NNPC’s oil search suffers N15bn funding shortfall

Nigeria’s frontier exploration fund created to finance the exploration of crude oil and gas in Nigeria’s inland basins has not been funded in the past seven months, leading to a shortfall of N15.1 billion.

Industry experts had expected that the Nigerian National Petroleum Company Limited (NNPC) would leverage the provisions of the Petroleum Industry Act for a frontier fund to grow the capital required for exploration with the imminent departure of multinational oil companies.

Data obtained from the NNPC showed that the state-owned company invested N14.3 billion in frontier exploration services in the first seven months of 2022 as against a budget of N50.4 billion.

The NNPC allocated N3.8 billion in January; zero in February, N1.1 billion in March; N2.9 billion in April; N2.1 billion in May, and N4.2 billion in June.

Nigeria’s frontier basins are believed to hold vast deposits of fossil fuels judging from discoveries made in similar terrains in neighbouring countries but they are often difficult terrains compounded by security challenges, hence the development of a special fund.

The inland basins consist of the Anambra basin, the lower, middle, and upper Benue trough, the south-eastern sector of the Chad basin, the mid-Niger (Bida) basin, and the Sokoto basin.

“This development will lead to a reduction in hydrocarbon exploration and steady depletion of the oil reserves which could drive Nigeria into the risk of long-term disruption to oil and gas supplies, power generation, the collapse of industries, and significant loss of revenue,” Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice, said.

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In the new PIA, Section 9, subsection 4, states: “There shall be maintained, for the purpose of this section, a Frontier Exploration Fund which shall be 30 percent of NNPC Limited’s profit oil and profit gas in the production sharing, profit sharing, and risk service contracts.”

It adds: “NNPC Limited shall transfer the 30 percent of profit oil and profit gas under subsection (4) to the Frontier Exploration Fund escrow account dedicated for the development of frontier acreages and utilise the funds to carry out exploration and development activities in the frontier acreages subject to appropriation by the National Assembly.”

Muda Yusuf, chief executive officer of Centre for Promotion of Private Enterprise, said the lack of allocation to frontier wells would come at a cost to Nigeria’s oil-dependent economy.

Luqman Agboola, head of research at Sofidam Capital, said at least half of Nigeria’s total crude output is from offshore oilfields, helping to offset declining production from mature onshore assets.

“But recent discoveries have remained undeveloped in the face of regulatory uncertainties,” Agboola said.

Data obtained from Baker Hughes Incorporated and the Organization of Petroleum Exporting Countries showed only 11 of Nigeria’s oil rigs were operational as of the second quarter of 2022.

Innocent Uzoma Eluke, a UK-based project manager in oil and gas field development, said rigs keep depleting on the back of the inferiority complex of many field owners.

He said: “There are so many opportunities to boost the rig count in Nigeria from low-cost drilling to a consortium capable to support well operations technically and financially at no cost.

“But most of these field owners are waiting for international partners to come in with loads of money.”

As Nigeria struggles, forecasts by Rystad Energy, a global energy intelligence group, showed the drilling success rate is set to rebound this year with the potential to result in one of the highest recorded hydrocarbon volume totals.

“Drilling of high-impact oil and gas prospects is set to rebound this year after a disappointing 2021, when success rates plunged towards record lows. So far this year, these critical wells have found hydrocarbons 47 percent of the time, up from a measly 28 percent for 2021,” Taiyab Zain Shariff, Rystad Energy’s senior analyst, said.

Rystad Energy research showed that discovered volumes from high-impact wells have nearly quadrupled to over 1.7 billion barrels of oil equivalent, signalling a positive sign for global hydrocarbon supply – with more than four months still to go in 2022.

Nigeria depends on oil sales for around 60percent of its revenue and 90 percent of its foreign exchange earnings, though it only accounts for less than 10 percent of GDP, according to the International Monetary Fund.