A Review of the Nigerian Energy Industry

Nigeria’s deepwater production records 15% yearly slide

*IOCs withhold investment

27 December 2012, Sweetcrude, London – There are indications that Nigeria’s deepwater crude oil production may be headed for the cliffs having recorded 15 per cent slide each year in the last two years as major producers hold back investment in response to the prospect of new punitive provisions under the proposed Petroleum Industry Bill, PIB.

For the last four years, most deepwater producers have held back from development work to sustain the production levels, most obviously restricting spending on tie-backs to satellite structures.

Menas Associates reports that Nigeria’s total deepwater production was about 1.2 million b/d two years ago but is slipping about 15 per cent a year and the rate of fall is likely to accelerate if the PIB is adopted.

There have been noticeably sharp declines at ExxonMobil operated Erha and Chevron-operated Agbami.

Checks revealed that the Shell operated Bonga is currently producing 180,000 b/d, Mobil operated Erha 130,000 b/d, Total operated Akpo 180,000 b/d, Chevron operated Agbami 160,000 b/d Total operated Usan 110,000 b/d and Abo 35,000 b/d.

As early as May this year, Statoil, a partner in Agbami, indicated that crude oil production was at 230,000 b/d, having started in 2008. Erha was reported to be producing 200,000 b/d in the summer of 2012. Bonga production, now 180,000 b/d, had reached a plateau of 220,000 b/d earlier in the year too.

The fall in deepwater production coincides with a refusal by the Nigerian National Petroleum Corporation, NNPC, technical committee to moderate the fiscal terms it has advised for the PIB, despite intense opposition from the deepwater international oil companies.. According to calculations by the Oil Producers Trade Section, OPTS, of the Lagos Chamber of Commerce, the body representing the industry, the terms would leave the industry with an average internal rate of return, IRR, of zero or worse.

The spending has stopped and the industry is focused on legal recourse if the PIB, currently before the House and Senate, is passed into law. It is understood the industry would not pay new taxes and royalties under the bill but would invoke bilateral treaties that put the Nigerian government into dispute with the governments of the United States, the Netherlands, France, Italy, Norway, Canada, and maybe even China now that the CNOOC has acquired a share of Usan.

Recently there were indications that the federal government may belatedly compromise, but there is no sign of change coming out of NNPC. The NNPC group in charge of the PIB fiscal terms, headed by Victor Briggs, the general manager of the National Petroleum Development Company, and Abiye Membere, the group executive director in charge of NNPC exploration and production division is resisting the move. They have refused to have a joint session with the industry.

Onshore and Offshore production is falling as investment ebbs away. At current rate, investment is forecast to slump by 40 per cent by 2020, possibly resulting in a collapse in production. The ministry of petroleum resources has been putting production at around 2.4 million b/d, but industry operators say the government has been overstating both production and reserves.

The single exception to the slide in deepwater production is the recent start-up at Usan, where the operator is Total. Even Total has decided to cut its exposure, however through an equity sale to China National Offshore Oil Corporation, CNOOC.

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  • This portends a very troubling revenue receipt outlook for Nigeria going into the new year. We hope the chaps at the NNPC know what they are doing? We also hope the government doesn’t wake up one morning to discover they have a crisis on their hands.

  • Happy Gump Year!

  • NNPC and federal govt should beware and this report should serv as a wake up call to the senate in their consideration of PIB bill.