Nigeria targets additional deep-water crude reserves of 1bn barrels

… Projections for new investments overly optimistic says analysts

Ibe Kachikwu, Nigeria’s minister of state for petroleum resources said crude oil reserves could grow by one billion barrels once required investments flow into the country but investors remain cautious.

Analysts at Wood Mackenzie forecasts that Nigeria will see capital expenditure cuts especially in deep water projects mostly due to depressed prices.

“Looking at the figures for Nigeria, the capex we have cut is $46bn over the same time period (2017) as the $100bn figure for the whole region,” said Femi Oso, senior research manager for Sub-Saharan Africa at Wood Mackenzie in a note sent to BusinessDay.
“The bulk of the capex cuts so far in Nigeria will be in pre-sanctioned deep water projects that are no longer economic at lower oil prices and in joint venture projects where NNPC’s funding has reduced further. So yes, most of the cutting is being done by the majors,” Oso said.

Nigeria is betting on development of new fields, modest recovery of oil prices, and a favourable investment climate spurred by proposed fiscal reforms and lull in militancy.

“For example, the opening up of Dahomey Basin with the coming on-stream of the Aje field is certainly a major milestone for the industry,” says Kachikwu in an address at the 2017 Nigerian Oil and Gas Conference in Abuja on February 28.

Kachikwu further said, “Despite these (challenges with militancy), Nigeria however, still remains a leading producer in Africa with potential to boost production to the neighbourhood of 3 million barrels of oil per day by 2020.”

An additional one billion barrels this year will push Nigeria’s reserves to 38billion barrels putting the government on course to achieving its 40billion barrels of crude reserves and a production of 4million bpd by 2020.

The net effect for the economy is the ability to fund budget projections, cut borrowing and fund critical infrastructure at advanced stages of decay.

Recently, Maikanti Baru, NNPC group managing director said it has successfully renegotiated the cost of its deep offshore rig-rate downwards by about 71.7 per cent.

This brightens prospects for earnings as it will result in savings of about $43 per barrel per day which translates to a cost reduction of about N31.4 billion on crude oil production every year.
However some issues still needs to be sorted. “It seems that it is taking longer to get some of the country’s largest export terminals back online as repair work is taking longer than anticipated, so we may only witness a gradual recovery in oil output as the year progresses,” said Cobus de Hart, senior economist, at NKC Economics, an African investment advisory based in South Africa.
Investments into Nigeria generally have been few and far between in recent times. A February 16 data released by the National Bureau of Statistics (NBS) said that capital importation into Nigeria fell by 47 percent to $5.12billion in 2016, from $9.64billion in 2015 due to an uncertain foreign exchange market.

Nigeria it seems is ready to turn the corner. It is addressing foreign exchange issues and has successfully negotiated and signed an agreement on a new sustainable funding framework for Joint Venture cash call operations.

“This will not only sustain our JV operations but is also a key enabler for incremental production from our JV operations and a pathway towards incorporating our JVs,” says Kachikwu.
He further said, “In the area of Nigeria Content, we also witnessed a steady increase in participation of Nigerians in oil and gas contracts by 180% from Fifteen (15) Nigerian Content Compliance Certificates (NCCCs) worth $396,103,336.38 issued in 2015 to forty two (42) Content Compliance Certificates (NCCCs) valued at $1,645,233,425.59.”

Kachikwu stressed that government has developed and launched a practical and well-reasoned Petroleum Industry Roadmap tagged the 7 Big Wins for the new Nigerian Petroleum Industry.
The oil sector roadmap is specific, has time-focused targets and makes dramatic policy shifts in this sector to grow, deepen and open up the business and opportunities in Nigeria’s Oil and Gas Sector.