After years of underinvestment, Nigeria is repositioning its oil and gas sector to return to the fold and possibly become a top investment destination.
Recent fiscal reforms is set to increase competitiveness in the country’s upstream industry.
In Nigeria National oil companies (NOCs) and indigenous companies have been acquirers of mature assets which the Majors have divested.
However, accessing capital has often proven difficult, and most assets the Majors have divested from have not seen an uptick in investment.
Experts have said that companies and governments must work hard to optimise the country’s resource potential as the energy transition gathers pace.
The Nigerian National Petroleum Company Limited on its part says it will continue to invest in the development of huge oil and gas infrastructure to make it easy for operators and prospective investors to carry out their businesses in Nigeria.
NNPCL executive vice president, Upstream, Mrs Oritsemeyiwa Eyesan, dropped the hint at this year’s Offshore Technology Conference Houston, Texas, United States of America.
Speaking at one of the panel sessions of a luncheon organised by the Petroleum Technology Association of Nigeria, with the theme: ‘Sustainable Energy Solutions for Africa’s Future (Nigerian Perspective)’, Eyesan stated that NNPCL’s objective was to ensure that there is a healthy balance of energy sources in the country.
She said though the oil and gas sector is not where it ought to be, much progress had been made between last year’s edition of the OTC in terms of opening up the sector for investments and infrastructural development.
While identifying funding as the major challenge impeding the development of the oil and gas sector, Eyesan listed some of the bright spots in the industry including the Executive Orders signed by President Bola Tinubu to open up the sector; the imminent resolution of the divestment of the assets by the International Oil Companies, and the aggressive execution of gas infrastructure projects such as the Obiafu-Obrikom-Oben (OB3) Gas Pipeline, which she said would be completed in the next quarter.
Also speaking at the panel session, the managing director of SNEPCo, Elohor Aiboni, and the managing director of Chevron Nigeria Limited, Mr Jim Swartz, stated that their companies’ divestment from onshore and shallow water assets was a general realignment of their portfolios across the globe and should not be misconstrued as an exit from Nigeria.
Speaking further on his company’s commitment to remain in Nigeria, Swartz said, “We are excited about what the government is doing to build confidence in investors. We are excited to work with NNPCL.”
Addressing Key Bottlenecks
In Nigeria it has been observed that producers spend over $ 40 for a barrel which makes it unattractive to investors.
The special adviser to the President on Energy, Olu Verheijen, said this is major challenge to investors as she speaks on a number of presidential initiative aimed at restoring improved deliverables to the oil and gas sector.
Verheijen, said however, that various presidential interventions in the energy sector is producing results.
Unfortunately, she recalled that Nigeria had only attracted about $300 million to the industry in the last ten years.
“When you look at places like Ghana where you see over $12 billion (because of the operating environment). That seemed off to us, because, ideally, the biggest resource holder should be attracting more and we tried to understand why that wasn’t happening and we found a few issues which are really around investment climate and that’s why we decided to zero-in on those additional interventions,” she noted.
According to her government is addressing the main issues harming investment in the country and is making sure that it creates enabling and competitive investment climate for capital, so that when investors are looking for opportunities and financiers are looking for opportunities across the globe, they will say Nigeria is one of the most attractive options and then they are able to allocate more capital to Nigerian projects.
In attempting to locate the key causes of investment apart, she said it was found that operating cost is a challenge.
“We found that the cost of doing business in Nigeria is quite high, and in the oil and gas space, the benchmark as to other climates is high. If you look at Saudi Arabia, they produce oil at less than $5 a barrel.” According to her, producers spend over $ 40 for a barrel in Nigeria which makes it unattractive to investors.
Another major challenge she highlighted was that contracting timelines take too long.
“To put a contract in place whether you want to drill a rig or drill a well or do anything in the oil and gas sector, we found that sometimes it can be as high as 38 months to actually pull that contract. That contracting cycle, for many reasons, we thought this is one of the quick wins because once the amount of time is extended, you’ll need to do anything when the costs go up because its base are expiring and you have to come back, you are missing cycles and low cycles, opportunities, to lock-in prices and move. Many will go to where contracting timelines are less,” she explained.
Despite the interventions, the SA, said investments don’t necessarily yield production growth, adding, “so I know most Nigerians look at the dollar to Naira exchange rate.
“Will this investment immediately impact that? No, but in some ways, they actually help us start the economy.”
According to her, “There haven’t been a lot of projects as the last big deep water project was in 2013, and there has been no major investment since then.
“There are a lot of contractors, people who supply water, people who train staff, a lot of businesses that have been idle and shut down and we are able to restart economic activities, and that helps generate income for Nigerians in the meantime.”
In the gas space she said government has been able to see that NLNG’s output or availability went from an average of 53 per cent in 2022 to close to 70 per cent in the first quarter of this year.
This means more income back to the federal government for further investment.
Speaking further, she said, “Instead of an activity based approach, spending a lot of money not really understanding what your outcomes are, we are able to see direct correlations between the activities that we are undertaking as a government that’s yielding the desired outcomes.
“More barrels into the terminals that we can export and more gas into the domestic market for power and industrialisation and more LNG cargoes making it into the market so that we can earn the dividends that are required for foreign exchange to just stabilise the macro-economic environment. The work isn’t done there, but there have been significant improvements. That is on the security side.”
Still Counting Losses
Despite these efforts Nigeria is yet to improve her performance in the area of production.
The Nigerian Upstream Regulatory Commission, NUPRC, has said that Nigeria’s crude oil production in the month of April, 2024, rose marginally by four per cent to 1.28 million barrels per day compared to 1.23mbpd recorded in March.
