is according to the chief executive of the Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe.
The government issued dozens of such permits between 1993 and 2007 to open up the ocean floor to oil and gas production.
The blocks available are at depths of between about 1,200 meters (3,936 feet) and 3,100 meters, according to Komolafe.
They are located off the city of Lagos in southwestern Nigeria rather than off the coast of the Niger Delta further to the east where most of the country’s oil industry is concentrated, he said.
Nigeria’s oil output fell to a multi-decade low of less than 1.2 million barrels a day in September and has almost halved since the first quarter of 2020. The government blames rampant crude theft on the pipelines that crisscross the Niger Delta for shutting down wells and killing off investment.
In recent years, deep-water production led by international companies such as Shell Plc and TotalEnergies SE has accounted for about 35 per cent of oil output but its share has risen this year as onshore operators have struggled. In addition to granting new licenses, the government is encouraging current block-holders to develop more of their offshore acreage.
Earlier this month, the NUPRC also resumed a separate bidding round for firms interested in commercializing gas that is burned off – or “flared” – by oil producers. While Nigeria possesses Africa’s largest proven gas reserves, most of it is untapped, flared or re-injected into oil wells.
Nigeria’s deepwater projects which are expected to come on stream between 2025 and 2030 will have the capacity to add at least 2.3 billion barrels of crude oil to the country’s existing reserves, S&P Global Commodity Insights, a market intelligence agency has stated.
In the report, S&P stated that deepwater projects hold the key to Nigeria’s production growth and ultimately stability, explaining that if properly implemented the Petroleum Industry Act (PIA) could transform the fiscal side of the Nigerian oil industry.
“The deepwater projects that are due to start up between 2025 and 2030 are estimated to hold recoverable resources, of 2.3 Barrels. Without the sanctioning and commissioning of currently unsanctioned projects, Nigeria’s overall production will likely decrease from the end of the decade.
“It’s the deepwater projects that can provide this extra production required to offset the expected production decrease. Therefore, unsanctioned deepwater projects are seen as the prime target area for fiscal and regulatory improvement which is thought to have occurred if the assets convert to the new PIA fiscal terms,” it stated.
A number of oil companies have recently begun to exit Nigeria’s shallow waters as well as divesting their onshore assets for the deepwaters as a result of frequent attacks on their facilities in the Niger Delta.
According to the report, some of the deepwater projects on legacy terms upon conversion will see their combined Net Present Value (NPV) increase by as much as 89 per cent.
According to the firm, this is positive news for the projects and their operators and has spurred some of them and other joint venture (JV) partners to release news that the changes in the fiscals have stimulated progression towards a possible Final Investment Decision (FID).
“An example is Preowei, where operator TotalEnergies announced that it is to accelerate the development with a possible early conversion to the PIA terms due to the new fiscal structure which contains tax advantages,” S&P said.
It listed one of advantages of the document as the new incremental production-based royalty which went from a 10 per cent for water depths of greater than 200m to either 5 per cent for less than 50,000 bpd or 7.5 per cent when greater.
“These projects should remain an area of particular focus for the government. Indeed, they could become stranded if the terms available are not acceptable to licence holders.
“However, as the May 2021 renegotiation of the Bonga Southwest PSC terms demonstrated and the subsequent August 2022 renegotiation of a further six blocks including OML 125 & 130, if the government and international oil companies (IOCs) are able to find common ground on such projects, this could raise Nigeria’s production outlook towards the end of the decade, which would also likely help to secure the country’s output over the longer term,” the report said.
Further important large projects that are key to Nigerian production remaining steady, it said, are the deepwater producing Agbami field which has also benefitted from the new terms.
If implemented, it stated that this will have an NPV increase of around 50 per cent as well as the deepwater producing Erha field which would see an NPV increase of over 400 per cent.
Titled: “A Deepwater Dive: Has the PIA unlocked the key to Nigeria’s long-term production stability?”, the report stressed that the PIA seeks to provide a regulatory, legal, fiscal and governance framework for the Nigerian petroleum industry as well as funding the development of host communities.
According to S&P, the new PIA has attempted to improve the country’s fiscal attractiveness by altering many facets of the regimes that apply to oil and gas assets, including royalty tax as well as Petroleum Profit Tax (PPT).
“One area of particular interest and that is crucial in preventing Nigerian production from declining is the sanctioning and timely construction of new deepwater projects such as Bonga Southwest and Owowo.
“These increases are significant and illustrate the intentions of the government, moving forward, that on its designing of the PIA they have put project partners and fiscal attractiveness at the forefront.
“The trajectory of Nigeria’s future oil and gas production largely hinges on the PIA and if it is considered to be sufficiently favourable to investors. This is widely unknown as operators and partners have remained generally silent apart from the announcements made by the Preowei and Bonga development JVs,” it added.
However, it stated that it remains to be seen if Nigeria’s boldest attempt to overhaul the country’s petroleum sector will work, but stressed that it has been a positive step which so far has been commended and should help retain and attract further investment ultimately benefitting the country.
