Nigeria’s oil production continues to struggle, failing to meet both budget benchmarks and OPEC quotas, placing significant pressure on industry regulators and operators.
The hostile operating environment has led investors and international contractors to reconsider their positions in the country.
Production Shortfall and Revenue Loss
The OPEC oil production quota for Nigeria is set at 1.5 million barrels per day.
However, the latest data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) reveals a production shortfall of over 3.011 million barrels in the first five months of the year.
This shortfall translates to a revenue loss of over $264.97 million (approximately N400 billion) using an average Bonny Light price of $88 per barrel.
Nigeria’s oil output has dropped to around 1.2 million barrels per day, down from a peak of 2.5 million barrels per day in the early 2000s. Industry experts warn that the situation may worsen if drastic measures are not taken.
Impact on Government Revenue
Experts project that the production shortfall could push the oil revenue deficit to N1.0 trillion by the end of the year, significantly affecting the government’s budgeted N15.7 trillion revenue for the 2024 fiscal year.
The Federal Government has already indicated that it may not achieve its proposed revenue estimate due to the underperformance of the oil sector.
The Finance Ministry, in its report titled “Accelerated Stabilisation and Advancement Plan (ASAP),” stated, “Our ability to achieve the 2024 budgeted revenue step-up of 77.4 per cent from 2023 actual is at risk should oil production remain 27.0 per cent below budget.”
Infrastructure and Investment Challenges
Nigeria’s oil industry faces severe output constraints due to infrastructure decay and a lack of investment in exploration and production.
Data shows that average oil production has fluctuated but generally declined: January saw 1.43mbpd, February 1.32mbpd, March 1.43mbpd, April 1.28mbpd, and May 1.25mbpd.
The Chairman of the Independent Petroleum Producers Group (IPPG), Mr. Abdulrazaq Isa, highlighted the dire situation, stating, “This is way below our capacity as a nation and by all globally acceptable standards, this reserves-to-production ratio is extremely low and a clear indicator that the industry is in a dire situation.”
Urgent Measures Needed
Isa outlined four priority areas to improve oil production: concluding pending IOC divestment transactions, addressing deepwater development issues, adopting a national value-retention strategy, and developing Nigeria’s gas resources.
NNPC Limited Group CEO, Mallam Mele Kyari, emphasized the need to replace obsolete pipelines and improve rig utilization to enhance production.
“We are talking about increasing production but rigs come here, stack up in deep water, and they drill one well and leave. This is why there are no guarantees around rigs in this country,” Kyari said.
Government Initiatives
The Special Adviser to the President on Energy, Mrs. Olu Verheijen, noted that three Executive Orders issued in February 2024 aim to boost the industry.
These orders include tax incentives, local content compliance, and reductions in contracting costs and timelines. Verheijen stated, “The directives will instil confidence and stimulate the economy by making the Nigerian environment more appealing for energy projects.”
Boosting Sector Activities
As part of efforts to boost sector activities, NUPRC has added 17 new deep offshore oil blocks to the 2024 oil bid round, bringing the total to 36.
These blocks, located across the onshore Niger Delta, Continental shelf, and deep offshore, are expected to increase reserves and boost production.
Oil and gas governance expert Henry Adigun emphasized the need to tackle oil theft and pipeline vandalism to restore investor confidence.
“The government has a lot to do to improve incentives and get the majors investing again. We need a lot of production to meet domestic demands and also for export,” Adigun said.
