Nigeria’s oil and gas sector is expected to shrink by at least 40% between 2015 and 2025, according to consultancy firm, Wood Mackenzie.
As part of its efforts to reform the energy sector, President Muhammadu Buhari’s administration has tried to tackle some long unresolved problems with partnerships between the government and international oil companies.
Although western energy companies recently reached a $5bn settlement to resolve a protracted dispute with the government over its share of historic exploration and production costs, executives are only cautiously optimistic about their relationships with the government.
Company executives, industry analysts and government representatives have issued warnings.
Their warnings come as capital expenditure in Nigeria’s oil and gas sector is expected to drop by at least 40 per cent from 2015-2025, according to consultancy Wood Mackenzie.
Projects such as Shell’s Bonga South West-Aparo, Chevron’s Nsiko and ExxonMobil’s Bosi developments have been put on hold because energy companies do not see them as viable with oil prices around $50 a barrel if invested into.
“This is significant” because such developments account for “much of the pipeline of deep-water projects that are expected to be the engine of oil production growth, especially given the (security) risks of operating onshore,” says Gail Anderson, lead Nigerian analyst at consultancy Wood Mackenzie.
According to him, the federal government understands that settling these disputes with western companies over owed payments known as “cash calls” and working on a new financing model for joint ventures are part of the steps towards boosting investor confidence.
The proposed legislation sees increasing the royalty rate in a per barrel payment to the government from zero to as much as 50 per cent, depending on the price of oil and level of production as part of the way forward.
According to Dr. Emmanuel Kachikwu, shrinking the government’s funding obligations in exploration and production were important to “reduce the strain on government”.
“Why would you want to sink more money into Nigeria when you can go elsewhere: Ghana, Angola, eastern Africa, there are too many other options,” says Aderonke Onadeko, chief executive of DeltR Energy, a Nigerian oil and gas consultancy.
Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Kacalla Baru recently vowed to improve the gas reserves and production capacity of the Corporation’s Exploration & Production subsidiary -the Nigerian Petroleum Development Company (NPDC).
The GMD who described NPDC as showing a “conspicuously excellent growth in its proven reserves” emphasized the need to expand the company’s footprints within the nation’s upstream sub-sector of the nation’s oil and gas industry.
“As part of our 12 Business Focus Areas, we are dedicated to growing NPDC thereby increasing our reserves portfolio. We will not relent until NPDC exceeds its current position of being the 7th largest oil producer in Nigeria.
To achieve this, the GMD added, the NNPC under his watch would aggressively explore opportunities in other petroleum acreages in Nigeria and with particular interest in the Gulf of Guinea.
According to him, NNPC was also working hard to improve the port-folio of services rendered to the oil industry by its second Edo-based upstream outfit -the Integrated Data Services Company (IDSL) it is rendering to the oil and gas industry.
“The long term objective is for IDSL to be on its own so as to actualize its vision of becoming the ultimate center for the provision of Geophysical and Petroleum Engineering Services in the Oil and Gas Industry,” the GMD added.


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