The Nigerian upstream oil and gas upstream (‘the Industry’) is impacted by both global and local factors. However, given that militancy has been tamed by a relatively strong amnesty deal, the global oil market essentially defines the Industry’s near-term outlook. Key issues in the global space include geopolitics in the Middle East and North Africa, growing momentum in the United States of America’s shale production, weakening global economic trends from trade wars and the ability of the OPEC and NOPEC alliance to moderate the impact of rising global production on prices. The impact on Nigeria is definitely material, as the country has been enlisted for production quotas, following years of being exempt. This implies that investments in new projects or incremental production will be stunted in the near term. Nigeria’s already weak fiscal position could also worsen if current volatilities in the global space persist.
Despite the relative stability in the local oil market, regulatory uncertainties persist and represent a key deterrent to investments. Nevertheless, a possible solution to cash call burdens has been provided through a number of alternative funding strategies such as forward sale structured financing and contract financing. The Federal Government of Nigeria’s plan to divest some Joint Venture assets, may also provide opportunity for better managed work programmes at various oil fields, especially incremental production. By virtue of a higher level of untapped reserves, offshore production will shape the Industry’s prospects and possibly enable a growth beyond the 2million barrels per day mark. However, this will be contingent on strong oil prices, implying a stable global oil market in favour of low-cost producers like OPEC. Successful alternative funding arrangements, minimal disruption in the oil-rich Niger Delta as well as favourable regulations, are also key enablers for growth.
Agusto & Co.’s 2019 Upstream Report includes: