In 2011, Nigerian oil production stood at 2.55m bpd (of which 71% was offshore), accounting for 7.1% of total OPEC oil production (and 40% of West African offshore oil production). Since then, Nigerian oil production has been eroded by exposure to political risk factors and weaker commodity prices, dropping to just 1.54m bpd in 2016. What, then, is the outlook for Nigerian oil production in 2017 and beyond?

A Rose-Tinted Past?

Nigeria has been an oil producing country for almost 60 years and its first producing offshore field came onstream in 1965. In the following decades, Nigerian offshore E&P was focused almost entirely in the shallow waters of the Niger Delta. Even today, there remain 104 active shallow water fields in Nigeria producing via 263 fixed platforms with an average age of 25 years. It was in the late 1990s that Nigerian E&P began moving further from shore, as oil companies sought new reserves to offset decline at mature shallow water fields. Deepwater fields were also less vulnerable to the militant activity plaguing the Delta for much of the 2000s. The first deepwater discovery in Nigeria was Abo, in 1996, which was the first such start-up too, in 2003. As of March 2017, 40 fields in water depths of at least 500m had been found off Nigeria, of which 10 had been brought onstream via a total of seven FPSOs and 253 subsea trees.

A Risky Proposition?

However, were it not for deleterious influences on Nigeria’s upstream sector in the last 10 or so years, deepwater E&P in the country could now be more prevalent still. The foremost difficulty has been the Petroleum Industry Bill (PIB), which was first introduced to the Nigerian Parliament in 2008 and which has yet to be passed. An especially contentious issue is mooted changes to deepwater fiscal terms, which IOCs argue would render deepwater projects (where breakevens tend to fall in the $60-90/bbl range) unviable. An uncertain investment climate has been compounded by court cases arising from alleged improper practices, for example at OPL 245, host to the stalled ZabaZaba project(100,00 bpd). So there have been few deepwater FIDs and just three such field start-ups off Nigeria since 2009 (versus 20 off Angola). There has thus been little deepwater oil production growth to offset onshore or shallow water field decline.

Stability Or Volatility?

Uncertainty about the PIB remains, but in 2016, disruption caused by militants, notably the Niger Delta Avengers, came to the fore: attacks on oil infrastructure saw oil production dip below 1.25m bpd at times in 2016. Moreover, weaker oil prices have hit government finances and so its ability to dampen unrest. Production recovered slightly in Q4 but conditions in the Delta remain febrile. And if oil production does continue to ramp back up to over 2.0m bpd, it could imperil gains in the oil price that followed the OPEC deal (Nigeria is exempt from quotas). If prices cannot climb above $60/bbl, there is little prospect of Nigerian deepwater projects (of which there are 13 with a total oil production capacity of over 0.81m bpd yet to be sanctioned) hitting FID any time soon.

So in the short term, Nigeria could prove a key factor in the global oil price equation. And in the long term, undoubtedly the country has a great deal of deepwater potential; however, before this is likely to be realised, numerous challenges need to be overcome. Nothing is certain.

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