Nigerian elections maintain status quo as country struggles to raise oil output

• Published date: 01 April 2019
• DOI: http://doi.org/10.1111/oet.12675
• Date: 01 April 2019

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Nigerian elections maintain status quo as country struggles

to raise oil output

President Muhammadu Buhari has another shot at boosting

Nigeria’s oil and gas industry following his re-election in

February, though it is unclear if he will move forward with

all his proposed reforms.

In a general election on February 23, Nigeria re-elected

her current president, Muhammadu Buhari. The election was

meant to have been the week before, but the Independent

National Electoral Commission (INEC), postponed it, citing

logistics challenges. There was some unrest, but less than in

previous years. Fresh National Assembly members and state

governors have also been elected.

Oil is of crucial importance to Nigerian government

finances and the economy. It makes up only about 9%

1

of

Nigerian GDP, but it accounts for 88% of exports and up to

90% of foreign exchange income. Most analysts believe rev-

enue could be much higher if investment conditions were

improved for private companies; and regional unrest and oil

theft were reduced.

As it is, funds from the oil sector help sustain the current

political establishment. Some believe the return of Buhari as

president is good for the oil and gas sector because the same

people will be in charge of executing pending projects.

However, the willingness of majors to invest—a critical

component of most projects—is more likely to depend on

reform.

The reform package launched in 2015 by Buhari has

made little progress so far. It included an update of upstream

procedures (Petroleum Industry Governance Bill [PIRB]), a

revamp of the tax code and improved incentives for gas

development. President Buhari vetoed the PIRB in the sum-

mer of 2018, halting the process he instigated. Most put this

down to his unwillingness to lose discretionary powers he

held over the sector, which the reform would have

taken away.

The non-passage of the PIGB means there is still no insti-

tutional framework to guarantee returns on investment for

investors around upstream agreements, fiscal terms, and

production-sharing contracts. The reforms also aim to create

efficient governing institutions with clear objectives, which

would reduce the powers of the state Nigerian National

Petroleum Corp (NNPC). The government is under added

pressure to improve fiscal terms due to competition for over-

seas funds from other African oil producers such as Angola

and Gabon.

Without sufficient reform, overseas investment in the

country’s ambitious output expansion plans (to 3 mn bpd by

2023) are unlikely to materialize. The country’s oil ministry

has acknowledged that it needs to start prioritizing the

approval of oil projects with international oil companies and

review fiscal terms in order to develop deepwater oil fields.

The opposition candidate of the People’s Democratic

Party (PDP), Atiku Abubakar, (who was in power from

1999 to 2015) did call for the complete privatization of

NNPC and renegotiation of all Nigeria’s main production

sharing contracts (PSCs)—currently accounting for about

40% of the nation’s total output—during the election. There

is still a chance that some form of compromise approach

could be adopted by President Buhari.

1|PROJECTS IN THE PIPELINE

Nigeria’s crude and condensate production was just under

2 mn bpd in January, up sharply from close to a 30-year low

of 1.3 mbd in mid-2016, when unrest in the Niger Delta

disrupted output. The country has a target of 3 mn bpd, and

output will receive a boost this year as the offshore

200 000 bd Egina Field ramps up—the first new large pro-

ject in 6 years. Nigeria’s deepwater sector accounts for a

third of its output from five producing fields: Bonga Main,

Akpo, Agbami, Usan, and now Egina.

Overall, Egina was brought onstream at a cost of about

10% less than its initial development budget, which repre-

sents more than $1 bn in capex savings, due mostly to

improved drilling performance with drilling time per well

reduced by 30%. Total is operator at the field with a 24%

interest, while CNOOC holds 45%; Petrobras 16% and

Nigeria’s national oil company (Nigeria National Oil

Corp) 10%.

DOI: 10.1111/oet.12675

4© 2019 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/oet Oil and Energy Trends. 2019;44:4–15.