It wasn’t all gloom and doom for Nigeria’s oil and gas sector in 2019. Despite recording some not-so-impressive news, the year was an eventful one for the country’s oil and gas sector following a significant recovery, in 2018, from turbulent times that began in 2014 but worsened in 2016 when crude prices found the floor at $30 per barrel and militants were blowing up pipelines. Low oil prices combined with a number of factors to plunge the country into its first economic recession in over two decades.
For many industry watchers, therefore, the year 2019 has been a mix of the good and the not-so-good.
The Good
On the positive side, thanks to a combination of relatively higher oil production and a favourable average oil price of $70 in the second quarter of 2019, Nigeria’s oil sector finally recovered from four consecutive quarters of negative growth.
Nigeria’s oil sector grew by 5.15 percent quarter on quarter against -1.46 percent in Q1 2019, according to data from the National Bureau of Statistics (NBS). The Q2 growth was the first and biggest growth recorded since Q1 2018 when the sector recorded a GDP growth of 14.02 percent.
Also, in a move by the government to secure its equitable share of the proceeds of oil production, President Muhammadu Buhari early in November signed the Deep Offshore and Inland Basin Production Sharing Contract (PSC) Amendment Bill into law.
The move, according to industry analysts, could help government raise over $1.5 billion in royalties this year, which will help fund the 2020 budget. Nigeria has reportedly lost about $21 billion to the failure of the government to review the PSC as required by the Act.
The amended PSC Bill added two more revenue streams to the 1993 Deep Offshore and Inland Basin PSC. There is a flat 10 percent royalty on all projects over 200 metres deep, and there is a 7.5 percent royalty on frontier and inland basins. Under the previous fiscal regime, offshore projects of between 200 metres and 400 metres deep paid 12 percent of the project costs in royalties.
Besides the government, some companies in the sector also gave the sector reasons to cheer.
Daystar Power
In March, solar energy firm Daystar Power said it closed a N3.6 billion ($10 million) equity round with investments from Verod Capital Management and Persistent Energy Capital LLC, in a move that was projected to support the Federal Government’s plan of sourcing 30 percent of Nigeria’s energy needs from renewables by 2030.
The Lagos-based company also said it lined up an additional N5.7 billion ($16 million) in debt financing to accelerate its expansion across West Africa, making it one of the biggest funds to come into the Nigerian off-grid market this year.
Azuri Technologies
Azuri Technologies, a provider of pay-as-you-go solar home solutions to off-grid households across Africa, announced on June 4 a strategic investment of $26 million, led by Fortune Global 500 company Marubeni Corporation, with additional participation from existing shareholders, including FTSE 250 company IP Group plc.
Lekoil
In September 2019, Lekoil announced it has completed planning for phase two development at Otakikpo, which would increase production towards the range of 15,000 bopd to 20,000 bopd from the range of 6,000 bopd to 8000bopd.
ENI
Italian multinational oil and gas company ENI revealed in September it has made a “significant” gas and condensate discovery, through its affiliate Nigerian Agip Oil Company (NAOC), in the deeper sequences of the Obiafu-Obrikom fields onshore Niger Delta, a development which has huge implication on Nigeria’s economy.
This discovery is expected to boost the Federal Government’s aspiration to grow the country’s oil reserves to 40 billion barrels and daily production to 4 million barrels per day.
Seplat
The decision by Seplat Petroleum Development plc to acquire London-listed independent exploration company, Eland Oil & Gas, on October 15 is expected to show other local players how to take advantage of current wave of investment opportunities as International Oil Companies (IOCs) divest from onshore to offshore assets.
Savannah Petroleum
Savannah Petroleum plc, the British independent oil and gas company focused around activities in Niger Republic and Nigeria, said on November 18 that it had completed the acquisition of Seven Energy which started in December 2017, making it the latest entrant in Nigeria’s exploration field in dire need of investments.
River State wins back Soku oil wells
In what is obviously good news for Rivers State and perhaps bad news for Bayelsa State, a Federal High Court in Abuja on December 16 ruled that the disputed Soku Oil Wells/Fields located in Akuku-Toru Local Government Area belong to Rivers rather than Bayelsa State.
Soku Oil Field is located within the OML 23. It is the only producing field with substantial reserves of gas and liquids, and is a key supplier to Nigeria Liquefied Natural Gas (NLNG). The field is located in expansive swampland, just about 24 miles from Port Harcourt, and is only accessible by water or air (helicopter). The Soku gas processing plant worth N25 billion is a vital feeder plant for NLNG.
The Bad
In 2019, Nigeria’s hope of having a marginal field bid round that would have generated huge signature bonus was dashed as politics and regulatory challenges continued to obstruct growth in the sector.
Similarly, President Muhammadu Buhari in 2019 withheld assent to the Petroleum Industry Governance Bill (PIGB). This came after several years of rigorous consultations and legislative hassles on the document.
In the works for almost two decades, the PIGB has passed through both the House of Representatives and the Senate. In its torturous journey to the president’s table, contributions were taken from industry operators, oil-bearing communities, and all levels of government.
Indications also emerged that Nigeria may have just 10 to 15 years before demand for its most prized export – oil – plateaus and begins to drop as a result of technological innovation and development of alternative energy sources. This is according to an assessment included in the prospectus for Saudi Aramco’s initial public offering (IPO) seen by BusinessDay on November 12.
Uncertainty over FID for NLNG Train 7
The Final Investment Decision (FID) on the Nigeria Liquefied Natural Gas (NLNG) Limited’s Train 7 project failed to meet its deadline yet again. The FID could not take place on the much-publicised December 19, 2019 deadline.
The project, which is expected to increase NLNG’s production by 35 percent to 30 million tonnes per annum (mtpa), has been delayed for several years. A previous deadline for the Train 7 FID in the fourth quarter of 2018 was not met.
Even though NLNG says it is committed to realising the project, some industry sources tell BusinessDay that the delays are limiting the chances of the project ever taking off.
OPEC’s diminishing influence?
Organisation of Petroleum Exporting Countries (OPEC) found itself in a very unusual situation. Although the oil cartel was able to agree on a production cut, the last meeting (December 6) in Vienna showed a clear handwriting on the wall that OPEC can’t unilaterally dominate the energy markets as it has done for the last five decades.
For OPEC, the world is a different place from the heady days of 1973 as Qatar’s exit and the obduracy of Russia, a non-member on whom it is heavily reliant to enforce production cuts to prop up prices, are clear signs of its diminishing importance.
Also, a series of coordinated drone attacks on Saudi Arabia’s oil facilities, among the world’s largest and most important energy production centres, has not only disrupted the kingdom’s capacity by half but has raised new geopolitical risks for crude oil, one missed by global risk analysts.
