Nigeria not on Chevron’s $19.8bn spending plan in 2017

Chevron Corporation will spend $19.8 billion on capital and exploratory investments in 2017 but Nigeria will not feature in the oil major’s spending plan.

An analysis of the budget indicated that in the upstream business, approximately $8.5 billion of planned capital spending will go to base-producing assets, including about $2.5 billion for shale and tight investments, the majority of which is slated for Permian Basin developments in Texas and New Mexico (United States).

Another $7 billion of the planned upstream programme is related to major capital projects currently underway, including approximately $2 billion toward the completion of the Gorgon and Wheatstone LNG projects in Australia and $3 billion of affiliate expenditures associated with the Future Growth Project-Wellhead Pressure Management Project (FGP-WPMP) at the Tengiz field in Kazakhstan.

Global exploration funding accounts for approximately $1 billion of the total upstream budget, and the remainder is primarily related to early stage projects supporting potential future development opportunities.

“It is easy to know that if the investment climate is uncertain, it is going to impact negatively on investments. You still have the PIB, which is now the PIGB, and we have been on it back and forth, when oil price was a $100 per barrel. 

“Many investors can cope with the uncertainty when the margins were high but now if your margin is very low and government is creating uncertainty and there is crises in the Niger Delta, why would you want to put your money in a country where there is so much risk?” said Taiwo Oyedele, PwC Head of Tax.

Luke Doogan, analyst at West Sands Advisory Limited, spoke in the same vein, “Given the global crash in oil prices, and their continued instability, it would appear that Chevron is seeking to invest in markets with the most optimal risk to reward ratio.

“Given the Abuja government’s ostensible failure to combat resurgence in militant activity in the oil-producing Niger Delta over the last 11 months and the vast revenues lost due to infrastructure attacks, Chevron may be passing over Nigeria and opting to concentrate its exploration and investment efforts in more stable jurisdictions.”

While Chevron has interests, ranging from 20 percent to 100 percent, in three operated and six non-operated deepwater blocks in Nigeria, there are projects waiting for development in Nigeria. Chevron operates the Agbami Field,  has a 30 percent non-operated working interest in the Usan Project, off the coast of the eastern Niger Delta region and a 55 per cent interest in Oil Mining Lease 140.

In 2015, the company said it expected the last Agbami 2 well to come online in the second quarter of 2016.  Then it will progress to the next phase, Agbami 3, a five-well drilling programme. Drilling began in early 2015 and is scheduled to continue through 2017.

There are still further exploration works yet to be completed on Oil Mining Lease 140, which lies in roughly 8,000 feet (2,438 m) of water, 90 miles (145 km) off the coast of the western Niger Delta region, and includes the Nsiko discovery. There is also further evaluation work expected in the Usan area.

These projects have not progressed according to plan, due to low oil prices that have affected projections. Also, militancy that has made investments unattractive and lack of concrete action on joint venture cash call areas.

“For Nigeria, the impact of Chevron’s budgetary decision will likely be two-fold. Firstly, the country will miss out on critical financial inflows from the issuance of exploration and production licences, as well as from the production of oil.

“Secondly, as Chevron is one of the most powerful and widely respected global oil companies, its decision to overlook Nigeria in its 2017 investment programme may cause other companies to follow suit. Ultimately, the move could inspire a wave of panic offloading by other companies who are influenced by a key market player like Chevron,” said Doogan.

John Watson, chairman of Chevron said the company’s spending for 2017 targets shorter-cycle time, high-return investments and completing major projects under construction.

“In fact, over 70 percent of our planned upstream investment programme is expected to generate production within two years.”

Chevron’s 2017 budget represents a reduction of 42 percent from 2015 outlays and is expected to be at least 15 percent lower than projected 2016 capital investments.

OLUSOLA BELLO & ISAAC ANYAOGU