Nigeria’s Frontier Exploration Fund created to finance the exploration of crude oil and gas in Nigeria’s inland basins is facing increased scrutiny following the nation’s oil output decline to its lowest levels in decades.
The Nigerian National Petroleum Company (NNPC) is aggressively searching for new oil deposits in the nation’s frontier basins in a race to raise oil reserves to 40 billion barrels by 2025 from 37.5 billion barrels currently.
The NNPC’s insatiable quest for finding oil in the North is built on a certain premise that the country’s frontier basins hold vast deposits of fossil fuels judging from discoveries made in similar terrains in neighbouring countries.
However, they are often difficult terrains compounded by security challenges, hence the development of a special fund. It is to be funded by 30 percent of the NNPC’s annual profits.
Industry experts have questioned the secrecy behind this journey that is costing Nigeria millions of dollars despite warnings by petroleum engineers, investment experts and geologists who insist that previous searches have not guaranteed any commercial find.
“It’s worth investigating how much has been in the Frontier Exploration Fund; what tangible work has been done, knowing that it has almost been a dead end,” a senior oil executive in the oil and gas sector said.
He added, “From Gongola Basin to Chad Basin, we spent tons of money. And the returns are just not there. No return.”
BusinessDay’s findings showed Nigeria’s inland basins consist of Anambra Basin, Dahomey Basin, Bida Basin, Sokoto Basin, Chad Basin and Benue Basin.
“The secrecy surrounding the spending plan of the 30 percent Frontier Exploration Fund is a major concern,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said.
“Without transparency, it’s difficult to assess how the fund is being spent.”
Section 9, subsection 4 of the Petroleum Industry Act (PIA) states that, “There shall be maintained, for the purpose of this section, a Frontier Exploration Fund which shall be 30 per cent of NNPC Limited’s profit oil and profit gas in the production sharing, profit sharing and risk service contracts.”
It adds that, “NNPC Limited shall transfer the 30 per cent of profit oil and profit gas under subsection (4) to the Frontier Exploration Fund escrow account dedicated for the development of frontier acreages and utilise the funds to carry out exploration and development activities in the frontier acreages subject to appropriation by the National Assembly.”
The PIA further states that the Fund, constituting 30 percent of the NNPC’s ‘profit oil and profit gas’ from various contracts, will finance exploration and development activities in these frontier acreages.
Data sourced from the Nigerian Upstream Regulatory Commission (NUPRC) showed in the Chad Basin, the NNPC plans to conduct a comprehensive 3D seismic survey covering 300 square kilometers.
This will be complemented by 2D seismic reprocessing and acquisition, as well as various geophysical studies, including magnetotellurics and micromagnetic analysis. The company will also invest in data integration, geological services, and community engagement initiatives.
The focus in the Benue Trough will be on 2D seismic reprocessing and interpretation. The NNPC aims to gain a better understanding of the subsurface geology in this region, which has potential for hydrocarbon discoveries.
Unviable projects
In the Anambra Basin, the NNPC will undertake 2D seismic acquisition and reprocessing, along with other geophysical studies. This basin is considered a promising frontier for hydrocarbon exploration, and the company’s efforts are targeted at unlocking its potential.
“If you do the cost-benefit analysis, you can see that it is not viable in the short and medium term,” said Henry Boise, petroleum economist at Emerald Institute for Petroleum and Energy Economics, Policy Strategy, University of Port Harcourt.
His views are equally supported by Toyin Akinosho, publisher of Africa Oil and Gas Report, a magazine focusing on the petroleum sector.
Akinosho warned against the wasteful involvement of the NNPC in the presumed search for oil prospects in the six inland basins.
The publisher, who is also a geologist with several years of working experience with Chevron, said though the international oil companies (IOCs) are not interested in getting involved in exploration activities in that region, they prefer to concentrate their energy and resources in deepwater operations, having gradually moved out of onshore prospects as a result of attendant security challenges.
“The self-evident truth is that when it comes to basic E&P operations, the NNPC has proven to be incapable of delivering,” Akinosho said in a note.
He said, “It is neither fashionable, professional nor sensible for governments around the world to risk hard-earned profits on exploration efforts, let alone frontier Basins. The practice is to create a system to make that happen with private funds. Nigeria did something like that in 1993, which led to Shell’s gas discovery in the Kolmani-1 well in Bauchi area.”
Need for close monitoring
Ogbonnaya Orji, executive secretary of Nigeria Extractive Industries Transparency. Initiative (NEITI), pointed out that certain issues are key in the extractive industry, including the 30 percent Frontier Exploration Fund and the Host Community Development Fund.
He said the stakeholders would be following the implementation of those funds by tracking their utilisation for transparency and accountability.
“NEITI is tracking this very closely. We are not involved in the implementation of that particular provision,” Orji said at a stakeholders’ forum in July.
House of Reps’ intervention
The House of Representatives, in June 2024, resolved to investigate the status of the oil exploration activities of NNPC in the Kolmani Oil Field covering Gombe and Bauchi States, alleged to have attracted $3 billion foreign investment.
The decision on Kolmani Oil Field came as another lawmaker, Billy Osawaru, moved a motion for the investigation of the NNPC, alleging misappropriation of funds and spending without the required approval of the National Assembly, which he said contravenes the PIA.
He said NNPC flouted the laws governing the Frontier Exploration Fund by not seeking and obtaining the due appropriation and approval from the National Assembly.
The oil exploration in the Kolmani Oil Field is undertaken by the Kolmani Integrated Development Project inaugurated by the NNPCL in 2016.
However, the House of Representatives noted a lack of progress report on a project that was initiated eight years ago, which has attracted $3 billion foreign investment, covering a petro-chemical refining site, an oil refinery of 120,000 barrels per day (bpd), a gas processing site of about 500 million cubic feet per day, a fertiliser plant and a 300MW power plant.
Since the beginning of 2024, Nigeria’s crude production has remained between 1.2 million and 1.3 million bpd, falling short of both OPEC quotas and local demands, especially as the country looks to supply its struggling refineries.
OPEC’s most recent data shows that Nigeria’s oil production fell by 40,000 barrels per day to September. 1.35 million bdp as of August 2024.
