Outlook for 2022: Oil majors ignore Nigeria in 2022 spending plan

Africa’s biggest oil-producing country is losing a decisive battle to smaller oil-producing nations as most international oil majors have excluded Nigeria from their 2022 capital expenditure plans, despite raising budgets by at least $12 billion.

Five Western majors – British Petroleum, Chevron, ExxonMobil, Shell, and TotalEnergies, have recovered from the 2020 crisis with bumper cash flows in 2021 and are making plans to boost their capital spending next year. Although capital discipline and higher returns to shareholders will remain the top priorities.

In their Capex outlook for 2022, these companies, now preferring to be known as energy firms, are comfortably ignoring Nigeria and moving forward with spending capital expenditure in Libya, Ivory Coast, Kazakhstan, Guyana, Brazil, Singapore, among others.

For instance, Exxon management has reiterated that capex this year will come in at the lower end of its $16 billion – $19 billion range, but the board would soon approve a $20 billion – $25 billion annual capex programme from 2022 onward.

Despite Nigeria’s 37 billion oil reserve, 206 trillion cubic feet (tcf) proven gas reserve, and over 600tcf unproven gas reserve, the American multinational is ramping up investments next year at its Payara and Yellowtail developments offshore Guyana. Also in the recently sanctioned Equinor-operated Bacalhau scheme offshore Brazil, multiple refining and chemical expansions in the US, UK, and Singapore.

Exxon’s higher spending “is designed to create shareholder value,” chief executive, Darren Woods, said in a statement. “The wide annual range allows for the “flexibility to respond to future policy changes and technology advances associated with the energy transition,” he said.

Ahead of 2022, Chevron has also pegged its capital and exploratory budget at $15 billion, a 20 percent from the midpoint of its revised 2021 guidance range of $12-$13 billion.

Next year’s budget is also more than 11 percent higher than the company’s COVID-ravaged 2020 spending of $13.5 billion, though it is down around 29 percent from the 2019 pre-pandemic expenditure of $21 billion.

In its 2022 outlook, Chevron overlooked Nigeria by allocating $3 billion for projects already underway, out of which some $2 billion has been dedicated to the Tengiz field in Kazakhstan – the only large capital project the company is committed to following the completion of Australian LNG projects.

In a corporate strategy update, TotalEnergies set a capital spending target of $13 billion-$15 billion a year in the 2022-25 period, down from a previous target range of $13 billion-$16 billion given a year ago.

At the same time, TotalEnergies said it is committed to spending $3 billion/year, or nearly 25 percent of its investments on power and renewables, from a previous range of $2-$3 billion/year.

The French company is making plans to invest $2 billion into Libya’s Waha oil project, which will boost Libya’s production by around 100,000 barrels a day.

The fresh investment is also expected to raise output at Libya’s Mabruk field and help build 500 megawatts of solar power to feed the local grid.

Eni, one of Africa’s biggest foreign oil and gas producers, is also moving fast to commercialise its huge Baleine oil and gas discovery offshore the Ivory Coast by investing $11 billion on the deep-water project.

The Baleine discovery demonstrates a new play concept in Cote d’Ivoire, Eni said, after more than 20 years in the country.

For a frontier market with the population of Nigeria, oil majors not looking in its direction should be a big worry for the government as it has dire implications for social welfare and economic growth.

Experts say Nigeria is punching below its weight in terms of attracting the right kind of investments in its energy sector, as foreign investment now accounts for just a fraction of Africa’s biggest economy, with policy uncertainties and security issues also weighing on the mind of overseas investors.

“The significant drop in investment by these IOCs in Nigeria goes beyond capital discipline alone,” Simon Anderson, director, performance improvement sub-Saharan Africa at Wood Mackenzie, said in a note.

It said, “Some Nigeria assets may be under-invested, resulting in potential upside opportunities.”

Nigeria has the capacity to pump around 2.2 million bpd of crude and condensate but in recent months, its output has been languishing below 1.55 million bpd. The country only pumped 1.23 million bpd of crude and 300,000 bpd of condensate last month, according to its Platts Analytics.

Read also: 2021 IN REVIEW: Four force majeures that shut down Nigeria’s oil production in 2021

Data gleaned from Wood Mackenzie’s latest report showed over the last decade the IOCs’ average capex per barrel of oil equivalent has fallen seven times more in Nigeria compared with that of the rest of their portfolio.

Wood Mackenzie’s data also showed in 2020 the average capex per barrel of oil equivalent across the global portfolios was 51 percent of 2010 levels, whereas the equivalent metric for the Nigeria assets was 7.4 percent.

“Nigeria may drop further in status as Africa’s biggest producer if the government does not urgently address the situation,” Abiodun Adesanya, CEO of Lagos-based oil consultancy, Degeconek, told S&P Global Platts. “Already, the country has fallen behind Libya in terms of output.”

Gail Anderson, research director for sub-Saharan Africa at Upstream, believes that there are “not many” takers for the “high-cost, emissions-intensive assets” that are being disposed of by large oil producers in the Niger Delta.

“The impact of this on the country’s foreign direct investment (FDI) will likely persist beyond 2021,” Anderson said.

Beyond lack of investments, a new wave of security threats in Nigeria has emerged that could further dent Nigeria’s production.

“Lately, there have been groups in communities in the Niger Delta, who while seeking for cash and attention, have been vandalising oil pipelines,” a Nigeria-based official at a Western oil company said. “Disruption to operations of oil companies in the Niger Delta is rising by the day due to the activities of these vandals.”

Last month, a militant group in the Niger Delta region code-named Bayan-Men blew up an oil facility producing around 5,000bpd of condensates operated by the Nigerian Agip Oil Company (NAOC) in Ogba-Egbema-Andoni Local Government Area, Rivers State.

The angry militants, who destroyed oil well OB5 (Obiavu-5) in the area, accused the oil firm of failing to deal directly with the host communities insisting that they were fighting for justice for their people.

The commander of the Bayan-Men said the company refused to allow the people to benefit from their operations in the area, adding that the firm was neck-deep in divide and rule.

“The action was because Agip has refused to allow the people to benefit from their operation in the area,” the group said. “More are still coming if Agip does not engage directly with the communities of Omoku and give them what is due them.” The company was not immediately available for comment on the incident.