With Nigeria’s oil production consistently failing to meet budget benchmarks and allotted OPEC quotas, the industry’s regulators and operators have come under severe pressure to fix the hostile operating environment that has seen both investors and international contractors move away from the country.

Against the backdrop of the OPEC oil production quota of 1.5 million barrels per day, the latest data from the Nigerian Upstream Petroleum Regulatory Commission, NUPRC, shows that the country has recorded over 3.011 million barrels production shortfall in the first five months of the year, amounting to over $264.97 million (about N400 billion) revenue loss using an average Bonny Light price of $88 per barrel.

Finding also show that the country’s oil output has dropped to around 1.2 million barrels per day, down from a peak of 2.5 million barrels per day in the early 2000s.

Industry experts say the circumstances leading to output decline are still much within the system, adding that it might even worsen in the months ahead if nothing drastic is done to arrest the slide.

They are projecting that the production shortfall might push the attendant oil revenue shortfall to N1.0 trillion by the end of the year, a situation which would have significantly reduced the government’s budgeted N15.7 trillion revenue for the 2024 fiscal year.

Already, the Federal Government has hinted that it may not achieve its proposed revenue estimate for the fiscal year due to factors, including under-performance of the oil sector.

In its report, titled “Accelerated Stabilisation and Advancement Plan (ASAP)”, the Finance Ministry stated: “Our ability to achieve the 2024 budgeted revenue step-up of 77.4 per cent from 2023 actual is at risk should oil production remain 27.0 per cent below budget.

“50 per cent of the annualised YTD (year-to-date) variance suggests a lower-than-budgeted revenue of N15.7 trillion at the current run rate.”

Output constraints

Despite being Africa’s largest oil producer, Nigeria’s oil industry is grappling with output constraints arising from infrastructure decay and a lack of investment in exploration and production.

A breakdown of the data showed that average oil production in January was 1.43mbpd, February 1.32mbpd, March 1.43mbpd, April 1.28mbpd and May 1.25mbpd.

Speaking of the sustained slide in oil production, industry operators and regulators have said the challenges facing the sector needed to be urgently addressed.

According to the Chairman of the Independent Petroleum Producers Group, IPPG, Mr Abdulrazaq Isa, the country is producing at a level significantly below its capacity.

He pointed out that despite Nigeria’s world-class hydrocarbon resource base, with over 37 billion barrels of proven crude oil reserves and 207 tcf and 600 tcf of proven and contingent gas reserves respectively, it had found itself “in a situation where our daily production has significantly dropped and lies at about 1.3 million barrels of oil and 8.5 bcf of gas today.

Isa said: “This is way below our capacity as a nation and by all globally acceptable standards, this reserves-to-production ratio is extremely low and a clear indicator that the industry is in a dire situation.

“In addition, we now run the risk of partial implementation of our national budget considering an estimated deficit of 400,000 bpd from the forecasted 1.78 million bpd.

“This trend in production portends another frightening dimension when we consider that in the not-too-distant future our overall installed domestic refining capacity, currently closing in on about 1.2million barrels per day, may soon outstrip our current crude oil production level with the risk of Nigeria finding itself in a position where it is unable to meet its domestic refinery crude demand or even become a net importer of crude oil.”

4 priority areas to improve oil production

He listed four priority areas that must be fixed for oil production to improve and meet the government’s target.

The areas include the conclusion of all pending IOC divestment transactions including those involving its member companies – Seplat, the Renaissance Consortium and Oando; untangling of issues around deepwater development, particularly in terms of the competitive fiscal regime being negotiated with Shell, Total Energies, ExxonMobil and Chevron; adoption of a national value-retention strategy; and the development of Nigeria’s gas resources to catalyse economic growth and complement decarbonisation drive.

The challenges, according to the Group CEO, NNPC Limited, Mallam Mele Kyari, have pushed not just investors away but also international contractors, disclosing that there was only an international contractor now playing in the deep water space.

Kyari also disclosed that lack of activities and new projects had also led to a low number of active rigs in the Nigerian environment.

While listing lack of investment and oil theft as some of the limiting factors, he noted that the obsolete pipeline network was also a major challenge.

He said NNPC led the push for the complete replacement of the two export pipelines to Excravos and Bonny.

He said: “We are talking about increasing production but rigs come here, stack up in deep water and they drill one well and leave. This is why there are no guarantees around rigs in this country.

Nobody will come here, mobilize for one week and leave. That’s why you are seeing the scarcity of the right rigs coming into the country.

“We have also taken another step, we will set up a rig share club with our partners. So that everyone can put on the table drilling programme so that we can all align and when rigs come here they can stay three to five years. Then we can be sure that the trend in production can increase.”

He explained that the practice was what was obtainable in many jurisdictions, lamenting that it was not happening in Nigeria because many people had turned the procurement process into a business.

‘Attract more projects in Nigeria’s deep waters’

On his part, the Chairman and Managing Director, Chevron Nigeria, Mr Jim Swartz, who called on the government to do more to attract projects into Nigeria’s deepwater, pointed out that operating in the deepwater is very expensive with a high level of uncertainty.

He said the Issues of cost and long-drawn-out project procurement circle have to be addressed urgently, noting investment would only go to jurisdictions where cost is low and contracts are adhered to.

Speaking on what President Bola Tinubu’s administration had done to improve the operating environment, the Special Adviser to the President on Energy, Mrs Olu Verheijen, said the three Executive Orders issued in February 2024 were a major boost for the industry.

The three Executive Orders, which became effective from February 28, 2024, are: Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024; Presidential Directive on Local Content Compliance Requirements, 2024; and the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines.

Verheijen noted that the directives will instil confidence and stimulate the economy by making the Nigerian environment more appealing for energy projects.

According to her, the first order “was establishing a clear and transparent regulatory framework. A stable regulatory environment and clearly defined agency roles are crucial to unlocking our untapped potential as an industry and making it more transparent, efficient and competitive now and in the future.

“The second directive is focused on providing fiscal incentives for oil and gas projects and making us more competitive for investments. Directives 40 and 41 offer incentives for midstream gas utilisation, projects and non-associated gas projects.”

She said the government has also completed a comprehensive assessment of Nigeria’s deepwater competitiveness compared to 13 peer countries to attract investments, adding the government is “working on new fiscal incentives that will facilitate deepwater projects will be critical to Nigeria’s four million barrels per day target”.

NUPRC adds 17 new blocks to the 2024 oil bid round

As part of efforts to boost activities in the sector and improve production, NUPRC has added 17 new deep offshore oil blocks to the 2024 oil bid round, bringing the total blocks on offer to 36.

The blocks which are located across the onshore Niger Delta, Continental shelf, and deep offshore are expected to increase the country’s reserves and boost its oil production.

NUPRC had in April unveiled 12 new acreages for the 2024 bid round with another seven deep offshore blocks from last year’s bid round.

The commission In a document released recently signed by its Chief Executive, Engr Gbenga Komolafe, titled: Nigeria oil block licencing round- Updates on 2022/2023 and 2024 licencing rounds, also reopened the commercial bid for the 2022/2023 licencing round.

Engr. Komolafe explained that the reopening was to allow investors to take advantage of improved fiscal incentives approved by President Bola Tinubu who doubles as the country’s minister of petroleum resources.

Speaking on the issue, oil and gas governance expert, Henry Adigun, said there were a lot of issues in the Nigerian environment which have led to investors abandoning the country.

He harped on the need for the country to tackle oil theft and pipeline vandalism to bring confidence back to the sector.

“The government has a lot to do to improve incentives and get the majors investing again. We need a lot of production to meet domestic demands and also for export,” he added. (Vanguard)

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