Amid projects’ delay, oil upstream to witness $185 billion investment

Crude reserves to increase by 27 billion barrels 

Amid insecurity and unfriendly operating environment that have disrupted most projects in Nigeria, over $185 billion investment is to be sanctioned in the oil and gas sector this year.

Analysis from Wood Mackenzie, yesterday, showed that up to $185 billion of investment committed to developing 27 billion barrels of equivalent (boe) and upstream oil and gas financial investment decisions (FID) will likely increase in 2023.

This is coming at time when projects across sectors of the industry are witnessing mixed fortunes. Although the Ajaokuta-Kaduna-Kano (AKK) pipeline, a 614 kilometre-long natural gas project, has been ongoing, the facility has been facing obstacles, especially insecurity and funding.

The Assa North-Ohaji South (ANOH) gas project by Shell and its partners has also faced serious security challenges, leading to its delay.  Many other projects bogged down include Shell’s Bonga South-West and Aparo, which is to add about 225,000 barrel per day (bpd); Bonga North (100,000bpd); Eni’s Zabazaba-Etan (120,000bpd); Chevron’s Nsiko (100,000bpd); ExxonMobil’s Bosi (140,000bpd); Satellite Field Development Phase Two (80,000bpd) and Ude (110,000bpd). 

Also, mired in obscurity are the $20 billion Brass LNG project in Bayelsa State; $9.8 billion Olokola LNG in Ogun; 5000-kilometre Nigeria-Morocco offshore gas pipeline, which in current market price, would cost an estimated $20 billion and the refinery overhaul.

Vice President/Head of Upstream Analysis for Wood Mackenzie, Fraser McKay, said achieving FID on oil and gas projects is harder than it used to be, but with fewer sanctioned in 2022, there would be slight uptick in activities this year, with over 30 of the 40 most viable projects likely to reach milestone.

He noted that most operators would remain disciplined and carbon mitigation remaining a key part of many FID projects.
 
Wood Mackenzie observed that national oil companies (NOCs) would control the largest investment opportunities this year, taking advantage of huge and discovered resources, while boasting the lowest unit costs. 

The report added that the average unit development cost of $7/boe in 2023 is down slightly from 2022.

“International oil companies (IOCs) will be focusing largely on higher-cost but higher-return deepwater developments. All will be acutely aware of how oil and gas project sanctions are playing out in the public domain and the scrutiny to which their associated emissions will be subject,” McKay said 

In 2023, the report observed that projects would require an average of $49/barrel of crude (bbl) to generate a breakeven 15 per cent internal rate of return (IRR).
 
However, a weighted average IRR of 19 per cent, at $60/bbl, would be the lowest level since 2018. Rapid paybacks will be a key economic indicator as well, with the average for this year’s projects at nine years. 

“Short-cycle and small-scale offshore projects will outperform in terms of both paybacks and returns,” said Principal Analyst of Upstream Research, Greg Roddick.

He added: “Long-life liquefied natural gas (LNG) projects are compromised when it comes to IRRs, but their attractive and stable future cash flows will be strategically important.”