Nigeria’s oil producers are clinging to razor-thin margins despite crude prices hovering around $70. After paying for production and protection, many firms are left with profits between $5 to $7 per barrel.
Indigenous producers surveyed by BusinessDay said they are fighting for survival as production costs around $40 per barrel combine with spiralling security expenses and other operating costs that have made Nigeria one of the world’s most expensive places to pump oil.
The development contradicts public perceptions that crude prices hovering between $60 and $70 per barrel translate into comfortable profits.
Read also: Foreign oil firms get 90 days to set up Nigeria units after winning licenses
“People often see $70 per barrel and assume it translates directly into profit,” said Bolaji Ogundare, group executive director of Pan Ocean Oil Corporation, in an interview monitored by BusinessDay. “In reality, after operating costs, royalties and taxes, margins can fall to as low as $5 to $7 per barrel.”
The margin squeeze comes as Nigeria recorded average liquids production of 1.64 million barrels per day in 2025, up from 1.56 million bpd in 2024, according to data presented at the 2026 Nigerian International Energy Summit.
Production peaked at 1.77 million bpd during the year, driven largely by asset transfers from international oil companies to local operators and reduced pipeline theft.
Yet, beneath the production rebound lies what industry players describe as an increasingly unsustainable cost structure that threatens to undermine Nigeria’s competitiveness in global energy markets.
Experts said the proliferation of private security arrangements in the Niger Delta has become a necessary but costly guarantor of oil production as companies spend heavily to protect infrastructure from vandalism and theft rather than addressing underlying social grievances.
“The reality is that oil production cannot be sustainably high if huge sums are spent on security to protect infrastructure,” Ogundare said. “I sometimes compare it to bad roads. Instead of fixing the road, we buy bigger vehicles to navigate the potholes. You still reach your destination, but at a much higher cost.”
Ogundare said the Host Communities Development Trust framework, designed to give local populations a stake in oil revenues, represents a positive step toward building the social trust necessary for communities to protect infrastructure themselves.
However, he acknowledged the transition will take considerable time.
Some operators said they’ve adopted technological solutions to reduce vulnerability to pipeline interference.
For instance, Pan Ocean’s Amukpe-Escravos Pipeline, a 67-kilometre, 20-inch line with a capacity of 160,000 bpd, uses horizontal directional drilling to bury the pipeline as deep as 30 meters below the surface in some sections, far deeper than the conventional six to seven meters.
“Yes, it costs more, but it gives confidence that well over 99 percent of hydrocarbons will reach the delivery point,” Ogundare said, noting the pipeline has experienced significantly fewer vandalism incidents than conventional infrastructure.
With production costs estimated at around $40 per barrel and Brent crude prices fluctuating between $60 and $70 per barrel in recent months, operational efficiency has become essential for survival rather than a competitive advantage.
“Project delivery must be disciplined. If a project is budgeted to be delivered in one month but takes three, a significant portion of value has already been lost,” Ogundare said, adding that Pan Ocean is focusing heavily on data analytics to identify efficiency opportunities.
The Indigenous Petroleum Producers Group, whose members now account for over half of Nigeria’s crude output, also warned that operating costs remain approximately 40 per cent higher than comparable non-shale jurisdictions, placing local producers at a structural disadvantage in global capital markets.
For Adegbite Falade, chairman of IPPG, the indigenous group, many of whom operate mature, onshore and shallow-water assets, the cost burden is particularly acute.
Falade said while the asset transfers have increased local ownership and operational control, cost inefficiencies could discourage further investment and delay field development, especially for marginal and brownfield assets.
“Multiple regulatory fees, overlapping approvals, security-related expenditures in the Niger Delta and limited access to long-term, affordable financing continue to inflate production costs, eroding margins even as output rises,” Falade said at the Nigerian International Energy Summit in Abuja.
He cautioned that in a global environment of tightening capital and growing investor discipline, Nigeria risks pricing itself out of upstream investment if costs are not urgently addressed.
Despite the challenging economics, industry executives maintain that Nigerian operators have demonstrated the capability to increase production from transferred assets, primarily by re-engineering wells and prioritising previously neglected reserves rather than discovering new oil.
Akintunde Fadare, chief operating officer of integrated oilfield services company Geoplex Drillteq, said technology partnerships are critical to reducing the cost per barrel. His company recently signed a Financial and Technical Services Agreement for a shallow-water field targeting first oil in the first quarter of 2026.
“Technology is key to our goal of drastically reducing the cost per barrel,” Fadare told The Energy Year publication, noting collaborations with ExproTECH, Halliburton, Baker Hughes and NOV to optimise well completion and gas processing.
The high-cost environment is forcing a cultural shift toward infrastructure sharing, historically resisted by operators who preferred dedicated facilities even when underutilised, Ogundare said.
“If a flow station can process 20,000 barrels per day and one operator is producing 10,000, it does not make economic sense to build another facility,” he said, citing the Ovade gas plant as an example of collaboration potential. The facility was built to process 200 million standard cubic feet per day, but initially processed less than 30 million.
Read also: Nigeria can turn oil sector risks into opportunities, says Shell executive
Main barriers to infrastructure sharing have been security concerns, trust issues, accurate accounting requirements and payment confidence, though better transparency agreements are improving collaboration, industry sources say.
Nigeria has over 130 registered exploration and production companies, though not all are producing. Ogundare argued that greater collaboration among indigenous operators, currently limited by capital constraints and market fragmentation, is necessary to attract technology, improve competence and execute more effectively.
“A balanced ecosystem is required,” he said. “International companies should focus on where their scale and technology offer competitive advantages, while Nigerian operators take ownership where local knowledge and proximity deliver better outcomes.”
