Oil firms bank on less bureaucracy to raise output

Oil firms say they have the capacity to raise Nigeria’s output in 2025 but they want less bureaucracy to be able to do so.

According to them, streamlining bureaucratic processes for investors and creating efficiency in the oil and gas sector are other key priorities this year.

Historically, the oil sector has faced persistent challenges, including declining production caused by crude oil theft, pipeline vandalism and reduced investments. However, 2024 efforts yielded notable improvements in output.

For instance, the return of refining of petroleum and the complete deregulation of the downstream sector of the oil industry berthed price competition on premium motor spirit (PMS) or petrol and made smuggling of petroleum products across the country’s borders unattractive.

The approval of five oil asset sales and two final investment decisions (FIDs) in 2024 also elicited positive feelings from foreign investors willing to do business in Nigeria’s energy sector.

For 2025, a dozen experts in the oil and gas sector surveyed by BusinessDay ranked an aggressive push to raise crude oil production, which has fluctuated in recent years due to operational inefficiencies, vandalism, and regulatory hurdles, as the most urgent task.

Next is leveraging the oil and gas sector to provide linkages across the economy and create efficiency in the oil and gas sector.

Increasing oil production

“In 2025, the sector is expected to maintain its positive trajectory, with production likely to average 1.7 million barrels per day (bpd) and closing the year at 1.78million bpd,” ten analysts at Cardinal Stone said in their 2025 outlook for Nigeria’s economy.

They noted that this optimistic outlook is underpinned by the aforementioned drivers and other measures to address oil theft, including the implementation of the Advance Cargo Declaration regime by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

“This initiative ensures that all exported crude oil and gas cargoes are uniquely identified, verifying the legitimacy of export documentation and reducing the theft of resources. Additionally, the NNPC plans to replace ageing crude oil pipelines, some of which have been in use for over four decades, to support output and operational efficiency further,” analysts at Cardinal Stone said.

They added, “Tying all our views together, we expect GDP growth to reach 3.7 percent in 2025, with oil printing at 10.7 percent.”

Read also: Nigeria’s downstream oil firms keep most assets in liquid form

Olusegun Omisakin, director of research and chief economist at the Nigeria Economic Summit Group, said Nigeria can’t get better when crude oil production is below two million barrels daily.

“We are barely touching what we have, you know. For some years now and currently, we are doing below two million barrels of oil production per day. We cannot continue to dream of a better country when we don’t know how to optimise our national resources,” Omisakin said at a macro-economic outlook webinar monitored by BusinessDay.

Tackling Red Tape

Equally critical is the effort to streamline Nigeria’s notoriously complex regulatory landscape. Bureaucratic inefficiency has long been a stumbling block for local and international investors.

The Petroleum Industry Act (PIA) and the latest executive orders again play a central role, aiming to simplify the approval process and reduce the overlapping functions of government agencies.

Industry players are optimistic that these reforms could cut approval times for projects and reduce corruption, fostering an environment that supports sustainable growth.

However, some experts argue that political will and consistent enforcement remain challenges.

“Above all, investors want to see a simpler structure in government, and fewer stakeholders, fewer agencies and fewer government bodies with whom they have to engage. Get those things right and Nigeria could be looking at another strong year in 2025. Get them wrong, and you’re putting those longed-for FIDs on the line,” said Clementine Wallop, director for sub-Saharan Africa at Horizon Engage.

She added, “On the crude production front, I am not super bullish for next year. I don’t expect output to meet the budget peg in the next few months. The major factor to watch will be Nigerian operators’ ability to significantly pump production from their assets. My fingers are tightly crossed.”

Last February, President Bola Tinubu, signed three executive orders aimed at improving the investment climate and positioning Nigeria as the preferred investment destination for the petroleum sector in Africa.

BusinessDay’s findings showed one of the executive orders legally mandates that the contracting cycle be compressed to a maximum of six months.

This alignment with global industry standards significantly reduces delays that historically took up to two years or more, thus improving Nigeria’s competitiveness.

The executive order also mandates NNPC, NUIMS, and NCDMB to implement a single-level approval process for requalification, technical, commercial, and final stages, and ensures that approval is issued within 15 days.

This is expected to eliminate redundant multi-stage approvals and ensure that regulatory approvals are obtained more efficiently, fostering timely project execution, and reducing compliance costs.

“While some executive orders have set timelines, additional orders could enforce strict penalties for regulatory bodies that fail to meet these deadlines. This would ensure that the stipulated times are not merely guidelines but are adhered to strictly, thereby reducing delays,” Dapo Akinosun, senior partner at SimmonsCooper Partners, said.

Trump 2.0

Energy and economic analysts are concerned that the return of Donald Trump will jeopardise Nigeria’s oil revenue target of $75 a barrel – which the government hopes will generate over half of its budget for 2025.

Oil prices are currently facing a period of heightened uncertainty, with market watchers including CitiBank, predicting a significant decline in 2025 as the upcoming administration of President-elect Donald Trump has raised concerns among market analysts.

Trump’s rhetoric, which has often included promises of boosting U.S. energy production through policies such as ‘drill baby drill,’ could contribute to downward pressure on oil prices.

Trump has also called for energy prices to be lowered, a stance that some analysts believe could result in a significant decrease in oil prices.

Citi analysts forecast that Brent crude will average $60 per barrel in 2025, which is far below the current price levels.

Prolonged low oil prices could impact Nigeria’s budget stability and government spending, with knock-on effects on inflation and economic growth, as Nigeria heavily relies on oil exports for government revenue and foreign exchange.