- FG, Oil Firms Optimistic About Increased Crude Production
The Federal Government and oil firms have expressed optimism that crude production in the country will increase this year as efforts to stem militancy in the Niger Delta and introduce a new funding structure for joint venture assets gain traction.
Nigeria, which had been exempted from the deal by the Organisation of Petroleum Exporting Countries to cut output from January, hoped to pull its economy out of recession on the back of the upswing in global crude prices and restore oil production to at least 2.2 million barrels per day, President Muhammadu Buhari said in early December.
Negotiations with militants in the Niger Delta to end attacks on oil facilities are also progressing and a new funding scheme for upstream ventures with foreign partners was recently agreed.
For now, the country continues to suffer from the oil price downturn as oil accounts for about 90 per cent of its foreign exchange earnings and about 80 per cent of the government’s total revenue.
“The government is sure that the target to raise oil production to 2.2 million bpd or even more next year is realisable,” Femi Adesina, presidential spokesman told S&P Global Platts.
“The peace deal with militants to ensure zero disruption is in progress, though slow, but I can assure you that with a show of faith, the peace deal will be consummated in no time,” Adesina said.
Oil companies believe the return of peace in the restive Niger Delta region is key to the execution of the projects needed to increase production.
Just as the government needs higher oil production for more revenue, companies need the peace and security in the Niger Delta to be able to move in and repair damaged assets, especially in onshore and shallow waters, and even plan new projects.
“Once this is achieved, production can even reach 2.3 million bpd,” said one official at a Western oil company.
Nigerian oil output, which had recovered sharply in October from a 30-year low of around 1.4 million bpd in May, suffered a setback after another attack on the Trans-Forcados pipeline on November 2 impacted the transportation of the crude and shut-in the popular Forcados grade.
“With oil prices boosted by the OPEC and non-OPEC production cut, we companies are encouraged to invest next year but only if the Nigerian government can achieve a win-win situation with the militants in the Niger Delta,” the Managing Director, Britannia-U, Uju Ifejika, said.
A recovery in Nigeria’s oil production is premised not only on solving the Delta militancy, but also on the country’s successful negotiations of years of debts owed to its partners on counterpart funding for oil ventures, and introduction of new funding mechanism to drive investment in the upstream sector.
Nigeria negotiated $1.7bn off the $6.8bn in unpaid bills over the last four years owed its partners including Shell, ExxonMobil, Chevron, Total and Eni, to exit the cash call arrangement.
The nation was eyeing additional output of between 300,000 bpd and 700,000 bpd from onshore and shallow fields operated jointly with foreign partners over the next two years as a result of the financing deal, the spokesman for the Nigerian National Petroleum Corporation, Ndu Ughamadu, said.
“The Nigerian petroleum sector, which has recorded low investment in recent years, will soon experience an upbeat in a flurry of activities following the cash-call exit agreement between the NNPC and its Joint Venture partners,” he said.
“The agreement will stabilise and also increase upstream production over time. The repayment of the arrears in a sustainable manner is a key enabler to additional investment in the upstream sector in Nigeria,” the Chairman, Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry, Clay Neff, said.