The Case for a Viable Nigerian Petroleum Industry During the Energy Transition

It is a no-brainer that three factors have hobbled and continue to hobble the growth and expansion of the Nigerian petroleum industry, even as it is caught between the dire need to squeeze out every dollar it can get from oil and the urgency to start steering the industry towards her carbon zero target year of 2060.

The three factors – little or no investment in exploration (through which new reserves are discovered and booked); oil theft or diversion of produced hydrocarbons (which puts the revenues that the government would have earned into private pockets); and borrowing on reserves (thereby discounting revenue from future production), are holding the Nigerian economy in a vice grip. Only a radical strategy that involves thinking outside the box can release the chokehold on the nation’s economic jugular.

Apart from urgently needed revenues not realised by the government, it is now a race against time to use the same revenues from hydrocarbons to essentially reverse the “oil curse” by restoring the devastated environment in oil-producing communities and setting them on the path of minimum sustainable development and livelihoods, before 2060.

Already, the IOCs and the international contractors are leaving the onshore Niger Delta fields in droves. And while the consequential shift in asset ownership may be ultimately beneficial for the Nigerian independent E&P operators and indigenous contractors, it is the IOCs and international contractors who have the financial muscle and proprietary technology to take on the big ticket projects needed for economy of scale - from exploration and seismic data gathering, seismic data interpretation, exploration drilling and discoveries; to field development, production, oil and gas processing, transportation and exports. In other words, the government must manage the exit of the IOCs carefully to sustain overall reserve and production growth and revenue targets, while growing the portfolios of the independents, who may now be encouraged as the new owners of the Niger Delta brownfields, to invest more in vertical integration and 100 per cent local processing of their production, which will in turn lead to accelerated industrial output - especially for the chemical industries.

On low exploration activities, there are scattered activities here and there. The last worthwhile speculative seismic survey in Nigeria was the USD I million data gathering project initiated by ATO Geophysical in 2023, to identify new reservoir locations in the onshore Niger Delta. Even PGS Exploration, hitherto the leader is speculative surveys in the Gulf of Guinea, appears to be looking elsewhere with skeletal activities including the 2020 Western Delta data reprocessing package, plus another 1,000 square kilometres of 3D seismic data from OPL 248. In June 2023, PGS released a reprocessed Pre-Stack Depth Migration (PSDM) dataset covering over 5,000 square kilometres in deep offshore Niger Delta.

Unfortunately, we have recently not received breaking news of any discoveries of 500million or one-billion-barrel reservoirs as we saw in quick succession in the 1990s and 2000s when Agbami, Bonga, Bonga South West, Erha, Akpo and Egina were discovered by Texaco, SNEPco, Agip and Total Energies respectively.

The reason for no new elephant field discoveries is not far-fetched because long-term capital is timid and with a plethora of discoveries in almost all countries of the Gulf of Guinea, more options have opened up for the international investors. For instance, Shell spent USD4billion and waited ten years to start producing 200,000 barrels a day from the Bonga field. If Bonga field were to be in Senegal, Shell would have extracted far more attractive terms, even with the very good PSC terms Nigeria has on offer.

Thus, what was hitherto an exclusive club for Nigeria, Equatorial Guinea, Gabon and Angola is now an open field with stiff competition coming from new producers with more attractive terms for the IOCs. Naturally, the available pool of international capital flows to jurisdictions with better terms, especially where the IOCs can dictate such terms to the inexperienced governments of the new oil-producing countries.

The corruption and inefficiency of the National Oil Company have not helped matters. Even the reform proposed by the Petroleum Industry Act has been bastardised with the very same bloated and bureaucracy-hobbled, nepotism-riddled NNPC simply changing its logo and becoming NNPC Limited – rather than transiting to a properly structured company quoted on many stock exchanges and set up with competitive world-class governance structures like its peers from Brazil (Petrobras), Malaysia (Petronas) and Equinor (Norway), to mention a few. These NOCs are challenging and match the IOCs toe to toe in the Gulf of Mexico, the North Sea, the South China Sea and every other oil and gas theatre in the world.

With her pedigree as the biggest asset holder and the number of oil industry professionals who have passed through her, NNPC would have at least become the dominant player by far in the Gulf of Guinea if she had run as she should all these years.

In summary, Nigeria's challenges in attracting investment in oil and gas exploration for several decades can be attributed to regulatory, economic, political, and security-related issues across board. The situation was compounded by the almost twenty-year delay occasioned by political bickering and intrigues before the industry reform law was eventually passed in 2021.

The way forward therefore includes the institution of a stable and transparent regulatory framework. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) appears to be making the right noises in this regard. But can transparency be established throughout the petroleum industry value chain?

Other core areas that need to be urgently addressed to improve the enabling environment for new investments, especially in exploration, are improved security, reduction in corruption, rural infrastructure, and improved management of relations with oil-producing communities.

The passage of the Petroleum Industry Act (PIA) is a good step. However many aspects of the law have already derailed and effective implementation and consistency in the intended reforms are essential to achieve the urgent task of attracting new investment dollars investment to exploration activities, which will in turn add new reserves to the national asset portfolio.

 Tags:  Energy Nuggets Daily Publications Petroleum Oil and Gas Memorial Petroleum Engineering

Comments