Nigeria Risks Losing 38% Deepwater Oil Output 2025 – Operators

The fiscal terms in the current Petroleum Industry Bill may lead to a 38 per cent reduction in Nigeria’s deepwater oil production in 2025, an industry group comprising international and indigenous oil firms in the country has said.

The operators also said the country could lose over 30 per cent of its deepwater production potential by 2030.

“The current PIB 2020 does not improve the investment environment for new project FIDs (final investment decisions) to be taken,” the Oil Producers Trade Section said in a document seen by our correspondent.

The nation’s oil and gas production structure is majorly split between Joint Ventures (onshore and in shallow waters) and Production Sharing Contracts in deepwater offshore.

The operators said a competitive PIB could unlock Nigeria’s production potential, contributing to the country’s next wave of economic growth.

“With the right fiscal framework, OPTS could invest an additional about $9bn in deepwater projects to grow oil and gas development in Nigeria with resultant benefits for the nation,” the group said.

It said Nigerian projects sanctioned between 2015 and 2019 would bring $3bn of investment over their lifecycle and represented only about four per cent of all expected investments in Africa

According to the operators, no major investment decision was taken in the Nigerian deepwater space between 2015 and 2019.

They said, “Uncompetitive fiscal terms, increasing cost, unsettled deepwater disputes, and upcoming deepwater lease expiry increase risk for investors and prevent new investments.

“Nigeria’s government take exceeds that of other countries for prolific deepwater basins. Government take on Nigeria’s pre-final investment decision JV oil projects is among the highest in the world.”

The group said although some industry issues had been resolved in the PIB, important drivers of investor confidence and Federal Government’s revenues were not addressed.

While appreciating the progress made in addressing industry issues, it said there was a need to preserve the integrity of existing investments and encourage future growth.

The operators said, “Deepwater provisions in the PIB do not provide a favourable environment for future investments and launching projects.

“PIB does not provide clear assurances to investors with regards to the sanctity of existing contracts at conversion or on how and when NNPC liabilities will be settled.”

They added, “An investor’s ability to realise return on capital under which the investment decision was made is essential to competing for additional capital.

“Lack of contract sanctity compromises the integrity of investments and negatively impacts investor confidence and willingness to further invest and engage in long-term in Nigeria.”

An oil and gas governance expert, Dr Dauda Garuba, told our correspondent that the PIBs of 2008, 2012 and 2016, the current PIB in the National Assembly came at a very critical and difficult time of global oil outlook.

“Perhaps, the only difference is that there are many collaborative relations and commitments between the executive and the legislative arms of government to pass and sign it into law,” he said.

He noted that so much had already been lost due to the failure to pass the PIB by three successive national legislative assemblies.

Garuba said, “In view of the present challenges faced by global oil, especially COVID-19, what should be done to ensure that the PIB to be passed delivers investment is to explore inserting incentives that could give win-win for both government and companies.

“Also, the bill should anticipate a future of higher price of crude. To that extent, NASS must explore the possibility of inserting trigger clauses for fiscal terms that will enable the government to review the law and maximise it at such times.”

The PIB has scaled second reading in the Senate and House of Representatives, with passage expected to happen in the first quarter of 2021.

Author avatar