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    Wednesday, July 10, 2024

    N400 billion Deficit in Oil Production Poses Risk to 2024 Budget.

    Nigeria's oil production has consistently fallen short of budget benchmarks and OPEC quotas, putting pressure on industry regulators and operators to address the challenging operating environment that has driven away investors and international contractors from the country.

    Against the backdrop of OPEC's oil production quota of 1.5 million barrels per day, recent data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reveals a production shortfall of over 3.011 million barrels in the first five months of the year, resulting in a revenue loss of approximately $264.97 million (equivalent to about N400 billion) based on an average Bonny Light price of $88 per barrel.

    Vanguard's research indicates that the nation's oil production has decreased to approximately 1.2 million barrels per day, a significant drop from the peak of 2.5 million barrels per day in the early 2000s.

    Experts in the field suggest that the factors contributing to this decline are still prevalent, and warn that the situation could deteriorate further in the coming months if immediate action is not taken to address the issue.

    They are projecting that the production shortfall might push the attendant oil revenue shortfall to N1.0 trillion by the end of the year, a situation which would have significantly reduced the government’s budgeted N15.7 trillion revenue for the 2024 fiscal year.

    Already, the Federal Government has hinted that it may not achieve its proposed revenue estimate for the fiscal year due to factors, including under-performance of the oil sector.

    In its report, titled ‘’Accelerated Stabilisation and Advancement Plan (ASAP)’’, the Finance Ministry stated: “Our ability to achieve the 2024 budgeted revenue step-up of 77.4 per cent from 2023 actual is at risk should oil production remain 27.0 per cent below budget.

    “50 per cent of the annualised YTD (year-to-date) variance suggests a lower-than-budgeted revenue of N15.7 trillion at the current run rate.”

    Output constraints

    Despite being Africa’s largest oil producer, Nigeria’s oil industry is grappling with output constraints arising from infrastructure decay and a lack of investment in exploration and production.

    A breakdown of the data showed that average oil production in January was 1.43mbpd, February 1.32mbpd, March 1.43mbpd, April 1.28mbpd and May 1.25mbpd.

    Speaking of the sustained slide in oil production, industry operators and regulators have said the challenges facing the sector needed to be urgently addressed.

    According to the Chairman of the Independent Petroleum Producers Group, IPPG, Mr Abdulrazaq Isa, the country is producing at a level significantly below its capacity.

    He pointed out that despite Nigeria’s world-class hydrocarbon resource base, with over 37 billion barrels of proven crude oil reserves and 207 tcf and 600 tcf of proven and contingent gas reserves respectively, it had found itself “in a situation where our daily production has significantly dropped and lies at about 1.3 million barrels of oil and 8.5 bcf of gas today.

    Isa said: “This is way below our capacity as a nation and by all globally acceptable standards, this reserves-to-production ratio is extremely low and a clear indicator that the industry is in a dire situation.

    “In addition, we now run the risk of partial implementation of our national budget considering an estimated deficit of 400,000 bpd from the forecasted 1.78 million bpd.

    “This trend in production portends another frightening dimension when we consider that in the not-too-distant future our overall installed domestic refining capacity, currently closing in on about 1.2million barrels per day, may soon outstrip our current crude oil production level with the risk of Nigeria finding itself in a position where it is unable to meet its domestic refinery crude demand or even become a net importer of crude oil.”

    4 priority areas to improve oil production

    He listed four priority areas that must be fixed for oil production to improve and meet the government’s target.

    The areas include the conclusion of all pending IOC divestment transactions including those involving its member companies – Seplat, the Renaissance Consortium and Oando; untangling of issues around deepwater development, particularly in terms of the competitive fiscal regime being negotiated with Shell, Total Energies, ExxonMobil and Chevron; adoption of a national value-retention strategy; and the development of Nigeria’s gas resources to catalyse economic growth and complement decarbonisation drive.

    The challenges, according to the Group CEO, NNPC Limited, Mallam Mele Kyari, have pushed not just investors away but also international contractors, disclosing that there was only an international contractor now playing in the deep water space.

    Kyari also disclosed that lack of activities and new projects had also led to a low number of active rigs in the Nigerian environment.

    While listing lack of investment and oil theft as some of the limiting factors, he noted that the obsolete pipeline network was also a major challenge.

    He said NNPC led the push for the complete replacement of the two export pipelines to Excravos and Bonny.

    He said: “We are talking about increasing production but rigs come here, stack up in deep water and they drill one well and leave. This is why there are no guarantees around rigs in this country.

    Nobody will come here, mobilize for one week and leave. That’s why you are seeing the scarcity of the right rigs coming into the country.

    “We have also taken another step, we will set up a rig share club with our partners. So that everyone can put on the table drilling programme so that we can all align and when rigs come here they can stay three to five years. Then we can be sure that the trend in production can increase.”

    He explained that the practice was what was obtainable in many jurisdictions, lamenting that it was not happening in Nigeria because many people had turned the procurement process into a business.

    ‘Attract more projects in Nigeria’s deep waters’

    The Chairman and Managing Director of Chevron Nigeria, Mr. Jim Swartz, emphasized the need for the government to attract more projects into Nigeria's deepwater, highlighting the high costs and uncertainties associated with operating in such areas. 

    He stressed the urgency of addressing cost-related issues and streamlining project procurement processes to ensure that investments flow into regions with lower costs and contractual compliance.

