Low prices, insurgency, others hobble Nigeria’s oil industry

Over the past several months, the price of crude oil has fallen by over 50 per cent, with little signs of a rapid rebound. Although still a little above the Nigerian benchmark per barrel, it is lower than the breakeven oil price for the 2016 budget.

Already, the squeeze from lower oil prices is rippling through the fiscal system, with some states reportedly unable to meet their wage bills and making demands for more funds from the excess crude account.

In recent months, the insurgency in the Niger Delta has devastated the Nigerian oil industry, with country’s production halved from 2.2 to 1.4 million barrels per day.

The severity of attacks not only affected Nigeria’s oil production, but also the global markets, which made Angola to surpass Nigeria as Africa’s largest oil producer.

Though, the attacks thus far have been on oil majors’ facilities, they have impacted seriously on local firm because the oil majors own most of the infrastructure for exporting crude oil in the Niger Delta.

For instance, the attack on the Nembe Creek Trunk Line affected Seplat, Shoreline, the Nigerian Petroleum Development Corporation and others.
When the militants destroyed Brass River too, all the Nigerian independents connected to the Brass line were also affected.

Seven Energy in its financial results for the first quarter of this year stated that it lifted no oil from the OMLs in the first quarter, due to the extended shutdown at the Forcados terminal, compared to an entitlement volume of 1.4 million barrels for the same period.

For independents that are exclusively focused on oil production, making it through the year become an uphill task considering that in addition to the technical extraction costs, they have to deal with security, keeping their host communities happy amidst the challenges of low crude oil prices and resurgence of militancy.

“The oil and gas business is no stranger to the market’s ups and downs. The boom and bust cycle is not exactly new. I believe we may once again see a gradual increase in prices, which is beginning to happen”, said Nkoyo Uko a General Manager with a Nigerian independent, adding that being aware of historical trends have made them to set out a most detailed plan yet for managing spending during a sustained period of low prices.

Two years ago, Newcross Petroleum Limited announced new oil discovery in its Efe oil field located in OPL 283 block. OPL 283 is in the Northern aspect of the Niger Delta. Formerly known as OML56, the block has a total size of 1272 sq. km, with a number of marginal fields within the boundary of the acreage.

The Production Sharing Contract is assigned to Newcross Petroleum and Rayflosh Petroleum.

The OPL 283 is under a Production Sharing Contract (PSC) with Nigeria National Petroleum Corporation (NNPC) (as the concessionaire), with the support of the corporation and the Department of Petroleum Resources (DPR).

“The success of Efe First is a confirmation of the support NNPC and DPR have expressed in newly emerging companies willing to significantly add to the national hydrocarbon reserves’, said Bashiru Idowu, Strategic Team Lead of New Cross Petroleum, adding that “the discovery represents an important step towards unlocking the deep potentials in OPL 283”.

In addition, Newcross acquired Shell Petroleum Development Company of Nigeria Limited’s (SPDC) 30 per cent stake in Oil Mining Lease (OML) 24 and other related facilities for $600 million. Total Exploration & Production Nigeria Limited and Nigerian Agip Oil Company Limited also assigned their 10 per cent and five per cent interest in the lease respectively to Newcross bringing their stake in the oil asset to 45 per cent.

According to the company, OML 24 covers an area of some 430 square kilometres and includes the Awoba, Awoba Northwest and Ekulama fields and related facilities. The oil asset includes three oil flow stations and three gas processing plants, in addition to various oil and gas pipelines.

“OML 24 produced on average around 40,000 barrels of oil equivalent per day (100%) during the first half of 2014,” a source from SPDC said at the time of divestment from the field adding that the divestment was part of the strategic review of SPDC’s onshore portfolio which is in line with the Federal
Government of Nigeria’s aim of developing Nigerian companies in the country’s upstream oil and gas business.

Other independents that are making steady progress include Midwestern, Waltersmith, Pillar Oil, Brittania and Energia/Oando. As at November 2009, they all received life of the field awards, meaning that they are entitled to operate their fields for as long as there are commercial hydrocarbons still to be exploited.