Nigeria’s 9% active oil rig count improvement faces falling investor optimism

Nigeria’s active oil rig count grew marginally by 9 percent but investors will not be in a hurry to make new final investment decisions because the industry flounders in uncertainty.

Africa’s largest crude oil producer saw its rig count increase by 9.38 percent, from 32 oil rigs in June to 35 in July, according to the Organisation of Petroleum Exporting Countries (OPEC) August Monthly Oil Market Report (MOMR).

Rig count is a function of the level of exploration, development and production activities occurring in the oil and gas sector.

“This growth can be attributed to a number of reasons. There was an atmosphere of expectation that the Petroleum Industry Governance Bill (PIGB) was going to be signed into law. Oil prices have been stable in the last six months or so. Then there some independent oil producers such as First E&P Limited that received final investment decisions (FID)” Wumi Iledare, professor of petroleum economics and member of the PIGB drafting committee told BusinessDay, on phone. “The success which Egina represents had also sent out the right signal.”

However, uncertainty reigns in the industry. Chief among the factors inducing uncertainty in the oil and gas sector and which will keep investors on caution mode is that President Muhammadu Buhari withheld assent to the Petroleum Industry Governance Bill (PIGB). This Bill was designed to institutionalise governance of the oil and gas sector and introduce adequate checks and balances.

These are factors investors care about because they bring about clarity, transparency and accountability, which have been non-existent in the governance of Nigeria’s oil and gas sector.

Since, the oil and gas sector is not immune from happenings in the general economy, recent fines on mobile telecommunication giant, MTN Nigeria and four other banks are equally sending jitters into the market. It speaks to the quality of regulation and how Nigeria’s economy is inefficiently managed.

In a scathing opinion piece published September 03, Ijeoma Nwogwugwu, managing director of Arise Africa News Network explained how the systemic inefficiencies in the petroleum industry are designed to benefit a few and frustrate the Petroleum Industry Bill even in its revised PIGB form.

That Diezani Alison-Madueke, never got the PIB passed by the sixth and seventh National Assemblies “arose from the fact that the legislators succumbed to alleged bribes and the pressure brought to bear by the same people in “high places” and operators in the oil and gas sector” Nwogwugwu, wrote, partly in response to Omotayo Alasoadura, the senator who chairs the Senate Committee for Upstream Petroleum Resources, when he alluded to alleged bribes he had to resist.

“Often enough, the lobby to quash the PIB, and later the PIGB, did not just come from compromised legislators but from officials of government-run parastatals, the petroleum ministry inclusive, whose preference was to maintain the status quo” Nwogwugwu said.

Opacity bothers private capital. The United States Energy Information Administration (EIA) said, “International oil companies are concerned that proposed changes to fiscal terms may make some projects commercially unviable, particularly deepwater projects that involve greater capital spending.”

Before the recent gain, Nigeria’s 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 28 early 2017.

It again dropped to 27 during the third quarter of 2017, and then 28 at the fourth quarter same year.

Other OPEC members such as Algeria currently have 45 oil rigs, Angola four, Ecuador 8 and Equatorial Guinea, two.

Gabon has four, Iran boasts of 61, Iraq 59, Kuwait 50, Libya 5, Qatar 9, Saudi Arabia has the highest with 148 rigs, the United Arab Emirates has 55, and Venezuela currently records 70.

Contrary to the Federal Government’s target of increasing crude oil reserves, Nigeria recorded a decline of 961.47 million barrels in the four years to 2016 on the back of low investment in exploration by oil companies.

The oil reserves fell from a high of 32.23 billion barrels in 2012 to 31.27 billion barrels in 2016 while the condensate reserves stood at 5.47 billion barrels from 4.91 billion barrels in 2012, according to data from the Department of Petroleum Resources.

Nigeria has the second largest amount of proven crude oil reserves in Africa, but exploration activity has slowed in recent years.

STEPHEN ONYEKWELU