By YEMISI IZUORA
Nigeria is about reaping multiplier benefits of enhanced oil acreage development spearheaded by the Nigerian National Petroleum Company Limited, NNPCL, now operating as a CAMA company.
On July 1, 2022, the Company legally transformed into a company whose operations and activities are regulated under the Companies and Allied Matters Act, CAMA.
The NNPC’s transformation into a CAMA company follows the implementation of the Petroleum Industry Act.
Former President Muhammadu Buhari officially unveil the new NNPC Ltd on July 19.
The Corporate Affairs Commission, CAC, had on September 21, 2021, completed the incorporation of the NNPC Ltd in accordance with the provisions of the Petroleum Industry Act PIA, 2021, which was signed into law by former President Muhammadu Buhari on August 16, 2021, following its passage by the National Assembly in July of the same year.
Section 53(1) of the Petroleum Industry Act 2021, requires the Minister of Petroleum Resources to cause for the incorporation of the NNPC Limited within six months of the enactment of the PIA in consultation with the minister of Finance on the nominal shares of the company.
Before then Nigeria has grappled with oil production gap due to several factors, creating fears about generating revenue to support its budget.
This year alone Nigeria’s high budget deficit of N12.1 trillion is feared to broaden following the country’s underproduction of crude oil to the tune of 58 million barrels in the first four months of the year.
Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has shown the deficit is growing wider but then the NNPCL has further strengthened its scope to break the jinx.
While the country has a benchmark oil production of 1.69 million bpd for the year, Nigeria has barely managed to produce 70 per cent of that figure between January and April.
Nigeria has put measures in place to produce an average of 202.8 million barrels for the period under consideration, going by the budget projection, but the country was able to drill 144.8 million barrels, leaving a deficit of 57.94 million in the first four months.
With the production benchmark set by the National Assembly, Nigeria is supposed to have an output of 50.7 million barrels every month. However, it has fallen short consistently below that figure this year, even though it’s an improvement on production for most of 2022.
The Legislature had also increased Nigeria’s crude oil benchmark to $75 per barrel from the previous $70 per barrel, whereas the Federal Government anticipates the country will be able to fund the 2023 budget if Nigeria met the 1.69 bpd benchmark.
Form available data, Nigeria’s output was 39 million barrels in January, 36.5 million barrels in February and 39.3 million barrels in March. April was the most-hit in terms of the volume of oil drilled, with Nigeria only able to produce 29.95 million barrels out of the over 50 million barrels expected cumulative production for the month.
Nigeria’s crude oil production fell to a seven-month low of 998,602 barrels per day in April, after dedicated efforts to tackle oil theft and pipeline vandalism in the Niger Delta.
This was further escalated with the shutting down of oil platforms and declaration of force majeure by Exxon Mobil in Nigeria mid April, especially at the Qua Iboe asset.
The decision to declare force majeure followed an industrial action by the company’s in-house workers union, the company said in a statement in April. The NUPRC data revealed that the last time Nigeria had production less than 1 million was in August last year when it produced 972,394 barrels per day.
On January 3, former President Muhammadu Buhari signed the N21.83 trillion 2023 Appropriation Bill into law, the largest in Nigeria’s budget in history which was based on a N10.49 trillion revenue, N12.1 trillion deficit and N6.31 trillion estimate for debt servicing.
From the total revenue of N10.49 trillion, independent revenue had the highest share of N2.62 trillion, non-oil revenue had N2.43 trillion, while N2.23 trillion was expected from oil revenue.
The key assumptions included an oil price benchmark of $75 per barrel; exchange rate at N435.57 per dollar; oil production of 1.69 million barrels per day and inflation rate of 17.16 per cent.
Nigeria’s oil industry data further showed that Qua Iboe was hugely impacted in April, with production slumping from 4.2 million barrels in March to 1.9 million barrels. In Bonny terminal, production also fell from 3.2 million barrels total production in March to 2.2 million barrels in April.
Forcados also witnessed a fall from 5.7 million in March 2023 to 4.8 million last month, while Escravos reduced from 4.3 million barrels to 3.8 million barrels.
Data from the Organisation of Petroleum Exporting Countries (OPEC), in May unfortunately revealed that Angola overtook Nigeria to emerge top African crude oil producer for the month of April.
According to the April 2023 Monthly Oil Market Report (MOMR) published by OPEC, Angola recorded 1.06 million barrels per day (bpd) of crude production in April, up from 972,000 bpd recorded in March. However, Nigeria recorded an output of 999,000 bpd in April compared to 1.3 million bpd the previous month.
