About 2.97 billion barrels of crude oil have been saved onshore globally as of Sept. 5, the least since January 2020 earlier than Covid-19 eviscerated demand, in response to knowledge analytics agency Kayrros.
Nigeria’s onshore oil producers, as soon as buoyed by rising stakes within the nation’s divested upstream belongings, are actually feeling the warmth of escalating operational prices, a pattern that’s threatening profitability and jeopardising the nation’s goal of ramping up crude output.
Based on business knowledge from Welligence Power Analytics, declining manufacturing throughout onshore portfolios, the place independents now dominate, has pushed common unit working prices (UOC) into the double-digit vary, severely squeezing margins and stalling funding within the upstream sector.
Since 2020, a wave of asset divestments by worldwide oil corporations (IOCs) has shifted manufacturing tasks to Nigerian independents. These homegrown corporations, together with Seplat Power, ND Western, Aiteo, Heirs Holdings, and Renaissance, now account for roughly 50 p.c of Nigeria’s oil and 70 p.c of gasoline output.
Nonetheless, whereas their footprint has grown considerably, their challenges have additionally doubled.
Learn additionally: Nigeria exports first oil shipment from Otakikpo onshore terminal
Rising prices amid decrease volumes
The report highlights that corporations like Aiteo, Newcross, Belemaoil, and Eroton, which function primarily onshore, are grappling with greater UOCs resulting from dwindling manufacturing and elevated reliance on costly different export routes corresponding to barging.
“Declining manufacturing and the adoption of other export choices like barging have led to rising unit working prices, notably throughout the onshore portfolios like Aiteo, Newcross, Belemaoil and Eroton,” analysts at Welligence Power Analytics stated.
They added, “Unlocking the massive untapped oil upside throughout the onshore portfolios will drive down the working profiles for many, and gasoline monetisation will additional enhance UOC/boe profiles, however a number of bottlenecks nonetheless exist.”
“Decreasing working prices can be crucial for the federal government, with tax incentives handed just lately to incentivise value discount throughout the E&P sector,” Welligence Power Analytics stated.
Different analysts stated operators are turning to much less environment friendly logistics to maneuver their barrels, inflating their value base as pipeline insecurity and crude theft stay persistent issues.
“Declining output means mounted prices are unfold over fewer barrels, pushing up the fee per unit,” an business analyst instructed BusinessDay.
“Once you add infrastructure bottlenecks, sabotage dangers, and the rising value of safety and logistics, the economics change into very difficult.”
BusinessDay’s findings confirmed unit working prices for a lot of independents now vary from $15 to over $35 per barrel of oil equal (boe), inserting pressure on producers in an setting the place oil value volatility and tight capital markets are already limiting reinvestment.
Bayo Ojulari, group chief government officer of the Nigerian Nationwide Petroleum Firm Restricted, attributed the nation’s excessive oil manufacturing value to large safety investments aimed toward safeguarding crude oil pipelines within the Niger Delta area.
Ojulari, who spoke in an interview with Bloomberg on the sidelines of the ninth Organisation of Petroleum Exporting International locations Worldwide Seminar in Vienna, stated Nigeria’s present value of crude manufacturing has surged to as excessive as $30 per barrel, greater than double the worldwide common.
“The price of crude manufacturing is split into two: the capital value and the working value. The working value proper now in Nigeria is hovering over $20 per barrel, which is sort of excessive. A part of the rationale for that’s due to the funding we’ve needed to make by way of the safety of our pipelines, which is now 100 per cent obtainable,” Ojulari stated.
Manufacturing decline
Regardless of Nigeria’s ambition to boost oil manufacturing by at the very least 1 million barrels per day (mbpd) by 2026, the present efficiency of its onshore phase paints a worrisome image. Lots of the unbiased operators are going through steep declines in output resulting from getting old fields, underinvestment, and technical constraints.
As an example, Seplat and Renaissance could also be main the cost in operated positions, however the broader peer group is struggling to take care of constant manufacturing development. A number of operators stay hampered by challenge delays, money move limitations, and infrastructural decay.
Furthermore, gasoline monetisation, a possible lifeline for a lot of corporations, stays underutilised regardless of Nigeria’s huge reserves. ND Western is among the few exceptions, leveraging its gasoline belongings to strengthen its value profile and enhance income diversification. Nonetheless, business insiders say extra enabling insurance policies and infrastructure are required to unlock the total potential of Nigeria’s gasoline.
Learn additionally: NUPRC rejects Shell’s $1.3bn onshore asset sale to Renaissance
Coverage help, tax incentives
In response to those challenges, the Nigerian authorities has launched tax incentives aimed toward decreasing working prices throughout the exploration and manufacturing (E&P) sector. The purpose is to stimulate funding, notably within the onshore and shallow-water segments, the place manufacturing has change into economically precarious.
Nonetheless, stakeholders argue that incentives alone is probably not ample.
“You want a complete overhaul that features higher safety of infrastructure, quicker regulatory approvals, and a pricing framework that encourages native gross sales and exports,” stated a senior government at an unbiased oil agency. “With out these, even probably the most beneficiant tax breaks received’t drive significant restoration.”
Welligence Power’s knowledge recommend that unlocking upside throughout the onshore portfolios, alongside gasoline monetisation, might considerably cut back unit working prices and improve web current worth (NPV) for many producers.
However a number of bottlenecks – monetary, technical and regulatory – proceed to stall that progress.
For now, Nigerian independents are in a race towards time. Whether or not via strategic partnerships, innovation, or a extra sturdy coverage setting, the trail to sustained development will depend upon their potential to adapt rapidly and overcome the rising value curve that threatens to derail hard-won positive factors within the sector.
