Nigeria’s oil production to start declining after 2020 – Report

Nigeria’s oil production is expected to start declining after 2020, despite significant potential for growth, a new report has said.

Analysts at Afrinvest Research, in “The Nigerian Oil and Gas Upstream Report’ released this week, said deepwater exploration had slowed considerably due to the fiscal uncertainty caused by the failure to pass the Petroleum Industry Bill, which was first drafted in 2008.

They said without clarity on fiscal terms, exploration would not be a priority, especially as international oil companies already had significant inventories of undeveloped discoveries, both onshore and in deepwater.

“However, while we expect fiscal reforms in the industry to proceed at a slow pace, there may be respite when deepwater production sharing contracts expire between 2023 and 2028 as long-lead projects will depend on the fiscal terms negotiated upon renewal,” the analysts said.

According to the report, another major constraint for explorers is the lack of any new licensing round since 2007.

It said limited recycling of acreage and blocks had stifled drilling opportunities despite good yet-to-find potential, adding, “Many licences that should have been relinquished in 2017 are still held by the same companies.

“Given these issues, the absence of supportive regulation and reforms, funding constraints, high upstream costs and ongoing fiscal uncertainty, the pipeline of major projects is very weak. And so, we expect production to start declining post-2020, despite significant potential for growth.”

According to Afrinvest Research, Nigeria produces oil and liquids from over 220 fields, most of which are relatively small and have an average production less than 10,000 barrels per day.

It said, “Condensate and natural gas liquids are often mixed with crude oil at the field facilities prior to evacuation; hence, it is not possible to obtain the precise split of these fractions. As a member of the Organisation of Petroleum Exporting Countries, Nigeria is subject to crude production quotas, with the main joint venture operators allocated a share of the country’s quota.

“However, production has been largely unaffected by quotas – given exemptions and low cuts due to already low output – and is more impacted by crude thefts, operational issues and project deferrals.

The analysts added, “Also, civil unrest and bunkering regularly disrupts production operations in the Niger Delta. This insecurity remains a threat even though a lot of progress has been made since 2009.