Aside other several challenges like the workers’ strike in April, Nigeria has had to battle the menace of oil theft and pipeline vandalism as well as waning investment in the oil sector.
Expanding Production Frontiers
The Nigerian National Petroleum Company Limited (NNPC) in a deliberate efforts officially kicked off the exploratory drilling campaign in Obi, Nasarawa State, with the assurance that the effort would contribute to its aspiration to grow the country’s crude oil reserves to 50 billion barrels, from the current 37 billion barrels.
At the ‘spudding’ of the Ebenyi-A Well, the first in the Middle Benue Trough, former President Muhammadu Buhari, said the move was in line with the ongoing campaigns for the exploration of crude oil and gas in the nation’s frontier basins.
Buhari, listed the assets the nation intends to explore as those in the Chad Basin, Dahomey Basin, Anambra Platform, the Calabar Embankment, Sokoto Basin, Bida Basin, Benue Trough as well as the Ultra-Deepwater Niger Delta.
He stated that the exploratory efforts were consistent with the commercial discoveries of hydrocarbons in the Kolmani area of the Upper Benue Trough.
“I am pleased to note that activities are currently ongoing to develop the Kolmani petroleum discoveries to commercial production to add to the nation’s considerable hydro-carbon assets.
“I am encouraged by the enormous work done by NNPC Limited to exploit the prospects in the Middle Benue Trough, leading to the event of today,” Buhari noted.
While lauding the commitment of the NNPC, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and other partners for their immense contributions towards making the event possible, the president expressed the hope that the consequent positive outcomes of the drilling campaigns will lead to greater prosperity and enhance overall energy security for Nigeria.
He added that the surrounding communities would particularly benefit from the value that would be created by the exploration and eventual production activities and admonished NNPC and its partners to take due care of the environmental consequences of the oil exploration activities and to mitigate the negative effects.
He further thanked the government and people of Nasarawa State- the host community- for their unfettered support and collaboration towards the success of the exploration campaign.
Also speaking, the Group Chief Executive Officer of the NNPCL, Mallam Mele Kyari, described the event as a special occasion, explaining that it was part of the execution of the president’s express mandate for the NNPC to pursue exploration in the frontier inland Basins with vigour.
Kyari added that the mandate targets growth of hydrocarbon reserves in the country with the ultimate aim of enhancing national energy security and associated economic benefits to the people.
While highlighting that exploration in the mid Benue trough commenced over a decade ago, he pointed out that since 2010, the NNPC had executed several geophysical activities, applied niche technologies and conducted integrated studies, leading to the firming up of the Ebenyi-A well.
The GCEO restated that findings were very indicative of potential commercial hydrocarbon discovery in the area.
“Today, we have mobilised the drilling rig to this site, here in Obi Local Government Area of Nasarawa State. We are optimistic that the positive outcome of this campaign will contribute to the national aspiration of increasing our hydrocarbon reserves from 37 billion barrels to 50 billion barrels, in the short to medium term and increase our crude oil production to a target of 3 million barrels (per day).”
He noted that the NNPC in conjunction with the NUPRC were committed to conducting exploration activities of the nation’s frontier basins that span the aforementioned basins using the best industry standards and technologies.
He further mentioned that the mobilisation for re-entry into the Chad Basin had commenced as directed by the president even as the NNPC progresses other activities in the Frontier Basins.
Kyari assured stakeholders that the NNPC will conduct the operation with the utmost care and attention to health, safety and environmental issues.
“We understand the responsibility that comes with exploring and exploiting natural resources, and we are committed to doing so in a way that will best benefits our country and its people.
“As NNPC Ltd we commit to leading practices and highest standards in the course of our operations and would be engaging in Impact Assessment studies during and after operations to mitigate possible effects of our exploration activities.
“We will also engage the host communities as major stakeholders and execute Community Assisted Projects in line with NNPC Ltd Corporate Social Responsibility policies and provisions of the PIA,” he added.
In his remarks, then Minister of State, Petroleum Resources, Timipre Sylva, stressed that the event marked another milestone in the decades of hydrocarbons exploration in the inland frontier basins.
The minister, who was represented by the NUPRC Chief Executive, Mr. Gbenga Komolafe, explained that the development underscored the efforts of government in ensuring that requisite investments were made in the frontier basins exploration in Nigeria.
