Nigeria’s upstream petroleum targets, achievements, challenges & way forward

offshore-platform1Dr. Chijioke Nwaozuzu

29 November 2013, Sweetcrude, Abuja – It cannot be overemphasized that oil revenues fund the Nigerian government’s initiatives to diversify the economy and achieve massive enterprise revolution across non-oil sectors. The petroleum sector’s future rests on the ability of the Nigerian oil & gas industry to identify and capitalize on new opportunities that intercepts with government’s plans for accelerated economic and infrastructure development. Although the government is making efforts to reverse the country’s dependence on oil & gas, the petroleum sector is still predicted to grow exponentially if the right investments are made and the multinational oil producing companies, MNOC’s, are offered favorable fiscal terms.

With a speedy passage of the Petroleum Industry Bill, PIB, NNPC along with the joint-venture partners can possibly achieve the goal of improving known crude reserves from 36 billion barrels to 40 billion by 2015. The national target is to achieve 40 billion barrels of oil reserves and a daily production of 4 million barrels of oil, bpd, including condensates, as envisioned in the Vision 20: 2020. To ensure that other prospective basins are reasonably explored, the Ministry of Petroleum Resources has ramped up exploration activities in the entire inland basins of Chad, Anambra, Benue, and the Bida/Sokoto/Dahomey basin. There are increased exploration activities in the offshore, onshore and inland basins leading to the drilling of a total of 19 exploration wells in 2012 (made up of 8 explorations under the JV contracts and 11 wells, comprising of 3 exploration and 8 appraisal wells under the Production-Sharing Contracts PSC. Within the period under review 2011-13, 93 development wells under JV and 38 under PSC have been drilled. Also, 33 work-over wells were drilled, comprising of 32 work-overs under JV and 1 under PSC.

Consequently, crude oil production has been maintained at an average of 2.3 million bpd despite massive crude oil theft, illegal oil bunkering, and pipeline vandalism. Production lost to crude theft alone is about 400,000 bpd. We should recall that in the aftermath of the FGN Amnesty Programme, crude oil production rose from 1.9 mbpd in 2009 to a peak of 2.62 mbpd in 2010. Sustained production at this level has been marred due to the above factors. Government has put plans in place to stem this menace through effective law enforcement and application of the Crude Oil Fingerprinting Initiative, COFPI.

The industry has achieved significant reserve additions since the inception of this administration. As at 2012 year ending, a total of 600 million barrels of reserves were added which translates to 70% reserve replacement. Crude oil reserve base dropped by 0.06% to 36.8 billion barrels compared to year ending 2011 figures. In addition, Nigerian Petroleum Development Company, NPDC, production capacity has been boosted through strategic divestment and thus has grown their reserve base to 1.7 billion barrels. Given the current rate of reserve additions and the intensified exploratory work going on, it is possible for the current administration to achieve the target of 40 billion barrels of crude reserves by 2015. The Petroleum Ministry is currently developing a comprehensive framework to increase crude oil production from an average of 2.3 mbpd to 4 mbpd within its life-span. The above achievements in the upstream sector are quite commendable, but even more has been achieved in the Gas sub-sector.

In the immediate term, one of the fundamental objectives of the Ministry of Petroleum Resources post- PIB would be to restructure and revamp the oil and gas industry into an engine for national growth, job creation, and poverty alleviation. The PIB is expected to usher in the creation of new institutions to ensure proper governance of the industry. The transition period from where the industry is to where it is projected to be will have to be properly managed. As a result, the Petroleum Minister set up special task forces whose recommendations would act as catalysts to deliver the needed transformative change. The PIB Technical Committee reviewed all sections of the PIB and harmonized different versions to produce a draft copy to the National Assembly. The Governance & Controls Task Force reviewed management controls within agencies/parastatals under the Ministry of Petroleum, and designed new corporate governance code for transparency, good governance and best practices. The Petroleum Revenue Task Force verified, as much as possible, all petroleum upstream and downstream revenues payable to government and recommended models for an integrated system and technology across the petroleum value chain. The National Refineries Special Task Force assessed the performance of domestic refineries and made recommendations for improving efficiency and commercial viability. This task force also created tools for tracking performance, and developed models for evaluating the business case for new refineries. Following a successful transition to a new era ( PIB), the implementation of the recommendations flowing from the reports from these task forces could drive innovation and change in efforts to deliver an oil industry that is internationally competitive and governed by open and transparent processes. This expected outcome would ensure security of investments for both domestic and international investors.

What has bedeviled previous strategies for growth in the oil industry has been inconsistency in government policies. A new government comes in and shelves the plans made by the previous government. It is vital that the current policies are maintained to ensure that the gains achieved in the upstream oil industry thus far, as well as forward plans, are realized.

*Dr Chijioke Nwaozuzu, a petroleum expert wrote from Abuja, Tel: 070 6874 3617 (SMS only)

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