Nigeria’s onshore oil producers, once buoyed by rising stakes in the country’s divested upstream assets, are now feeling the heat of escalating operational costs, a trend that is threatening profitability and jeopardising the nation’s target of ramping up crude output.
According to industry data from Welligence Energy Analytics, declining production across onshore portfolios, where independents now dominate, has pushed average unit operating costs (UOC) into the double-digit range, severely squeezing margins and stalling investment in the upstream sector.
Since 2020, a wave of asset divestments by international oil companies (IOCs) has shifted production responsibilities to Nigerian independents. These homegrown firms, including Seplat Energy, ND Western, Aiteo, Heirs Holdings, and Renaissance, now account for roughly 50 percent of Nigeria’s oil and 70 percent of gas output.
However, while their footprint has grown significantly, their challenges have also doubled.
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Rising costs amid lower volumes
The report highlights that companies like Aiteo, Newcross, Belemaoil, and Eroton, which operate primarily onshore, are grappling with higher UOCs due to dwindling production and increased reliance on expensive alternative export routes such as barging.
“Declining production and the adoption of alternative export options like barging have led to rising unit operating costs, particularly across the onshore portfolios like Aiteo, Newcross, Belemaoil and Eroton,” analysts at Welligence Energy Analytics said.
They added, “Unlocking the huge untapped oil upside across the onshore portfolios will drive down the operating profiles for most, and gas monetisation will further improve UOC/boe profiles, but multiple bottlenecks still exist.”
“Reducing operating costs is also critical for the government, with tax incentives passed recently to incentivise cost reduction across the E&P sector,” Welligence Energy Analytics said.
Other analysts said operators are turning to less efficient logistics to move their barrels, inflating their cost base as pipeline insecurity and crude theft remain persistent problems.
“Declining output means fixed costs are spread over fewer barrels, pushing up the cost per unit,” an industry analyst told BusinessDay.
“When you add infrastructure bottlenecks, sabotage risks, and the rising cost of security and logistics, the economics become very challenging.”
BusinessDay’s findings showed unit operating costs for many independents now range from $15 to over $35 per barrel of oil equivalent (boe), placing strain on producers in an environment where oil price volatility and tight capital markets are already limiting reinvestment.
Bayo Ojulari, group chief executive officer of the Nigerian National Petroleum Company Limited, attributed the country’s high oil production cost to massive security investments aimed at safeguarding crude oil pipelines in the Niger Delta region.
Ojulari, who spoke in an interview with Bloomberg on the sidelines of the 9th Organisation of Petroleum Exporting Countries International Seminar in Vienna, said Nigeria’s current cost of crude production has surged to as high as $30 per barrel, more than double the global average.
“The cost of crude production is divided into two: the capital cost and the operating cost. The operating cost right now in Nigeria is hovering over $20 per barrel, which is quite high. Part of the reason for that is because of the investment we have had to make in terms of the security of our pipelines, which is now 100 per cent available,” Ojulari said.
Production decline
Despite Nigeria’s ambition to raise oil production by at least 1 million barrels per day (mbpd) by 2026, the current performance of its onshore segment paints a worrisome picture. Many of the independent operators are facing steep declines in output due to aging fields, underinvestment, and technical constraints.
For instance, Seplat and Renaissance may be leading the charge in operated positions, but the broader peer group is struggling to maintain consistent production growth. Several operators remain hampered by project delays, cash flow limitations, and infrastructural decay.
Moreover, gas monetisation, a potential lifeline for many firms, remains underutilised despite Nigeria’s vast reserves. ND Western is one of the few exceptions, leveraging its gas assets to strengthen its cost profile and boost revenue diversification. Still, industry insiders say more enabling policies and infrastructure are required to unlock the full potential of Nigeria’s gas.
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Policy support, tax incentives
In response to these challenges, the Nigerian government has introduced tax incentives aimed at reducing operating costs across the exploration and production (E&P) sector. The goal is to stimulate investment, particularly in the onshore and shallow-water segments, where production has become economically precarious.
However, stakeholders argue that incentives alone may not be sufficient.
“You need a comprehensive overhaul that includes better security of infrastructure, faster regulatory approvals, and a pricing framework that encourages local sales and exports,” said a senior executive at an independent oil firm. “Without these, even the most generous tax breaks won’t drive meaningful recovery.”
Welligence Energy’s data suggest that unlocking upside across the onshore portfolios, alongside gas monetisation, could significantly reduce unit operating costs and enhance net present value (NPV) for most producers.
But multiple bottlenecks – financial, technical and regulatory – continue to stall that progress.
For now, Nigerian independents are in a race against time. Whether through strategic partnerships, innovation, or a more robust policy environment, the path to sustained growth will depend on their ability to adapt quickly and overcome the rising cost curve that threatens to derail hard-won gains in the sector.
