As international oil companies (IOCs) shift increasingly offshore, oil production from the region is expected to continue its upward trajectory as the oil majors look set to invest further capital in offshore developments.
The growing shift by the oil majors to the offshore region, which now account for the large percentage of total oil production in the country, signals their continuing appetite for the country’s oil sector despite operational and regulatory challenges, said analysts.
Wumi Iledare, president of International Association for Energy Economics and director, Emerald Energy Institute, University of Port Harcourt, said, “We can expect increase in offshore production as investment in development of the fields increases. The beauty of offshore is that it does not require cash call from government. They are production-sharing contracts, but government approves the companies’ expenditure. Production is going to increase depending on how fast government approves the companies’ expenditure plan.”
He added that the current level of investment onshore is not encouraging and it should be a source of concern. “Investment must be sustained for the life of the reserves to be expended. The business climate onshore is not encouraging because of oil theft and pipeline vandalism.”
Between January 2010 and November 2012, Shell sold stakes in eight of its more than 30 onshore interests to local players. The company announced in October 2013 that it was putting up for sale four additional onshore oil blocks. In June 2013, Chevron announced its plan to divest from its 40 percent stake in Oil Mining Leases (OMLs) 52, 53, 55, 83 and 85. The firm is currently selling three of the five fields.
“It is unlikely that the current wave of divestments means a mass wave of IOC exits from Nigeria in the near future. The divestments are a re-balancing of asset portfolios towards the offshore, which now account for at least 70 percent of Nigeria’s total production. IOCs such as ExxonMobil, Total and Chevron still look set to invest capital in Nigeria’s offshore region over the next decade,” said Claire Lawrie, head, oil and gas advisory for Africa, Ernst & Young.
Chevron, in a recent statement on its global capital exploratory budget for 2014, disclosed that part of its upstream spending for major capital projects would include the further development of the Usan and Agbami deepwater fields in Nigeria.
“There will be increase in activity offshore because oil majors are now moving offshore as onshore reserves are gradually being depleted. Now, more than 50 percent of our production comes from offshore, and oil majors are discovering bigger reserves,” said Akinyemi Akingbade, senior manager, energy, utilities and mining, PricewaterhouseCoopers (PwC).