He paid tributes to Buhari for mitigating energy poverty in the country as well as the NNPC board and the people of the state, stressing that he was sure of the success of the project.
Sylva added that one key function was to grow the hydrocarbons reserves of the country to 40 billion by 2030, stressing that the assets were being ‘derisked’ by the implementation of the Frontier Exploration Fund (FEF) under the PIA.
The minister explained that the spudding exercise would benefit from the fund to boost oil reserves and ensure energy security.
He added that the full benefits of the field must be extracted before the impact of the energy transition begins to take full hold. He also vowed to that the host community fund will also be extended to the people of the area in accordance with the act.
Governor of Nasarawa state, Abdullahi Sule, noted that though there had been speculation as to the presence of oil in the region, the discovery of the commodity in Kolmani with the president’s support has made Ebenyi a reality.
He appealed for rapid development of the field and called on the host community to see the project as theirs, stressing that if the right thing is done, a repeat of the Niger Delta situation will be avoided.
Executive Vice President, Upstream, NNPC, Adokiye Tombomieye, in his comments, noted that the oil well, Oil Prospecting Lease (OPL) 826, was taking off after the completion of the preliminary geological prognosis of the Keana prospect, which set the path for the commencement of drilling activities.
“Nasarawa state is on track to become an oil-producing state if our exploratory endeavour yields the expected discoveries. We are certain that the drilling campaign will be a success based on the data and hospitality we have received thus far,” he stated.
OPEC Slashes Nigeria’s Quota In 2024
In a deliberate measure to tighten the oil market, the Organization of Petroleum Exporting Countries, OPEC, has further pruned production of member countries.
Under the arrangement, Nigeria’s oil production quota was reduced by 20.7 per cent following OPEC+ member countries’ agreement to cut global oil production by 1.393 million barrels per day.
This comes just as OPEC+ member countries seek to achieve and sustain a stable oil market and to provide long-term guidance for the market.
Under the new production schedule agreed upon at the 49th Joint Ministerial Management Committee and the 35th OPEC and Non-OPEC Ministerial Meeting held in Vienna, Austria, over the weekend, Nigeria will see its quota decrease from January to December 2024.
Nigeria’s expected output quota for August, September, October, and November were 1.826 million bpd, 1.830 million bpd, 1.826 million bpd and 1.747 million bpd respectively.
The Director of Information at Nigeria’s Petroleum Ministry, Mrs Enafaa Bob-Manuel, on Monday in Abuja said, “Nigeria, Congo and Angola, also agreed that the highest production volumes of the last six months – November 2022-April 2023, be used as the basis to determine their 2024 quota. This is, however, subject to review in November at the 2nd annual meeting of the Joint Ministerial Management Committee,” she explained.
According to Mrs Bob- Mauel, it was also agreed at the meeting that the current OPEC quota would be maintained till the end of 2023.
Meanwhile, Leader of the Nigerian delegation to the conference and Permanent Secretary of the Ministry of Petroleum Resources, Gabriel Aduda, who was also confirmed the OPEC Governor for Nigeria at the meeting in Vienna, said:
“Nigeria can ramp up its production up to its current quota of 1.742 million barrels per day and subsequently be capped at 10% less as its quota for 2024 subject to verification by independent secondary sources.”
Aduda expressed confidence that the ongoing security intervention under the leadership of President Bola Ahmed Tinubu would enable the restoration of Nigeria’s production to the 1.580 million barrels per day.
The drop in the oil production quota by OPEC would be a constraint on its oil production and exports, which can have implications for government revenue, budget planning, and overall economic stability, as oil is a major source of income for Nigeria.
Recent data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) indicates that Nigeria’s crude oil production dropped to its lowest level in seven months, reaching 998,602 bpd in April this year. Analysts attribute this decline to critical export terminal outages.
Compared with February, the country’s oil production decreased by 23 percent, falling from 1.3 million bpd. On a year-on-year basis, it experienced an 18 percent dip from 1.21 million bpd. Consequently, Nigeria lost its status as Africa’s largest oil producer to Angola, as its oil output decline surpassed that of its OPEC peers in April.
According to a statement by OPEC, the required production level for Congo and Nigeria may be updated to equal the average production that can be achieved in 2024.
“Nigeria’s stated Production Plan in 2024 is 1,578,000 bpd subject to verification, and if verified then the number will be reflected as required production for 2024,” OPEC said.
Among other decisions reached at the 35th OPEC and Non-OPEC Ministerial Meeting, OPEC and its allies reaffirmed the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings; as well as the Charter of Cooperation, signed on 2 July 2019.
