Whereas peer producer countries are taking advantage of the low price cycle in the petroleum industry to launch exploration programmes that would grow reserves and production, huge government debts sap the capacity of the Nigeria petroleum industry to drive activities.
The slash of petroleum industry budget and the rising debt of the Nigerian National Petroleum Corporation (NNPC) to its partners in the sector are not just a disregard to huge opportunities presented by the prevailing low price regime but also a drawback to realization of reserves and production targets in the sector.
According to the Chairman of the Petroleum Technology Association of Nigeria (PETAN), Mr. Emeka Ene, an eminent petroleum engineer, the low oil prices should have provided the government the opportunity to increase exploration and production activity in the industry at very low cost.
He pointed out that policy drivers across the global petroleum industry have always seized the opportunity of low cost / price crash to drive exploration and development activities in the industry in order to build reserves and boost production.
According to him, Middle East countries currently implement an average annual budget of $36 billion to drive exploration and production operations, riding on the low cost opportunity associated with the prevailing slump in prices.
He said the best way to tackle low price regime across the world is to boost production to recover the cash drop with higher volumes of output. Industry analyst, Mr. Kazeem Bello, said the government’s failure to take cushioning measures against volatility risks by implementing fiscal buffers and hedging mechanisms, left the country at the mercy of the crisis.
He pointed out that Saudi Arabia, Kuwait and the United Arab Emirates hold over $2 trillion in Sovereign Wealth Fund (SWF) accounts which they now deploy to protect their economies against the prevailing oil crisis.
But in Nigeria, the industry encountered the price headwind without any kind of ready countermeasure, and government’s response to the funding needs of the industry was limited to the worst option: slashing industry budget by 40 percent and rolling back work plans.
The budget cut pushed projects off the table, with several work programmes suspended or out rightly cancelled. Also, new projects that host job opportunities have been put off, leading to sharp drop in oilfield service activities. The consequent drop in rig count signifies another devastating blow on the local oil service firms most of whose jobs revolve around drilling, a key activity that is central to exploration and field development programmes.
An idle rig means that its entire crew is idle while the rig company continues to run overhead costs on facilities and personnel. Ancillary service firms that specialize in well services, logging, air shuttle drilling fluids and chemicals, drill bits, casing services, marine vessels and others also suffer downtime and incur huge losses.