The decline in oil rigs in Nigeria is threatening the government’s move to raise oil production to 1.7 million barrels per day (bpd) this year.
The country’s oil and gas sector, which has generated a significant chunk of government revenue and foreign exchange earnings for many years, is in desperate need of rescue.
Data obtained from Baker Hughes Incorporated and the Organization of Petroleum Exporting Countries (OPEC) showed that all through 2023, Nigeria’s rig count, which depicts the level of oil production activities by operators, averaged 14, a sharp decline from 35 in 2018.
According to Austin Avuru, executive chairman of AA Holdings, Nigeria’s oil industry is facing a stark reality check as it needs 45 new rigs to reach “normal” production levels of 2.1 million barrels per day (bpd).
“To arrest the natural decline and add 800,000 barrels per day over two years will require 426 wells including 106 exploration and appraisal wells as well as 320 development wells,” Africa Oil & Gas Report, an energy intelligence publication, quoted Avuru as saying. “For this, 45 rigs must be on duty, so the country needs an investment of $7.6 billion in oil well costs alone.”
Jim Orife, former general manager of Nigerian National Petroleum Company (NNPC) Ltd, said there was little or no strategy for implementing any energy plan policymakers had drawn up in the last 10 years.
“We have remained on the same spot if you ask me. We are not unlocking anything,” Orife, a foundation staff member of NNPC in 1977, said at the recent National Association of Petroleum Explorationists conference.
Another challenge facing the industry is the sales of assets by oil majors such as Shell, ExxonMobil, Eni and TotalEnergies.
BusienssDay’s findings showed fields that once accounted for more than two-thirds of all Nigerian oil production no longer represent value for multinationals, whose access to financing is critical for their development.
“Divestments by oil majors used to provide local operators an opportunity to prove their mettle, taking declining fields past production peaks, and improving host community relations to deliver higher royalties to the government; now local operators are scrambling to extract value from divested fields,” an energy lawyer at a Lagos-based oil firm said.
Analysts say this spate of divestments in an oil industry troubled by existential threats without new investments could herald Nigeria’s decline as a major oil producer.
“Despite the introduction of the Petroleum Industry Act, regulatory agencies still demand for bribes or incentives to attend to licences and approvals of oil rigs, and the delay in the process and bureaucratic obstacles did not change,” a senior industry source who pleaded not to be quoted said.
Another major concern is the business operating models in Nigeria’s oil and gas sector.
NNPC uses joint venture agreements with local and international oil companies to produce in onshore and shallow-water oil wells. It owns 60 percent of benefits in these agreements but often fails to contribute its share of costs, leading to what is known as cash call arrears in the industry.
“This development means rig maintenance is often neglected, leading to equipment failures and environmental spills,” Niyi Fagbemle, senior project manager, Sofidam Capital, said.
Most of these fields are troubled by sabotage and local community issues, forcing its multinational partners to opt out.
Under Nigerian law, they are required to decommission these fields – essentially leaving them the way they met them environmentally – but the costs are enormous. So they found a creative solution by selling their stake to local oil companies.
“This exodus not only deprives Nigeria of the much-needed technical expertise and investment but also raises concerns about the long-term viability of the sector,” Awodeyi said.
The Norwegian oil corporation Equinor ended its three-decade partnership with Africa’s biggest oil producer in late November, announcing that it had sold its Nigerian subsidiary to a little-known local business called Chappal Energies.
This is not a unique occurrence. Italy’s Eni declared in September that it would sell its onshore division to the local business Oando. Before this, China’s Addax sold its four oil blocs to the Nigerian National Petroleum Company during the previous year.
Subsequently, the US behemoth ExxonMobil intends to sell four onshore oilfields for approximately $1.3 billion to Seplat, an energy business dual listed in London and Lagos. Only a few days after initially approving the contract in August 2022, former president and oil minister Muhammadu Buhari changed his mind. The transaction is still pending.
Similar circumstances have befallen Britain’s Shell, which has indicated that it would like to withdraw from onshore fields that might bring in up to $3 billion but is still mired in legal disputes that are impeding its progress.
