Nigeria oil reserves remain stagnant for 12 years
Nigeria, Africa largest oil producing country is far from attaining its full potentials in its oil and gas industry as its proven oil reserves are not rising to replace as much oil as it pump on a daily bases due to lack of exploration of and decreased investment in the sector over the past years.
The reserves replacement ratio, measures how many new barrels come in to replace the ones pumped out.
“In the last two years Nigeria’s reserve replacement ratio has declined significantly. Low oil price means most IOCs cut back on exploration activities and thereby further reducing replacement ratio,” Jubril Kareem, energy analyst at Ecobank Plc, told BusinessDay. “We expect some recovery in the short to medium term as higher crude oil price will trigger more exploration activities.”
Reserve-replacement ratio is a metric used by investors to judge the operating performance of an oil and gas exploration and production company.
In the last twelve years, Nigeria’s oil reserves and daily production had remained almost stagnant hovering in the region of 37 billion barrels and two million barrel production day (bpd) respectively, data from Organisation of Petroleum Exporting Countries (OPEC) showed.
A 10-year target set by the Federal Government to boost crude oil reserves to 40 billion barrels and daily production to four million by 2020 is becoming unrealistic as analysts says corruption and government shenanigans have decreased growth in the sector.
According to statistics from OPEC, Nigeria oil reserve decreased to 36.247 billion in 2011 from 37.200 billion recorded in 2010, while in 2012 there was relative improvement to 37.139 billion but went down again to 37.071 billion in 2013. In 2014, it stood at 37.448 billion before sliding down to 37.062 in 2015 while in 2016 it stood at 37.453 billion.
According to the BP annual statistical bulletin released June 2017, OPEC member Iran has increased its oil reserves from 138 billion barrels in 2006 to 158 billion barrels in 2016. Iraq has moved from 115 billion barrels in 2006 to 153 billion barrels in 2016. Saudi Arabia has moved from 264.3 billion barrels in 2006 to 266.5 billion barrels in 2016.
In this time period (2006 – 2016) total African reserves increased to 128 billion barrels from 116.9 billion barrels largely led by Angola and Libya.
“Just like savings and earnings, the oil reserves and daily production are vital to creating energy security, increasing the income from crude oil, boosting economic development and showcasing an index that is capable of wooing investors into the country,” a Lagos based oil and gas analyst told BusinessDay.
Also, Nigeria average daily oil production dropped to 1.975 million barrels per day in 2011 from 2.048 million bpd in 2010, it dropped further in 2012 and 2013 to 1.954 million bpd and 1.754 million bpd respectively.
In 2014, there was a slight improvement to 1.807 million bpd although it declined again to 1.748 million bpd in 2015.
In 2017, oil production moved up to 1.6 million bpd from the 1.4 million bpd recorded in 2016.
Similarly, the level of active rigs which indicates the level of exploration, development and production activities occurring in a nation’s oil and gas sector as at 2010 stood at 35, it moved to 38, 44 and 59 in 2011, 2012 and 2013. The figure dropped to 46 in 2014, 29 in 2015 and eventually crashed to only nine in 2016.
The analysis above showed Nigeria’s oil and gas reserves replacement ratio which is essential in driving its exploration and development activities has been flat in the last 10 years despite its other state owned peers like Mexican oil company Pemex and Brazil’s Petrobras both recording improvement in 2017.
Norway’s state owned Equinor produced an average of 2.134 million barrels of oil equivalent (mboe) per day. This represents an increase of 1.90 percent over the 2.095 mboe per day average in the fourth quarter of 2016. The company achieved a respectable reserve replacement ratio of 150 percent in 2017.
Pemex, the Mexican oil giant was able to replace 17.5 percent of the amount of oil and gas it produced in 2017, by adding 174.2 million barrels of oil equivalent (boe) in proven reserves during the same year.
Pemex’s 2017 replacement rate means that the company has enough proven reserves to keep pumping at its current pace for another 7.7 years, according to the filing to its Securities and Exchange Commission (SEC).
Even with a historical production record in 2017, Petrobras was able to replace 89 percent of the produced volume, mainly due to the drilling of new wells and better than forecasted behaviour from reservoirs in the pre-salt of Santos and Campos basins.
Rather than make progress, Africa’s top oil producer may be taking steps backward going by statistics from the Department of Petroleum Resources (DPR), which indicate that the country’s reserves declined by whopping 961.47 million barrels between 2012 and 2016 alone.
The Egina oil field located offshore Nigeria in oil mining lease (OML) 130 (expected to produce some 200,000 barrels per day), was discovered some 14 years ago showing lack of exploration in recent time.
People with deep knowledge of the sector say some of the constraints militating against exploration and development activities in Nigeria include delays in passing the Petroleum Industry Bill (PIB).
This has slowed down inflow of investments in the upstream by companies concerned about the effects of the PIB. Since IOCs divest from onshore assets, most acquiring indigenous companies have not spent significantly on exploration and development activities.
“It is getting difficult and the terrains are expensive. The bulk of the oil that remains freely accessible to international oil companies are technically difficult and more expensive to develop. Government policy has also hindered progress,” a source who works for one of the IOCs and does not want to be identified said.
Despite the conundrum in Nigeria, BusinessDay’s analysis of the financial reports of three publicly traded international oil companies such as British Petroleum (BP), Exxon Mobile and Chevron show aggressive race to replace prove oil and gas reserves annually.
In 2017, BP Plc pumped 3.6 million barrels of oil equivalent per day and incurred total exploration expense of $2.1 billion to achieve group reserves replacement ratio of 143 percent. Exxon Mobil pumped 4.0 million net oil equivalent barrels per day of production, added 2.80 billion oil equivalent barrels proved reserves with 53 million new exploration acres captured. Exxon Mobil’s exploration expenditure for 2017 cost $23.10 billion. Its exploration resource additions cost $3.38 billion.
Cheveron’s total capital and exploration expenditure in 2017 was $19 billion, with 11.20 billion barrels of net unrisked oil equivalent in the Permian Basin, USA, resources in 2017, with an additional 2.20 million net acres in the Permian Basin.
“Oil and gas reserves are clearly the most important assets that oil and gas companies have. The main objective of holding petroleum reserves is to generate future cash flows when they are extracted from oil and gas reservoirs and subsequently monetised,” Bard Misund, of the University of Stavanger Business School, Norway stated in research paper ‘Reserves Replacement and Oil and Gas Company Shareholder Returns’.
The Nigeria Natural Resource Charter (NNRC) estimated over $235billion as loss to the non-passage of PIB alone, while the U.K-based research institute, Consultancy Wood Mackenzie (WoodMac) has found that international oil companies like ExxonMobil, Chevron and Total would cut spending on oil and gas exploration for a fifth year in a row in 2018 in countries like Nigeria.
“The fact that Nigerian National Petroleum Corporation (NNPC) is behind in its capital expenditure (CAPEX) contribution to the joint ventures (JVs) is discouraging to companies,” Kareem concluded.