Dwindling active oil rig count, reserves tell sector’s tale

​Nigeria’s active rig count contracted in August and its oil reserves replacement ratio has been abysmal in the last decade as some Organisation of Petroleum Exporting Countries (OPEC) peers strive to increase exploration and production.

In July, Africa’s largest crude producer had seen its active rig count increase by 9.38 percent, from 32 oil rigs in June to 35 in July, according to OPEC’s August Monthly Oil Market Report (MOMR). But it fell by 5.71 percent, from 35 in July to 32 in August signalling reduction in exploration and production activities in the oil and gas sector.

Rig count is a function of the level of exploration, development and production activities occurring in the oil and gas sector. A drop in active rig count means oil exploration and production activities in Nigeria have decreased month-on-month.

“Both elements correlate. To replace oil reserves, you need to intensify exploration and production activities. This means more active rigs. It also means more investment inflows into Nigeria’s oil and gas sector” a major actor in the industry who does not want to be identified told BusinessDay in confidence. “Falling active rig count and reserves mean there have been no fresh investments in the sector.”

According to data obtained from the National Bureau of Statistics (NBS), Nigerian Capital Importation report for the second quarter of 2018, foreign capital inflow into the oil and gas industry declined by $60.77 million, about N18.6 billion, to $24.85 million, about N7.6 billion in the second quarter of 2018, compared to $85.62 million, about N26.2 billion recorded in the first quarter.

Nigeria’s active oil rigs had remained static at 32 since the first quarter of the year. In 2015, Nigeria had recorded 30 oil rig counts. In 2016, it decreased to 25, and later to 28 early 2017.

Other OPEC members such as Algeria have increased the number of their active rigs from 45 oil rigs in July to 49 in August, Angola still has four, Ecuador from 8 to 10 active rigs but Equatorial Guinea still has one.

Libya moved from 5 to 8, Qatar 9, Saudi Arabia has the highest with 152 rigs up from 148, the United Arab Emirates moved from 55 to 57, and Venezuela currently fell from 70 to 69 rigs.

“Continued delay to tackle the Petroleum Industry Governance Bill (PIGB) sends a wrong signal to current and would-be investors.  It is either government wants to amend the laws regulating oil and gas or they don’t. Whatever it is, they should come out clear” Ayodele Oni, energy partner at Lagos-based Bloomfield Law Practice said. “Otherwise, it will delay projects, spending and certain activities in the industry, because of the uncertainty and lack of stability.”

Nigeria’s oil reserve decreased to 36.247 billion in 2011 from 37.200 billion recorded in 2010, while in 2012 there was relative improvement to 37.139 billion but went down again to 37.071 billion in 2013. In 2014, it stood at 37.448 billion before sliding down to 37.062 in 2015 while in 2016 it stood at 37.453 billion.

However, at an average of 1.8 million barrels a day, Nigeria pumps circa 648 million barrels per year. When multiplied by seven years this gives 3.888 billion barrels of pumped oil, subtracted from the current figure of 37.453.

Emmanuel Afimia, energy analyst and CEO of Afimia Consulting Limited said the country has since been struggling to increase its output as a result of security issues in Niger Delta which has reduced Nigeria’s oil output from 2.2mbpd to a paltry 1.6mbpd.

“Another reason is the output cut agreement among OPEC and non-OPEC countries as the production cap on Nigeria’s oil output at 1.8mbpd led to slow investment in the sector  leading to low exploration activities to explore for more reserves,” Afimia, told BusinessDay.

Nigeria, under Obasanjo-led government set two growth targets for the nation’s oil and gas industry: increase oil reserves to 40 billion barrels and production capacity from 2.5 million barrels per day to four million bpd by 2010.

However eight years after the target date of 2010 Africa’s biggest crude oil producer’s ambition seem bleak as the fiscal and regulatory regimes that would activate this ambition experienced a major setback due the PIGB’s fate.