Nigeria’s oil rigs rise by 27% but oil production hits record lows

In a puzzling trend, Nigeria’s oil sector is experiencing contradictory developments. While the number of operational oil rigs has surged by 27 percent, the country’s crude oil production has plunged to its lowest point in the first quarter of 2024

Data from the Organisation of Petroleum Exporting Countries (OPEC) showed Nigeria’s rig count, an index measuring upstream activities, surged by 27 percent year-on-year (YoY) to 19 rigs in March 2024.

This leap marks an increase from the 15 rig counts recorded during the corresponding period in 2023.

The rig count reflects the level of exploration, development, and production activities in a country’s oil and gas sector. Active oil exploration attracts investment and revenues into the country for economic growth.

Gbenga Komolafe, the head of the Nigerian Upstream Petroleum Regulatory Commission, had said that the increase in exploration is on the back of the Petroleum Industry Act (PIA) in Nigeria.

“The PIA is positively impacting as it provides institutional governance, efficient administration, and attractive fiscal regimes while providing for host communities, thus creating a peaceful atmosphere for investment and operations.”

However, the rise in rig count did not translate to a positive crude production in the same period as Nigeria recorded 1.23 million barrels per day (bpd), indicating a 6.88 decline from the previous month.

“We aren’t curbing oil theft nor are we taking or making quick wins at our Wells that need to be boosted or optimised,” Jide Pratt, COO of AIONA and country manager at Trade Grid, said.

‘We have lost another 100,000 bpd; what are Gabon, Saudi and Kuwait doing that we need to copy to increase production?” he asked.

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Industry analysts are grappling to understand this paradox. The increase in rigs suggests an effort to boost output, with companies deploying more equipment to tap into existing reserves. However, the stark reality is a significant decline in actual production.

Several factors could be contributing to this situation. Ageing infrastructure, theft, and operational challenges are all well-documented problems in the Nigerian oil industry.

“Until now, the Nigerian oil and gas sector did not have the required investment. However, the Petroleum Industry Act (PIA) has introduced many fiscal changes and incentives for the industry, especially regarding production,” said Joshua Olorunmaiye, team lead/executive associate, energy and natural resources at Bloomfield LP.

“Thus, one can trace the increase in oil rigs to the passing of the PIA in 2021.”

According to Olorunmaiye, Nigerians can expect even more boost in investment as more exploration activities are expected to occur.

“The increase in investment is particularly owing to the favourable fiscal regime under the PIA, which is such that upstream operators would enjoy higher fiscal rewards based on higher production volumes,” he said.

“This is also naturally going to have a positive effect on Nigeria’s economy, with the contribution of the oil sector to our Gross Domestic Product (GDP) expected to grow, in what has largely been dominated by the services, agricultural and industrial sectors.”

For Etulan Adu, an oil and gas production engineer, the rise in oil rig count is due to increased investment in upstream exploration and demand for crude globally.

“We should be expecting the oil rig count to keep rising due to the recent offer of seven offshore blocks by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) that will attract more investment in oil exploration,” Adu said.