Oil firms reduce drilling activities as PIB stalls

To get a clearer picture of just how damaging the non-passage of the Petroleum Industry Bill (PIB) has been to Nigeria’s oil industry, one needs to look no further than the stagnant rig count.

Rig count is defined as the number of drilling rigs actively exploring or extracting oil or natural gas and measures the health of the exploration and production industry in a country.

“Saudi Arabia has the highest rig count and oil production among OPEC countries,” said Bismarck Rewane, CEO, Financial Derivatives Company, in a recent presentation. “Nigeria’s rig count is the lowest.”

Nigeria had only nine active rigs operating in its oil and gas industry last month, compared to 42 for Algeria, 14 for Angola, 96 for Iraq, 35 for UAE, and 104 for Saudi Arabia.

The US Geological Survey ranks Nigeria number-one in sub-Saharan Africa in terms of size of undiscovered oil and gas resources.

Real growth in the oil sector shrank by -6.60 percent in the first quarter of 2014, according to data from the National Bureau of Statistics (NBS).

The oil and gas industry, which accounts for 75 percent of government revenue and up to 95 percent of dollar earnings, makes up only 14.4 percent of gross domestic product (GDP), a sign of its steady decline.

The PIB, which aims to increase Nigeria’s share of profit from oil pumped off its shores, has been stalled in parliament since 2008.

Analysts say Nigeria has lost at least $28 billion since 2010 in scrapped or deferred investments in the oil sector, due to a lack of movement of the PIB reforms.

Nigeria’s oil production, which has never risen above the 3 million barrels per day (b/d) mark, now hovers at 2.15 million b/d, putting its reserves-to-production ratio at 52 years – higher than is observed in other mature oil-producing nations, according to Ildar Davletshin, oil and gas analyst at Renaissance Capital.

“We think this indicator suggests that the country is under-producing due to a lack of investment and security issues. Applying a 12-year reserve life indicator – commonly observed by global oil majors – we estimate that Nigerian production could well be in excess of 8Mb/d, in line with the world’s third-largest crude producer, the US,” Davletshin said in a note released May 26.

Nigeria is typical of large mature oil-producing nations such as Indonesia, Venezuela, Mexico, and Iran, which are facing challenges of offsetting base declines in oil production with new production – either from new hydrocarbon areas (offshore, unconventional) or by increasing recovery rates at existing fields.

All are competing for foreign investments (to help boost output) from oil majors who have the capital, technology and management.

Mexico could draw investment away from African nations like Nigeria, where companies may see more challenges and instability than in North America, said Jorge Castilla, head of Deloitte LLP’s energy sector practice in Mexico.

Angola could rival Nigeria as Africa’s largest oil producer by 2016 as it moves ahead on major deep-offshore projects. Eni plans to start production within five months, as operator of Block 15-06’s in Angola’s West Hub fields, estimated to hold reserves of 200 million barrels, and boost flows to 80,000 b/d.

The block, 350 kilometres (217 miles) northwest of Luanda, the capital, is one of eight offshore projects Jose Maria Botelho de Vasconcelos, Angola’s petroleum minister, is counting on to help raise production to 2 million b/d by next year, from 1.66 million last month.

In contrast, Royal Dutch Shell plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, who pump about 97 percent of Nigeria’s output, have been selling assets in the country due to uncertainty from the PIB non-passage and restiveness in the Niger Delta.

PATRICK ATUANYA