A Review of the Nigerian Energy Industry

Rising exploration costs stall oil projects

17 September 2015, Lagos – The Nigerian Association of Petroleum Explorationists has attributed the lag in petroleum exploration in the country by oil companies to the rapidly rising costs of exploration, which in most cases more than double the initial costs.

Oil exploration
Oil exploration

This situation, they lamented, had been aggravated by the absence of the desired tax brakes, tax rebates, among other business incentives from the government.

According to them, most of the oil fields being explored today have peculiar challenges like high temperature, high pressure, more demanding logging arrangements, and deeper terrains, among others. These, they stressed, were the reasons why exploration activities were now taking longer time when compared to past scenarios.

Responding to queries from our correspondent, the President, NAPE, Mr. Chikwendu Edozien, said on the average, drilling a conventional oil well in the past could cost about $40m.

“But today, because of the peculiarities of the fields being drilled, you can spend over $200m to drill just one well,” he said.

“This is why we say that tax breaks are needed to make more international oil companies embark on exploration,” he stressed.

Edozien said there was the need for the industry to intensify exploration activities now, as oil prices had continued to fall, with cost of rigs doing the same. He said despite the rising cost of exploration, leveraging falling oil and rig prices to explore for oil, would present long-term dividends to the economy.

The NAPE President said fiscal instability, significant gaps and uncertainties in the oil and gas regulatory policies and laws had resulted in the loss of investor confidence and preferential investment in other countries in West Africa and other regions by the International Oil Companies.

“There are concerns that value may be further eroded through attempts by the executive arm of government to open fresh debates in the National Assembly in attempts to pass the Petroleum Industry Bill into law,” he said.

The President-elect of NAPE, Mr. Nosa Omorodion, in an interview, also said it was very germane that the government provided an enabling environment and incentives to increase exploration opportunities, especially in high-risk frontier basins and under-explored deep high pressure/high temperature environments.

Financial services company, Moody’s, had said that offshore drilling companies would be under pressure through 2017 on low oil prices and over-capacity.

It added, “Deepwater or ultra-deepwater rig markets will have challenges on both the supply and demand fronts. Low oil prices will restrain drilling activities in these higher-cost markets while the supply of new rigs will continue at a high level through 2017. However, shallow water markets will not experience as much demand erosion.”

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