LOOKING AHEAD: Nigeria still searching for an answer to its problems

• Date: 01 February 2017
• Published date: 01 February 2017
• DOI: http://doi.org/10.1111/oet.12459

LOOKING AHEAD

Nigeria still searching for an answer to its problems

Aer a year of mounting debts and falling production,

the Nigerian government is taking a new approach to

managing the country’s oil industry with a new upstream

nancing scheme and what it describes as a serious

attempttoputanendtotheattacksonoilinstallations

that have robbed it of more than 10% of its produc-

tion. Measures are als o being taken to revive explor ation

in an eort to stem an expected decline in reserves.

e Federal Ministry of Petroleum Resources forecasts

a rise in production this year of 0.3 mn bpd over 2016,

to 2.2 mn bpd, with further increases annually in subse-

quent years. All this depends, however, ont he successof

the government’s latest measures: success that is by no

means assured.

Falling output

For some years, Nigeria has been unable to full its

potential as Africa’s largest producer of crude oil.

Indeed, for parts of 2016 its output was actually below

that of the second largest producer, Angola. Ambitious

plans to increase production have faltere d owing to a

combination of corruption and ineciency on the part

of the authorities and more t han a decade of attack s

on pipelines and other infrastructure that have at times

reduced the produ ction of crude oi l to 1 mn bpd. Last

yearoutputwasaslowas1.4mnbpd,formuchofthe

third quarter [1]. Output for the year as a whole was

1.6 mn bpd: down 0.3 mn bpd, or 16%, on the previous

year (see Tab l e K ).

Many of Nigeria’s production problems stem from

the government’s management of the oil industry. For

years, oil companies involved in pro duction there have

complained of corruption and ineciency. In 2015,

the countr y’s current Pres ident, Muha mmadu Buha ri,

stoodforelectiononananti-corruptionticket,andaer

hisvictory,hepromisedtodealwiththeoilindustry’s

problems, beginningwith the illegal sale of an estimated

250,000 bpd of crude oil through scams said to involve

criminal gangs and government ocials [2].

Many problems had their origins in the poor rela-

tions between the government and most oil producers

in Nigeria, which were brought about by disagree-

ments over tax and other upstream terms, plus the

failure of successive governments to pay their share

of the state-owned Nigerian National Petroleum Cor-

poration’s (NNPC) expenses arising from NNPC’s

participation in upstream joint ventures with foreign oil

companies.

Table K

Nigeria: Oil Prole, 2016

Proven Reserves 37.1 bn bbl∗

Reserves Remaining 53.3 years†

(mn bpd)

Production

Crude 1.6

NGL 0.3

Total 1.9

Production Capacity‡

Total 2.4

Spare Capacity 0.8

Consumption

Total 0.5

Net Exports

Total 1.4

∗As of 1.1.17

†Based on 2016 production

‡Crude oil only

Totals rounded

Source: (Reserves) Oil & Gas Journal;

(Capacity) Federal Ministry of Petroleum Resources;

(Other) Author’s estimate

Debt problems

At the end of 2016, the government owed nearly $7bn

to its foreign oil part ners. Both sides have agreed to

reduce the amount to $5.1 bn and the joint ventures are

being reconstituted as self-nancing entities, which will

fund themselves independently from the government

and meet their expenses from their production.

Problems over unpaid debts and general dissatis-

faction over the management of the oil industry have

prompted several foreig n companies to relinquish

acreageinNigeria,leadingtoafallinproduction.

NNPC estimates that production from the joint ven-

tures has dropped by about 0. 4 mnbpd, or a qu arter, to

1.2 mn bpd.

e government encouraged private Nigerian oil

companies to take-up the acreage given up by foreign

rms,withtheaimofreplacingtheoutputthatoth-

erwise would have been lost. It was hoped that these

local companies would be able collectively to produce

0.5 mn bpd within a few years; but several of them have

run into nancial diculties as a result of borrowing

heavily in order to fund their asset purchases from the

foreign oil rms. A number of defaults have occurred.

Somesmallcompanieshavetriedtosellassetsorequity

stakes to service their debts only to nd there are no

takers. Some rms have even collapsed.

Attempts at renancing have generall y gone nowhere.

Dollar funding is unavai lable and what little borrowing

© 2017 John Wiley& Sons Ltd