OPEC also reiterated the importance of Countries adhering to set rules and guidelines while subscriboing to sanctioning of those countries who produce above the required production level.
Analysts Sees Action As A Plus To Price Stability
Oil industry analysts have predicted that Brent prices could hit $100 by the end of this year as the new 1 million barrels a day bpd production cut Saudi Arabia announced on Sunday would further tighten the oil market.
The Organization of Petroleum Exporting Countries, OPEC+ producers decided to keep the current cuts until the end of 2024, while OPEC’s top producer and the world’s largest crude oil exporter, Saudi Arabia, said it would voluntarily reduce its production by 1 million bpd in July, to around 9 million bpd.
The Saudi cut could be extended beyond July, Saudi Energy Minister Prince Abdulaziz said on Sunday, describing the announced reduction as a “Saudi lollipop.”
“With Saudi Arabia protecting oil prices from sliding too low by cutting production, we think oil markets are now more prone to a shortfall later this year,” Commonwealth Bank of Australia analyst Vivek Dhar said in a note carried by Reuters.
Even if China’s oil demand is not as strong in the second half of this year as expected, Brent Crude futures are set to rise to $85 per barrel by the fourth quarter of 2023, Dhar added.
Early on Monday in Europe, Brent Crude traded at $77 per barrel, up by 1 per cent on the day.
ANZ analysts Daniel Hynes and Soni Kumari reiterated their $100 per barrel Brent target for the end of the year, saying that “Investors are likely to add bullish bets, comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles.”
“The oil market now looks like it will be even tighter in the second half of the year,” ANZ noted.
Goldman Sachs, which sees Brent at $95 per barrel in December, described OPEC+’s meeting as “moderately bullish” to its forecast and offsetting some bearish downside risks such as higher supply from sanctioned Russia, Iran, and Venezuela and weaker-than-thought Chinese demand.
Meanwhile, Saudi Energy Minister Prince Abdulaziz bin Salman defended the voluntary output cuts announced by some allied oil producers in April, which he noted were first criticized as likely to spike crude prices then, as failing to support them.
On April 3, several producers of the Organization of the Petroleum Exporting Countries and its partners collectively known as OPEC+ revealed a combined 1.66 million barrels per day of production declines until the end of this year.
This Sunday, they extended these measures through the end of 2024, with Riyadh announcing an additional 1 million-per-day voluntary and extensible drop, starting in July. The OPEC+ group otherwise collectively decided to stick to its targets for 2023, with production at 40.463 million barrels per day next year.
The news comes after months of macro-economic concerns including the collapse of several U.S. and European banks, a potential global recession, and a slower-than-expected recovery of Chinese demand weighed on oil prices in the first few months of the year.
On Sunday, the Saudi oil minister defended the voluntary moves as precautionary.
“It was just our sensibility, if you will call it, that the environment was not sufficiently allowing confidence to be there. So taking a precautionary measure tends to put you on the safe side. And it is part of the typical rhythm that we have installed in OPEC, which is being proactive, being preemptive,” Abdulaziz told CNBC’s Dan Murphy.
“That tool is with us. It doesn’t mean we have certainty that things will go sour or left or right.”
He noted that critics of the April voluntary cuts had accused OPEC+ of seeking to increase prices which would in turn stoke inflation — and then later “pedaled back again and said OPEC+ action failed to [rise] prices.”
The alliance has found itself repeatedly at odds with international consumers. The U.S., for instance, has proved a vocal critic, citing concern for the strain on households that are already battling high prices.
Abdulaziz also said he thinks the long-term framework changes agreed at Sunday’s OPEC+ meeting will lead to fairer quota-setting among producers who have increased or depleted their spare capacity.
OPEC+ now intends to have three independent analysts IHS, Wood Mackenzie and Rystad Energy study the individual capacity of each OPEC+ member, with an eye to inform their baselines — the starting level from which producers cut their output.
“Hopefully by mid-year next year, we will have new baselines and a way forward that makes it more equitable, more fair for everybody to assign for them production levels that is going to be commensurate with their capacities in the most transparent way,” the energy minister said.
Asked if the group can trust ally Russia, whose export levels have been opaque since the implementation of Western crude and oil product sanctions, Abdulaziz added: “Absolutely. But I always like [the] President [Ronald] Reagan line, ‘Trust but verify,’” noting the instrumental role of independent sources in assessing production.