GlobaData calls for massive investment in petroleum sector

Unless the Federal Government encourage massive investment in the country’s oil and gas sector through reforms and transparency, the country will continue to record decline in revenue.

GlobalData’s Upstream Analyst covering Sub-Saharan Africa, Young Okunna, who made this assertion, added that Nigeria’s oil and gas sector is in desperate need of reforms and transparency.

Young Okunna said that capitalising on the opportunity to rebuild investor confidence following the smooth transition of presidential power from Goodluck Jonathan to Muhammadu Buhari, could rejuvenate Nigeria’s oil and gas sector.

He added that Buhari brings a reputation as a heavy-handed president able to potentially neutralise the Boko Haram threat, which is concentrated in the poorer northeast of the country.

“Whilst the oil sector is concentrated in the south, the Islamist group has in the past named refineries and oil infrastructure as targets.” “Nigeria’s new president is also a fierce opponent of corruption, having recently dissolved national oil company Nigerian Natopma; Petroleum Corporation’s board following an estimated $20 billion scandal of inappropriately managed oil revenues,” Okunna added.

He forecast that several new fields due to come online over the next five years will add slightly more than 300,000 barrels per day. He said the industry’s “stagnation” has been illustrated by more than 335 discoveries which remain unverdeveloped. Okunna added that peace in the Niger Delta region is of paramount importance to sustaining production and foreign direct investment.

He said that the country-specific challenges, such as fiscal instability, a militant insurgency, political and corporate corruption, and vandalism, will negatively impact the ramp up of investment.

“As companies look to redeploy capital after having pulled back when oil prices collapsed, Buhari’s government must reform the sector and also engage with community leaders to reduce sabotage and communal disturbances, in order to attract investment that will reverse the forecast production decline”.

Lamenting the state of the sector, Okunna stated: “Despite over 37 billion barrels remaining in proven reserves, oil production in Nigeria is forecast to falter due to underinvestment.

As companies look to redeploy capital after having pulled back when oil prices collapsed, country-specific challenges like fiscal instability, a militant insurgency, political and corporate corruption, and vandalism will negatively impact the ramp up of investment.

Over the next five years, major new fields such as Egina (Total), Dibi (Chevron), Sonam (Chevron), Odidi (NPDC), and Jones Creek (NPDC) are expected to come online, complemented by production-stabilizing programs at fields such as Agbami (Chevron), Erha (ExxonMobil), Bonga (Shell), and Gbaran-Ubie (Shell).

While the new fields are forecast to add just over 300,000 barrels per day (bd) and the stabilizing programs to maintain field production capacity, the project pipeline is less impressive when compared to Angola, which we forecast to add more than 850,000 bd over the same period for new fields only.

“As a direct result of the oil price collapse, the Nigerian National Petroleum Corporation (NNPC) issued a directive cutting its 2015 JV capital budget by 40 per cent. Joint ventures between the NNPC and IOCs account for almost 50% of Nigeria’s oil production, so the capital reduction will have a pronounced negative effect on the mid-term supply outlook.

“There are projects totaling over 750,000 bd that are now unlikely to proceed. Bonga South West (Shell), one of the largest projects on the horizon in the country with a projected capacity of 225,000 bd, had a decision on sanctioning delayed to 2016, meaning if greenlit, it would be unlikely to come onstream before the end of the decade.

A few development projects are slated to come online by 2020, but many were sanctioned prior to the slump. The majority of these projects are subsea tie-backs to FPSOs such as Aje, Egina, and Erha North Phase 2, which tend to be smaller in resources but require less capital with lower associated development costs”.