The search for oil and gas in Nigeria began in 1937, led by Shell D’Arcy, later known as Shell-BP. The first commercial oil discovery occurred in 1956 at Oloibiri by The Shell Petroleum Development Company of Nigeria Limited. This marked the beginning of oil’s pivotal role in Nigeria’s socio-economic development. Shell has remained a key player in the sector. The establishment of pipeline connections between Oloibiri and Port Harcourt enabled the export of Nigeria’s first crude oil cargo in February 1958, with production initially at 6,000 barrels per day. By 1958, the industry had invested around N50 million.

Gulf Oil Company Nigeria Limited, now ChevronTexaco, began production and export of crude oil in 1965. Other companies, including SAFRAP (later Elf Nigeria Limited), now Total E& Nigeria Limited (TEPNG), and Nigeria Agip Oil Company Limited (NAOC), linked their production to Shell’s Bonny terminal by mid-1967. Despite disruptions due to the Nigerian crisis, Mobil Producing Nigeria started crude oil exports in 1970. By 1967, the industry’s investments had reached about N900 million, covering exploration, infrastructure, and operational facilities.

Petroleum’s impact on Nigeria’s economy is profound, contributing significantly to national income, employment, and development. The oil sector supports government expenditures on social programs such as health and education and has secured Nigeria’s strong position in the international arena as a member of the Organization of Petroleum Exporting Countries (OPEC). By 1972, crude oil accounted for 80% of Nigeria’s exports by value. In the 1973/1974 period, oil contributed 67% of federal government revenue, rising to 78% by 1976/1977.

The Nigerian government manages its oil sector investments through the National Petroleum Investment Management Services (NAPIMS), a subsidiary of the Nigerian National Petroleum Corporation (NNPC). Nigeria primarily uses two contractual arrangements for petroleum development: Joint Venture (JV) and Production Sharing Agreements (PSA/PSC).

Phases of Oil Field Development Projects

1. Exploration: Following the grant of a Concession or Oil Prospecting License (OPL), exploration involves seismic surveys (2D, 3D) to acquire and interpret data to identify potential oil and gas traps.
2. Drilling: Successful data interpretation leads to drilling an exploration or ‘wildcat’ well to determine the presence of oil or gas. Appraisal wells follow to assess the extent of the reservoir.
3. Development: Upon confirming a commercial discovery, a development decision is made based on economic viability.
4. Production: Oil is extracted for export and local refining.

 Oil & Gas Exploration and Production Funding

Initially, the Nigerian government had no participation in the oil industry, which changed in 1971 when Nigeria joined the Organization of Petroleum Exporting Countries (OPEC). Implementing OPEC’s resolution XVI Article 90 of June 1968, Nigeria acquired a 35% share in the industry, which later increased to between 60% and 80%, but currently hovering between 50% to 60% participation Joint Venture operations are primarily financed through Cash Calls, which have been contentious due to the government’s arbitrary budget cuts. Operators have faced challenges due to delayed Cash Calls, resulting in exploration contract cancellations and penalties.

To achieve the government’s goal of increasing oil reserves, significant investment in exploration must commence promptly, considering the long lead time for oil industry investments to mature. The reduction in exploration budgets by the government is misaligned with its long-term reserve increase plans.

Current Challenges and Future Prospects

Nigeria relies heavily on oil exports, accounting for over 80% of its foreign earnings. However, diminishing investment in exploration threatens future production. The need for aggressive exploration is underscored by the long lead times from concession granting to oil production, an average of 15 years due to funding issues within the Joint Venture framework.

Late Dr. Kingsley Ojoh FNAPE, FNMGS, a noted Geoscientist and past President of Nigerian Association of Petroleum Explorationists, emphasized the urgency of current exploration activities, stating that the oil being produced today was discovered over 20 years ago. Therefore, robust exploration efforts today are crucial for sustaining future production. The Nigerian government’s inability to fulfill its Joint Venture funding commitments exacerbates the situation, highlighting the need for sound financial management and timely funding to ensure the long-term viability of the oil and gas sector.

Conclusion and Recommendations

To improve the sustainability and growth of Nigeria’s oil and gas industry, several measures are essential:

1. Enhanced Funding Mechanisms: The government must ensure timely and adequate funding for exploration activities. This can be achieved through improved budgeting processes and minimizing delays in Cash Calls. External financing options like Prepayment Agreement is becoming popular. This is where an Off-Taker funds the project and repayment is done through oil and/or gas. 

2. Policy Stability: Establishing a stable and predictable policy environment is crucial for attracting and retaining investment in the oil and gas sector. 

3. Public-Private Partnerships: Encouraging partnerships between the government and private sector can leverage additional funding and expertise. 

4. Diversification: While maintaining a strong focus on oil and gas, diversifying the economy to reduce over-reliance on petroleum revenues is long overdue. 

5. Technological Advancements: Investing in modern technology and infrastructure can enhance exploration and production efficiency. 

6. Capacity Building: Developing local expertise through training and education programs will ensure a skilled workforce to support the industry.

By adopting these strategies, Nigeria can secure a prosperous future for its oil and gas sector, ensuring continued economic benefits and sustainable development.

Abiola is a professional in the Oil & Gas sector with over 25 years of experience and holds a Masters of Business Administration degree from Rivers State University of Science and Technology.