This is even as the minister of state, Petroleum Resources (Oil), Senator Heineken Lokpobiri, said that government is taking strategic steps to hit two million barrels oil production by the end of 2024.
Unfortunately the lack of improvement in production came despite Federal Government’s effort to boost oil production to meet the 1.78mbpd target for funding the 2024 budget.
When added to condensate oil, production was 1.447 million barrels per day compared to 1.438mbpd recorded in the previous month. The production figures with condensate were 1.539 million barrels per and 1.643 million barrels per day in the months of February and January respectively.
The minister however explained that drop in oil production in the last few months was caused by issues encountered on the Trans Niger Pipeline, coupled with maintenance activities carried out by some oil companies operating in the country.
Lokpobiri, assured that measures were being taken to address the situation to, “not only restore production to previous levels, but to also increase it.”
The minister also announced that the issues have been adequately addressed, and production is expected to return to its previous levels in the coming days.
He anticipates that Nigeria’s oil production, including condensate, which was approximately 1.7 million barrels per day (bpd) prior to these developments, will soon be restored.
The Ministry of Petroleum Resources is also said to be actively engaged in policy evolution aimed at maximizing the utilization of all available wells in Nigeria.
This strategic approach will enable the country to ramp up production, thereby generating vital revenue to stabilize the nation’s foreign exchange reserves. The increased revenue will also empower the government to fulfill its commitments in providing essential infrastructure, as outlined in the 2024 budget.
The government has also blamed oil theft and pipeline vandalism for the industry’s failure to the country’s OPEC quota of 1.5 million barrels per day.
Lokpobiri explained that “the quickest way to solve our economic challenges is through the oil and gas sector. Today, oil sells for over $90 per barrel and if we ramp up production and we reduce the level of oil theft and pipeline vandalism, we will be able to raise the requisite money to be able to fund not only our budget, take care of our forex problems and then ensure that we stabilise our economy.
“There is no country in the world that doesn’t prioritise security and investment in its oil assets. Part of our own objectives is to reduce pipeline vandalism and oil theft to the barest minimum. We cannot completely eliminate it but working together with you will be able to reduce it to the barest minimum. So, that we will be able to benefit from the production of oil and gas that is going on.” he added.
Opening Bid For New Assets
In a dedicate approach to upscale production, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has initiated the 2024 Licensing Round.
Engr. Gbenga Komolafe, the Commission Chief Executive, emphasised Nigeria’s dedication to advancing its oil and gas sector and attracting international investors through President Bola Ahmed Tinubu’s leadership.
The Licensing Round offers exploration blocks with significant economic potential, supported by a regulatory framework focused on fairness and transparency under the Petroleum Industry Act 2021.
Nigeria’s approach aligns with global energy sustainability goals, considering environmental, social, and governance factors. The initiative aims to boost oil and gas reserves, production, gas utilisation, employment opportunities, technology transfer, and investment attraction.
Engr. Komolafe said the Licensing Round is “expected to be a huge success for Nigeria and is a big step towards growing the nation’s oil and gas reserves through aggressive exploration and development efforts, boosting production, expanding opportunities for gas utilisation and end-to-end development across the value chain, strengthening energy security and economy, providing an occasion to gainfully engage the pool of competent companies in the oil and gas sector with a multiplier effect in employment opportunities, enabling the transfer of technology, valorizing petroleum assets in the Nigerian territory and attracting investments.”
The nine-month-long Licensing Round promotes openness and transparency, inviting global participation for economic returns and capacity building, in line with the Extractive Industry Transparency Initiative. Collaboration is emphasized to ensure a resilient and sustainable energy industry in Nigeria.
Optimising Divested Oil Fields
This is most evident in Nigeria with four major deal announcements: ExxonMobil/Seplat, Eni/Oando, Equinor/Chappal Resources and Shell/RAEC.
While approval and completion of these deals is pending, the trend is clear. Indigenous and African focused companies are stepping up and will play a bigger role in Nigeria’s onshore and shallow-water sector.
Penultimate week the NUPRC Commission chief executive, CCE, Gbenga Komolafe, said asset sale deal between ExxonMobil and Seplat would be concluded in the next two weeks.
The final approval expected from the oil regulator would end a two-year delay since the deal was first agreed.
The $1.28 billion sale has awaited regulatory approval since 2022.
He said the companies would be invited to a meeting where the confirmation would be decided.
“Subject to the outcome of the meeting, consent could be given in less than two weeks from the date of the meeting,” he said.
The NUPRC would give the companies two mutually exclusive options that, if accepted, would permit approval of the deal, Komolafe said.
He did not spell out what these options were, but said the law requires money to be set aside for decommissioning, host community development and environmental remediation.
“As a commission, we don’t want our nation to carry unwarranted financial burdens arising from the operations of the assets over time by the divesting entities,” he said.
Nigeria relies on the commodity for more than 90 per cent of its foreign exchange and half its budget but output has declined in recent years due to underinvestment and theft.
Oil majors operating in Nigeria, including Shell and TotalEnergies have exited their onshore shallow water operations, citing security concerns, such as theft and sabotage, to focus on deepwater drilling.
Those moves have run into regulatory hurdles.
Analysts say approving the ExxonMobil- Seplat deal would inject much-needed capital into Nigeria’s oil industry, potentially leading to improved oil output, and also signal to investors that similar deals such as Shell’s asset sale to Renaissance in January are likely to get regulatory assent.
