Nigeria faces more uncertainty as recession threatens $1.5bn oil and gas projects

Major oil and gas projects worth about $ 1.5 billion scattered around Nigeria may face more uncertainties as delays in the execution or sanctioning of these projects are expected to severely impact local companies who are expected to benefit from billions of dollars of subcontracting opportunities.

Nigeria is desperate to increase its oil revenue as a fall in foreign direct investment has put some strain on the country’s oil and gas sector, after the country sank into its second recession in less than five years, due to the effect of the pandemic-induced lower oil prices.

With the country in need of a miracle to solve its worsening economic situation, low hanging fruits such as major oil and gas projects which are expected to create thousands of new jobs, spur domestic gas demand, generate electricity, strengthen the country’s revenue base and turn Nigeria into a dominant geopolitical player in Africa using its gas resources – just like Australia, Russia or Qatar – are still awaiting Final Investment Decision (FID) despite huge economic challenges.

The projects include Bonga South-west Aparo with 630 million boe (barrel of oil equivalent) operated by Shell, Etan-zabazaba with a capacity of 510 million boe operated by Italian ENI, Preowei field with a capacity of 145 million boe operated by French major Total and HA gas project with a capacity of 210 million boe operated by Shell Petroleum Development Company of Nigeria Limited (SPDC).

Most risk experts and chief financial officers (CFOS) say these million-dollar projects expected to boost Nigeria’s oil production by as much as 875,000bpd and revenue by about $1.5 billion may all face funding crisis as a result of the slower economic activities and other macroeconomic challenges.

“Lower oil price, higher inflation, volatile in the exchange rate, policy uncertainties and economic recession are fundamentals that pose serious risks to these projects. It’s impossible for any major oil fields to breakeven with these challenges,” one senior CFO familiar with the matter told Businessday.

Another source told Busi

nessday that while the outcome of many large-scale projects remains unknown as companies continue to review their portfolios, few projects remain on track, either because they are considered low cost due to the size of the fields involved or because capitalintensive infrastructure has already been laid.

“There is no economic sense in taking FIDS on Bonga Southwest Aparo, Etan-zabazaba, and Preowei oil fields now because of the current economic challenges,” said Charles Akinbobola, an energy analyst at Sofidam Capital.

He noted that although there is a weak recovery of oil prices over the past few weeks, it’s not enough to change the big companies’ calculations while “slow bureaucracy of tedious regulatory process means we might not see any concrete decision on major oil fields this year”.

For the time being, most oil companies are moving to slow the pace of production, seeking to expand storage capacity and attempting to market their crude oil with the best sales and purchase agreements and financial hedging instruments

possible. However, most major companies have yet to finish reviewing their portfolios and declined to provide details about the impact the catastrophic economic downturn will have on their African projects.

Already, Eni and Total, the two international oil and gas majors with the largest presence in Nigeria, have already signalled 25 percent cuts to their investment in exploration and production projects in 2020.

According to independent energy research and business intelligence company Rystad Energy, the start-up dates of Nigeria’s major hydrocarbon developments are projected to be postponed by between one and three years.

Although Rystad noted that nothing is o fficial yet, timeline delays for project start dates vary from one to three years depending on the case.