Stranded oil wells, old facilities stall 2.5mbpd oil production

• Tinubu approves flexible payment for oil blocs
•  Senate committee reviews crude oil sales in naira
• Acknowledges debt-to-GDP ratio slump from 90% to 60%

Uncertainties, which clouded the benchmarking of oil production against Nigeria’s budget may persist as the country’s ambition to reach a production target of 2.5 million barrels per day (bpd) is mired in infrastructure and security challenges.

Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, and other critical stakeholders in the petroleum industry, speaking at the African Energy Week (AEW) in Cape Town, South Africa, admitted that oil producers in the country had been unable to evacuate crude oil, as many oil wells that should be adding to the production capacity are stranded.

However, the Chairman, Senate Committee on Finance, Sani Musa, has addressed key developments following a crucial meeting with the Group Chief Executive Officer of Nigerian National Petroleum Company Limited (NNPCL), ministers and other top government officials.

When considered against the 2024 oil production benchmark, The Guardian noted that Nigeria would strive to produce about 38 million barrels of crude oil worth $10.73 billion in 2024, even as President Bola Tinubu sets the country’s N28 trillion 2024 budget on an unrealistic oil and gas outlook. The situation has consistently been the same in the last 10 years.

Lokpobiri said ageing pipelines, inadequate evacuation routes and persistent issues with pipeline vandalism were stalling Nigeria’s efforts to achieve the production levels seen in previous years.

“We can produce 2.5 million barrels daily, but evacuation is a significant problem,” Lokpobiri explained, emphasising the vulnerability of Nigeria’s outdated pipeline network.

With many pipelines exceeding their designed lifespan, transporting oil has become riskier and costlier, he stressed, noting that the development, combined with sabotage in oil-producing regions, forced companies to rely on barging – an expensive and less efficient evacuation method – until the pipelines are upgraded or replaced.

Resolving these infrastructure issues will require substantial investment, he noted and called on investors to explore opportunities within Nigeria’s midstream oil sector.

The government, he said, has made efforts to encourage investment by lowering entry barriers, adding that traditionally, companies looking to secure oil blocks were required to pay high upfront fees in signature bonuses, which could range between $100 million to $200 million.   However, the minister said President Bola Tinubu approved a more flexible payment plan, allowing companies to secure blocks with a significantly reduced signature bonus of $6 million to $10 million.

This change, according to him, enables investors to allocate more funds toward exploration and development rather than initial entry costs. Speaking on the sidelines of the conference, Chairman of Green Energy, Prof Anthony Adegbulugbe, said Nigeria has numerous oil fields with proven reserves that remain untapped due to limited evacuation routes and other logistical issues.

He noted that if these resources were developed, they could add as much as 500,000bpd to Nigeria’s production within a few years.  Founding Chief Executive Officer of Seplat Energy, Austin Ovuru, noted the need to address the barrier hindering the evacuation of oil.

The Senate discussions recently centred around Tinubu’s recent directive to sell crude oil in naira, a move aimed at boosting the use of local refineries and reducing pressure on foreign exchange reserves.

Musa stated that the session was convened to assess the effect of the reforms on the Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP) for 2024-2026.

He said it would also address concerns about shortfalls in revenue remittances from the Nigerian National Petroleum Company Limited (NNPCL), particularly regarding the foreign and domestic excess crude accounts.

However, he reassured that the government clarified there would be no adverse impact on foreign reserves, as they remain primarily reliant on export-based crude sales. “The conversion of crude sales into naira will not affect the reserve or the exchange rate,” he affirmed.

The meeting also touched on broader economic issues, including inflation, food security, and the 2024 budget’s performance. The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, provided updates on efforts to curb inflation and ensure food security amid rising global challenges.
Additionally, the committee discussed changes in the payment system to enhance transparency and minimise financial leakages.