Nigeria’s oil rigs drop to six-month low as underinvestment persists

Nigeria’s oil sector faces mounting challenges as operational rigs have dwindled to a six-month low, signalling a deepening crisis caused by chronic underinvestment.

The latest data from the Organisation of Petroleum Exporting Countries (OPEC) on Nigeria’s oil rig count from January to June 2024 shows fluctuations in the level of exploration, development, and production activities in the country’s oil and gas sector.

The count started at 15 rigs in January, then increased to 16 in February. A significant rise occurred in March and April, with the count reaching 19 rigs, indicating heightened exploration efforts during this period.

However, a decline followed in May and June, with the count dropping back to 16 and then 15 respectively.

“Nigeria, a previous bright spot-on big oil and gas investors’ radar screens, has dimmed substantially as investor attention is increasingly drawn to new and emerging developments in Namibia, Ivory Coast, Angola and the Republic of Congo,” NJ Ayuk, executive chairperson of the African Energy Chamber, said.

He added, “With two-thirds or more of its revenue coming from oil, investor flight is a serious problem for Nigeria.”

The nation’s foreign capital investments in the industry nosedived from $720m in 2016 to $3.64m in the entire 2023, according to data from the National Bureau of Statistics (NBS).

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The report indicated that out of the $3.38bn capital importation into Nigeria in the first three months of 2024, the petroleum industry got nothing.

Capital importation is the inflow of foreign capital into a country, typically in the form of investments, loans, or other forms.

Further findings showed over the years, foreign capital investments in the petroleum sector have been declining.

In the first quarter of 2023, the petroleum sector recorded $750,000 in capital importation, but nothing was recorded in the second quarter.

The sector got $850,000 in capital importation in the third quarter, while it received $2.04m in the last quarter.

In total, the sector attracted $3.64m as capital importation into Africa’s largest oil producer in the whole of 2023.

Wumi Iledare, a professor of energy economics, said the sharp drop in foreign capital investment in the oil sector is expected because investors are not convinced that the Petroleum Industry Act has changed the country’s style of doing business.

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Iledare said the PIA, which is supposed to create incentives, was implemented wrongly by the previous administration of Muhammadu Buhari. He said the incumbent President Bola Tinubu is yet to look at the errors for possible corrections.

“So, what investors see in Nigeria is ‘business as usual’ because of the way the PIA is being implemented. The new government did not sit down to look at the errors of the past administration in the implementation of the PIA. It continued with the status quo,” Iledare said.

Compounding this internal rot is the exodus of oil majors such as Shell, ExxonMobil, Eni and TotalEnergies that once boomed.

Large-scale theft and vandalism, as well as decades of under-investment in infrastructure, were so severe that in April 2023, the country produced less than one million barrels of oil daily, far below OPEC quota.

In June, Nigeria’s oil production stood at 1.25m bpd.

“Nigeria currently needs $25 billion annually to stabilise its oil production at 2 million bpd,” Austin Avuru, executive chairman of AA Holdings, said at a recent Harvard Business School (Association of Nigeria) event in Lagos.

BusinessDay 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,” Tunji Oyebanji, energy lawyer and expert, said.