The Federal Government’s capacity to earn at least $10 billion or N4 trillion through the oil and gas industry, especially in the ongoing marginal fields licensing round, is dependent on a fiscal regime that will unlock about $30 billion capital stalled by delay in passage of the Petroleum Industry Bill (PIB), a Guardian report have revealed.
The agency had last year reported that the Federal Government might earn nothing less than $5.7 billion if it succeeds with its ongoing bid rounds for 57 marginal oil fields being offered to investors, further findings showed that untapped reserves of 300 million barrels of oil from about 200 marginal fields could generate $14.1 billion or N4.314 trillion for government.
With a budget deficit of N5.2 trillion for the current fiscal year, such inflow may help reduce exposure to Bretton Woods institutions for additional loans, thereby reducing Nigeria’s debt burden currently at N32.2 trillion.
However, growing uncertainties about crude oil exploration due to concerns over environmental issues of fossil fuels, funding gaps, legal issues, growing insecurity amidst other challenges had capped productions from marginal fields at about 51 million barrels yearly.
Like the downstream sector, the upstream sector equally awaits the outcome of the PIB for clear decisions on investments.
Affirming potential earnings from the fields, energy research and consultancy firm, Wood Mackenzie, noted that the 25 largest oilfields have the potential to unlock $9.4 billion of investment over the first five years and generate over $38billion over the life of the fields.
It however warned that investment levels in the upstream sector would stay flat at about $300 billion this year, as projects will increasingly be judged on their environmental, social and corporate governance (ESG) credentials.
Further, oil producers consider the PIB as the one piece of legislation that could overhaul Nigeria’s oil sector and spur much needed investment in Africa’s biggest oil industry. While oil majors are not a part of the marginal field bid round, indigenous participants need collaborations from investors to finance field development and production.
Having set an initial target of 2020, the PIB suffered another setback pushing its potential passage till mid 2021, according to the National Assembly. The earlier Deep Offshore & Inland Basin PSC (Amendment) Act remains a bone of contention among operators, with many stalling their Final Investment Decisions (FIDs) on key projects.
NIGERIA’s oil industry regulator, the Department of Petroleum Resources (DPR), said on October 13 that the country was seeking to increase its oil reserves, including condensates, substantially to 40 billion barrels by 2025.
Nigeria’s crude reserves, which stood at 38 billion barrels in 2015, have steadily declined over the past five years due to a combination of factors, including lack of funds, security challenges in the main oil-producing Niger Delta region and uncertainty over government’s oil sector reform that has stifled investment in new exploration programmes, industry analysts say.
Nigeria’s oil reserves were 36.8 billion barrels in January last year, a drop of 0.2 per cent from 2019, with the country missing a target of growing reserves as investment dries up.
Although Nigeria approved the development of NLNG train 7 last year, the African Energy Chamber (AEC) warned that the upstream gas developments that were planned to supply feed gas to this development might now take a back seat, if reforms were not carried out.
Nigeria had previously set the target of 2020, and later 2023, to raise its oil reserves to 40 billion barrels and crude oil production to three million b/d.
Almost two decades without any bid round, DPR in June last year announced commencement of oil bid round, offering about 57 fields located on land, swamp and shallow offshore terrains in the Niger Delta region up for auction, which it said would bolster its oil reserves and revenues battered by slump in global prices.
The marginal fields are spots discovered and left unattended for no less than 10 years from the date of discovery, or fields that leaseholders may consider for farm-out as part of portfolio rationalisation, according to the DPR.
Indigenous oil companies or independent producers handling the fields only produced 3,988,244 barrels in August 2019, 6,387,716 in September, 2,947,843 in October, 3,851,588 in November and 2,863,809 in December 2019.
In 2020, the marginal field operators in January produced 2,693,737. They produced 4,504,573 barrels of oil in February, 4,523,944 in March, 4,780,105 barrels in April, 5,003,806 in April, 4,063,552 in June and 5,576,863 in July. These brought their production to 51,185,780 between August 2019 and July last year.
The Nigerian Petroleum Development Company (NPDC) alone produced about 62,804,610 barrels of oil in the same period. From December 2018 to November 2019, the companies produced 55,793,614 barrels against the 60,852,643 barrels produced by NPDC.
Last week, DPR disclosed it had shortlisted 161 successful companies to advance to the next and final stage of the bid round process for the marginal oilfields. But stakeholders are worried over the ability of the players to turn around the nation’s stagnating reserves and daily production given the uncertainty in the oil and gas sector.
Exploratory activities are hitting the deadlock. Over $160 billion worth of upstream projects have been in limbo in the country. With the shocks from COVID-19 pandemic, more oil and gas companies are cutting investment as investors look to finance more of energy projects, especially renewable.
Even for companies that would focus on gas development, Wood Mackenzie had insisted that gas demand would come under pressure from breakthrough investment in renewables, energy storage in the power sector, efficiency improvement and adoption of new technologies in non-power sectors.
The think-tank had noted that green hydrogen would become a game changer in the long-term as it would emerge as a key competitor to gas consumption in the next two decades while achieving a 10 per cent share in the total primary energy demand by 2050.
In Nigeria, where fiscal and regulatory uncertainties remain a challenge as game-challenging regulations like the Petroleum Industry Bill never made any progress for decades, funding challenge has been projected to compound prevailing problems, thereby limiting the capacity of investors to turn around fields.