Exploration Analysis

Nigeria is the largest oil producer in Africa, pumping more than 2 MMBOPD in 1993, and holds reserves of oil (40 billion barrels) and gas (260 TCF) rivaled only by Libya. In view of the immense hydrocarbon potential in the country, it might be expected that Nigeria would represent the primary destination in Africa for foreign petroleum investment funds. For a number of reasons, this is far from being the case.

The oil industry in Nigeria is the backbone of the economy, with oil producing 96% of foreign exchange earnings. The Nigerian government needs to protect, diversify and, if possible, expand oil sector earnings capacity wherever possible. However, the state oil company, Nigerian National Petroleum Corporation (NNPC), which has a 60% interest in all of the main oil and gas ventures, has recently encountered great difficulty providing its share of joint venture funding, causing major projects to be delayed or even canceled.

Despite the relative maturity of the Niger Delta Basin, substantial oil and gas discoveries continue to occur, with an exploration success rate of over 40%. The onshore and shallow offshore areas have proved to be so prolific that deepwater blocks with potential for giant accumulations have only recently begun to be evaluated. Since exploration and development of these blocks will require the largest expenditures and the most advanced deepwater technology ever seen in Africa, these plays are likely to be the exclusive domain of the international majors such as Shell, Mobil, Chevron and Elf. Because NNPC does not have the financial resources to assure the funding of its majority interest in these joint ventures, foreign firms are absorbing all the risk in production sharing contracts in order to proceed.

Foreign investment in the Nigerian oil and gas sector is officially encouraged by the government, and is well accepted by the general public. Nonetheless, the business environment presents many difficulties. The military government is unpopular and public unrest in the form of strikes and riots is commonplace. Bureaucracy is present in every sector of the economy creating wastefulness and delay. Policy shifts and regulatory changes without advance notice are everyday occurrences, making budgeting and production scheduling very difficult.

Another major problem for the new investor in Nigeria is the limited availability of acreage and the lack of opportunities for farm-in or production purchase. Following the 1991-1994 awards of blocks resulting from the competitive bidding process and the ensuing out-of-round awards, there is virtually no acreage available in the productive and prospective parts of the Niger Delta. Furthermore, the existing productive acreage is operated by majors such as Shell, Mobil, Chevron and Elf, and they require no financial or technical assistance to develop their properties.

Fortunately for the prospective foreign investor, most of the indigenous Nigerian companies who were awarded blocks following the 1991 bidding round lack the financial and technical capability to explore and develop their blocks. This has created an opportunity for foreign investors and is the mode of entry taken successfully by some companies. Another potential opportunity is presented by NNPC, which is a 60% holder in joint venture agreements with foreign companies, but is unable to meet its obligations in funding its share of major joint ventures. In order to meet its ambitious targets for increased production and reserves development, NNPC is bound to be receptive to proposals from foreign investors.

Nigeria has an extensive petroleum infrastructure but its industrial and transportation infrastructure is both inadequate and poorly maintained. It is, however, the major service and supply centre for the entire West African oil and gas sector and a full range of exploration and production services is readily available. Although there is only a limited pool of experienced technical and professional personnel, companies operating in the country are under increasing pressure to replace expatriates with indigenous staff. Given the shortage of such personnel companies are becoming increasingly obliged to undertake extensive and expensive training programs.

The attractiveness of Nigeria to the prospective investor resides entirely in its immense hydrocarbon endowment and the outstanding productivity of its oilfields. In most other aspects of significance to the foreign investor such as the availability of opportunities, fiscal terms and general business environment, Nigeria leaves much to be desired.

For more information contact:

Leslie Sears
Petrel Robertson Consulting Ltd.
500, 736- 8th Avenue S.W.
Calgary, Alberta
T2P 1H4

Phone: (403) 218-1618
Fax: (403) 262-9135

This summary, part of Petrel Robertson’s 1995 summary of exploration and development opportunities in 31 countries around the world, has not been updated. Some of the information, particularly relating to political and economic issues, is thus out of date. It is included, however, to demonstrate the breadth and depth of Petrel’s work in each of these nations.

Copyright © 2014 Petrel Robertson Consulting Ltd.