    Speaking about the efforts made by President Bola Tinubu's administration to enhance the operational landscape, the Special Adviser to the President on Energy, Mrs. Olu Verheijen, mentioned that the three Executive Orders issued in February 2024 have significantly benefited the industry.

    The three Executive Orders, which became effective from February 28, 2024, are: Oil and Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order, 2024; Presidential Directive on Local Content Compliance Requirements, 2024; and the Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines.

    Verheijen noted that the directives will instil confidence and stimulate the economy by making the Nigerian environment more appealing for energy projects.

    According to her, the first order “was establishing a clear and transparent regulatory framework. A stable regulatory environment and clearly defined agency roles are crucial to unlocking our untapped potential as an industry and making it more transparent, efficient and competitive now and in the future.

    “The second directive is focused on providing fiscal incentives for oil and gas projects and making us more competitive for investments. Directives 40 and 41 offer incentives for midstream gas utilisation, projects and non-associated gas projects.”

    She said the government has also completed a comprehensive assessment of Nigeria’s deepwater competitiveness compared to 13 peer countries to attract investments, adding the government is “working on new fiscal incentives that will facilitate deepwater projects will be critical to Nigeria’s four million barrels per day target”.

    NUPRC adds 17 new blocks to the 2024 oil bid round

    As part of efforts to boost activities in the sector and improve production, NUPRC has added 17 new deep offshore oil blocks to the 2024 oil bid round, bringing the total blocks on offer to 36.

    The blocks which are located across the onshore Niger Delta, Continental shelf, and deep offshore are expected to increase the country’s reserves and boost its oil production.

    NUPRC had in April unveiled 12 new acreages for the 2024 bid round with another seven deep offshore blocks from last year’s bid round.

    The commission in a document released recently signed by its Chief Executive, Engr Gbenga Komolafe, titled: Nigeria oil block licencing round- Updates on 2022/2023 and 2024 licencing rounds, also reopened the commercial bid for the 2022/2023 licencing round.

    Engr. Komolafe explained that the reopening was to allow investors to take advantage of improved fiscal incentives approved by President Bola Tinubu who doubles as the country’s minister of petroleum resources.

    Speaking on the issue, oil and gas governance expert, Henry Adigun, said there were a lot of issues in the Nigerian environment which have led to investors abandoning the country.

    He harped on the need for the country to tackle oil theft and pipeline vandalism to bring confidence back to the sector.

    “The government has a lot to do to improve incentives and get the majors investing again. We need a lot of production to meet domestic demands and also for export,” he added.

    Global Affairs Canada, ActionAid laud Gov Mbah on empowerment programmes

    Global Affairs Canada, GAC, and ActionAid Nigeria have commended Governor Peter Mbah of Enugu State for the series of empowerment programmes initiated by his government to improve the standard of living of women, promote gender equality and protect both women and children from gender-based violence and other forms of abuse.

    They gave the commendation when a delegation, led by the GAC Head of Development Cooperation, Djifa Ahado, and the Country Director of ActionAid in Nigeria, Andrew Mamedu, paid a visit to the governor at Government House, Enugu, yesterday.

    Expressing the desire of GAC to continue its partnership with the state government, Ahado said the organization had 15 implementing partners who were engaged to address gender-based violence, women’s peer education programmes to eliminate gender mutilation, women’s political participation and leadership, and women’s economic empowerment, among other programmes. She added that GAC, through ActionAid Nigeria, had invested ¦ 261,382,261.29 as grants to its partners, which had impacted over a million beneficiaries.

    Calling for more collaboration between the body and the state government, Ahado lamented that among the challenges faced by GAC included rising violence against women, limited support for gender equality initiatives and insufficient funding and resources to support the women’s rights movement.

    On his part, Mamedu of ActionAid lauded the effective and strong collaboration between the state government and ActionAid in promoting gender equality and women’s empowerment, saying that deliberate investment in women’s rights had a profound impact on sustainable development.

    The Country Director, who was represented by the ActionAid Head of Programmes, Celestine Odo, further underscored that one of the laudable projects of the two bodies that had achieved significant results in the empowerment of women and girls was the Women’s Voice and Leadership Nigeria (WVL-N) made possible by the cooperation of all the organs involved.

    According to him, the achievements made so far by the organisations in the state were a result of the resilience and collective effort of all their partners and the communities that benefitted from the projects.

    Governor Mbah expressed his gratitude towards the development organizations for choosing Enugu as a project state. He believed that their decision was influenced by his administration's commitment to transparency, accountability, and integrity.

    He also mentioned that the state had recently enacted a ranching law to put an end to open grazing, implement a modern grazing method, and guarantee the safety of farmers in all 17 LGAs of the state.

    The governor emphasized the administration's unwavering commitment to eradicating gender-based violence, highlighting multiple instances where perpetrators had been apprehended and assuring that justice would be upheld as they underwent prosecution.

    Governor Mbah further revealed a number of crucial measures being implemented by the government to reduce maternal and child mortality rates, including enhancing the primary healthcare system, building 260 type-2 primary healthcare hospitals equipped with modern amenities, and hiring numerous healthcare professionals to be stationed at various health centers throughout the state.

    Additionally, he emphasized the administration's commitment to Affirmative Action, with women making up over 28 percent of his appointees since taking office.

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