Nigeria risks losing from $50bn IOCS’ spend on lack of reforms

International Oil Companies (IOCS) projected spend of about $50 billion on capital projects in Africa on new oil discoveries has presented them with abundant options, hence only countries with competitive systems will attract investments, experts say.

Analysts at Woodmackenzie, an oil sector intelligence firm, say capital spend on the continent has fallen to around $14 billion in 2020 due to COVID-19 and the resultant decline in oil prices. As prices slowly recover, capital spending could reach $50 billion in the next five years.

Osagie Okunbor, managing director, Shell Petroleum Development Company (SPDC) and country chair, Shell Nigeria, in a webinar organised by the Nigerian British Chamber of Commerce (NBCC) last Thursday, said a key priority for the country was to focus on strategies to manage threats to its national revenues.

Okunbor said in the face of declining revenues, Nigeria should manage its costs efficiently and enhance cash preservation initiatives, including import substitution and increasing local refining capacity to conserve foreign exchange. The oil industry too must reduce waste, digitise as part of cash preservation, and cost containment initiatives.

He called for deeper collaboration between the country and the sector to co-create a way out of current crises, enforce certainty of contacts and framework to support investment as well as carbon neural projects taking centre stage in deciding projects.

“Revenues in the medium and short term will still come from oil and gas, our cost of production today, which averages the mid-20s to $30. We need to bring that down to remain competitive,” he said.

Mele Kyari, group managing director, Nigerian National Petroleum Corporation (NNPC), is drumming this message home to operators. Local producers, according to him, are more guilty of inefficiency reporting higher production costs than IOCS.

Oil and gas sales used to account for about 70 percent of Nigeria’s revenue and 90 percent of dollar earnings, but these figures have changed due to fallen oil prices. Oil and gas sales accounted for 40 percent of Nigeria’s revenue in 2019. It is projected that in 2020, revenue will fall below 30 percent of projected earnings.

Going forward, we think we are going to see lower prices for much longer and less than $50 per barrel in 2024, said Austin Avuru, outgoing CEO of Seplat Petroleum Development Company.

“The days for oil and gas rental revenue being almost the sole source of funding the budget is gone, there needs to be a mental and practical shift,” he said.

The oil executive said Nigeria’s economic planners need to take a closer look at integration within the West African sub-region.

“We need to turn the oil and gas from rent-supporting industry to become an enabler for economic growth in West Africa. It should contribute much higher economic activity, which will in turn widen our tax base to support our budget,” Avuru said.