Nigeria’s oil and gas industry faces many hurdles in the years ahead as oil exploration slumps to the lowest in a decade and companies back away from investment until the country’s petroleum law is passed.
Companies have continued drilling appraisal wells and some project development activity continues, but they are not targeting new prospects.
Only one exploration well was drilled in Nigeria in the last two years, the lowest since 1999, according to official figures released by the Petroleum Ministry.
Fewer wells meant the government missed its targets to boost reserves to 40 billion barrels and output to 4 million b/d by 2010.
Diezani Alison-Madueke, minister of petroleum resources said this week onshore oil reserves are declining by 10% to 12% per year as ageing fields pass peak production and investment in new projects slows.
“We need to begin to boldly confront the deepwater,” the minister was quoted as saying at an industry conference. “As the land and shallow offshore opportunities are maturing, we need now to confront both the technical and commercial challenges of the ultra deepwater.”
Total crude oil and condensate reserves fell 4.8% to 37.16 billion barrels from 38.76 billion barrels in 2010, according to the Department of Petroleum Resources (DPR) figures.
The Petroleum Industry Bill, which aims at sweeping reforms of Nigeria’s oil sector, was proposed several years ago but has been repeatedly delayed.
Foreign oil firms originally warned that the fiscal terms in the bill would stifle development of deepwater reserves and reduce the country’s oil production capacity. But they now favor passage of the bill in some form because the delay has led to investors’ inability to plough in investments.
Already as a result of a shortage of funds, very little joint venture exploration has taken place in the last few years with a very negative impact on reserves replacement. New production projects have proceeded very slowly and have had to be financed by industry via alternative funding solutions as provided by the private sector operator.
In the last five years, oil companies have invested over $5 billion in gas developments to give it a 50% growth rate.
The industry plans to spend over $20 billion in the next five years in the gas sector and to invest about $37 billion and $77 billion in production sharing contracts and JV projects, respectively, in the next six years.
If fiscal terms, political stability and sanctity of contract cannot be relied on, companies will hesitate to make these investments.
Gas projects that would have supplied the domestic market have already been adversely impacted by the government’s inability to fund their majority share of the projects and are being put on hold.
Alison-Madueke assured that the government was working in collaboration with the National Assembly to ensure that the bill was passed as soon as possible. That soon may be a minimum of two years.
