Inability of government to meet its equity funding obligations to joint ventures operated by multinational oil firms has remained the major obstacle to the efforts of the industry to drive exploration campaigns required to arrest decline in national crude oil reserves. Low funding from government is also responsible for inability of the joint venture players to grow production by about one million barrels per day, limiting production to about 2.3 million barrels per day (mbd) in the past two years. Government holds an average of 60 percent stake in the joint ventures which account for over 67 percent Nigeria’s total oil and gas production and associated revenue receipts. Government, through the Nigerian National Petroleum Corporation (NNPC) also has proportionate funding obligation in the joint ventures. According to the Upstream Treasurer of ExxonMobil in Nigeria, Mr. Anibor Kragha, the nation’s crude oil reserves is witnessing steep decline as industry activities now focus on field development and production.
Mr. Kragha said concentration in production means that the existing reserves face steady depletion as more and more fields come on stream while many more field development project are also progressing in the deepwater. The mandate on the industry is part of the government’s national economic aspirations evolved under a short to medium national economic plan for 2010. Like other items in the list of targets, the reserves growth objective was missed following a string of problems that impact business decisions. Government’s aspirations for the petroleum industry set for realization in 2010 include 40 billion barrels of crude oil reserves; 4.0 million barrels per day of crude oil production; complete gas flare out at production sites in the country; full commercialization of the nation’s abundant natural gas resources; inculcation of stakeholder motivation in host communities; and full realization of local content economics in the industry. However, most of the targets were missed in 2010, leading to a new deadline for the realization of the aspirations by 2020.
The UNION reports that despite government’s mandate on the industry to grow Nigeria’s crude oil reserves to 40 billion barrels by 2020, trend of industry activities indicate that the nation’s proven and probable crude oil reserves in fields already under operating licences are likely to fall from current estimated 36 billion barrels. From disputes over license renewals to proposed fiscal reforms as well as constantly changing funding mechanisms, exploration activities in the joint ventures have suffered crippling funding deficits that translate to low rate of discovery. Apart from the Etisong field discovered by Total, the Njaba discovery announced by Addax Petroleum and other marginal discoveries encountered by small players operating suboptimal brownfields in the Niger Delta there has been no other significant discovery in the country’s deepwater where deep pocked technology savvy multinational companies hold sway.
Mr. Kragha said a pan industry plan to drive activities in the fields was 1.0 mbd short of targets. He blamed the situation on poor counterpart funding response from government, which, according to him, has worked against a string of projects including exploration drilling campaigns that form the key thrust of the plan. As a result, he said, reserves have faced depletion arising from inverse relationship between increased production operations and low drilling activities in the fields. He also pointed at cost escalation in the Nigerian environment as part of the failures of government in the industry, explain that cost build up in industry operations arise from social and political factors that exist outside the scope of players.
He listed key cost drivers in the industry to include security, slow approval processes in government ministries and agencies, risks associated with community interference in industry operations as well as production losses, huge facility repair budgets and other costs associated with crude oil stealing and sabotage. Perhaps the biggest issue in the nation’s space is the unresolved fiscal proposals in the Petroleum Industry Bill (PIB) authored by government’s technocrats, opposed by investors in the industry and delayed by the National Assembly.
Major multinational firms allege that the bill infringed on sanctity of contracts, raised taxes and royalty by over 30 percent and cumulatively stripped commercial incentives on investments; the indigenous independent and marginal operators point at equal tax liabilities on all operators with unequal assets, leaving small players more vulnerable. Biggest investors in the industry who are gathered under the aegis of the Oil Producers Trade Section (OPTS) of the Organized Private Sector (OPS) have consistently warned that stringent fiscal regime might result in diversion of investments to other emerging plays on the continent, especially at the time of prevailing oil prices. Erstwhile Africa Exploration Chief for Royal Dutch Shell had warned that Nigeria might miss estimated $50 billion of the company’s investments if the issues of fiscal reforms are not efficiently addressed. Other Managing Directors of OPTS companies have issued similar warnings but declared their commitment to their Nigerian operations.
However, the fiscal dispute has affected fresh investments by the majors most of whom have concentrated in recouping costs from reserves under their acreage portfolios. The recovery race and a parallel spate of divestments positively indicate operators’ trepidation over fiscal uncertainty in the environment. Instead, the multinational majors have kicked off a new race of developments to start depleting reserves in their deepwater licences. The UNION reports that Shell which opened up the deepwater with its Bonga Main production has added Bonga North while driving development of Bonga West/Aparo discoveries.
Total is in the last leg of its hat trick deepwater development, having delivered development and commissioning of Akpo and Usan fields. Its Egina deepwater field development has crossed critical milestones and commissioning is being awaited in a short time. Esso Exploration and Production Limited of ExxonMobil which has already delivered its Erha main deepwater field is expected to come up with announcement on its Erha North development to make a second impact in the deepwater.
Also, Nigeria Agip Exploration (NAE), a local affiliate of Italy’s Eni, which started production activity with barely viable Abo Field is driving arrangement for Zabazaba Field development. The project which is navigating deal integrity challenges is hyped to be a landmark deepwater production development in the continent. These major deepwater developments plus production growth in assets operated by revenue pressed indigenous independent and marginal producers are expected to inflict further depletion on the nation’s reserves and further diminish hopes of reaching the country’s reserves targets. Mr. Kragha said there has been no notable exploration drilling programme in new and existing acreages in recent years, adding that even the indigenous independents and their partners in divested assets have not staked funds in searching new reserves formations in operated fields. He commended few efforts by Consolidated Petroleum (Conoil) which made a landmark discovery with a deeper drilling campaign, saying that similar efforts are necessary in producing fields and even the brown and marginal fields under the operation of upstream upstarts.