BusinessDay

Nigeria’s oil fortunes face existential threat on low exploration  

The reduction of rig counts in the Nigerian oil and gas industry has exposed the sorry state of the industry which is the country’s main revenue earner, an indication that Africa’s biggest oil producing country is no longer an investment destination despite its huge potentials.

Data obtained from Baker Hughes Incorporated and OPEC showed all through 2019 Nigeria’s oil rig, which depicts the level of oil production activities by operators, has been hovering around 16 rigs count, a sharp decline from a three-year high of 35 rigs count recorded in February 2018.

Rig count is largely a reflection of the level of exploration, development and production activities occurring in the oil and gas sector.

According to OPEC’s report, Africa biggest oil-producing country recorded 17 oil rigs in the last month of 2019, which was three rigs less of what was obtained in November 2019, an indication of decreasing exploration activities.

“The logic is straightforward. When the number of oil rigs rises, it means more people can be employed; when it drops, it means loss of employment opportunities,” said Edward Diete Koki, managing director, Alliance Capital Management Ltd.

Actions in the industry have been reduced to just maintenance activities by oil and gas companies despite the fact that government has over the years been saying it wants to increase its crude oil reserve to 40 billion and daily production to 4 million  barrels per day production.

Mele Kyari, group managing director, Nigeria National Petroleum Corporation (NNPC), said investors are worried about investing in Nigeria’s oil exploration, a development which has led to a decline in investments in the last 10 years.

“Due to lack of clarity in Nigeria’s fiscal terrain, investors are worried about their margins, most especially getting back their cost of production which is a huge concern for oil exploration,” Kyari said at the 37th Annual International Conference of the Nigerian Association of Petroleum Explorarionists (NAPE) in Lagos.

Slow reforms in the power sector, absence of full deregulation in the petroleum sector value-chain, the multiplicity of exchange rates, among other factors are key downside risks that constrain investments and long-term growth, according to a global consulting firm, PricewaterhouseCoopers (PwC).

Also, analysts had consistently blamed the decline in investment on uncertainty in the industry, following the delay in the assent of the Petroleum Industry Governance Bill (PIGB), and the non-passage of the remaining variants of the Petroleum Industry Bill (PIB).

The government’s many failings with attracting foreign direct investment, most especially in the oil and gas sector, have meant Nigerians have grown poorer as economic growth is slower than population growth.

In Africa, a host of new finds from Equatorial Guinea, Mozambique, Senegal, Mauritania, Tanzania and Uganda are looking very attractive for foreign direct investors who are willing to explore new frontiers in oil business.

Equatorial Guinea is expecting $1.4 billion to be invested in the country in 2020 fiscal year, with a mix of exploration and appraisal drilling. The country has also renewed ExxonMobil’s licence in the offshore, even while the US super major is said to be in talks on a sale of its assets.

Tanzania has the fastest-growing economy among its oil and gas-producing peers in the region and the second-largest natural gas resources. While production is low, the discovery of new offshore fields has the potential to transform the economy. Its closer location to Asian markets gives Tanzania a geographical edge over peers, which makes it favourable for foreign investments.

Senegal, for instance, has seen investment from oil exploration companies such as United Kingdom’s Cairn Energy and Texas’ Kosmos Energy, who discovered some of the largest offshore gas deposits between Senegal and neighbouring Mauritania’s territorial waters.

Senegal has seen predominantly natural gas discoveries offshore in recent years, most of which are shared with neighbouring Mauritania.

 

OLUSOLA BELLO, STEPHEN ONYEKWELU & DIPO OLADEHINDE

 

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