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…As FPSOs operate less than 50% capacity

Nigeria’s ambitious plan to double its oil output in the next two years faces a daunting array of challenges ranging from longstanding infrastructure issues to growing pressures on local firms to fill the gap left by international oil companies (IOCs) that have moved operations offshore.

The Nigerian government recently launched an initiative to increase the country’s oil production by a million barrels per day in the next 12 to 24 months.

The campaign has been tagged ‘Project 1 MMBOPD’ and is being spearheaded by the country’s upstream regulator – the Nigerian Upstream Petroleum Commission (NUPRC).

But analysts and industry insiders warn that the timeline is unrealistic given the nation’s current energy landscape.

“The initiative by the government underscores the urgency to reinvigorate the country’s ailing oil sector. Given the near-term challenges and evolving corporate landscape, we believe hitting the target in the timeframe will be a tall order,” a new report from Welligence Intelligence, a global market intelligence firm focused on the upstream oil and gas sector, said

Aiming high amid declining production

Nigeria’s oil production has declined by more than 40 percent since its peak in 2005, falling from 2.5 million barrels per day (bpd) to an average of 1.5 million bpd today, according to BusinessDay’s findings.

Further findings showed the onshore sector currently accounts for 45 percent of the total oil production, while the shallow-water and deep-water make up 25 percent and 35 percent respectively.

Analysts at Welligence Intelligence said the deep-water sector was once a growth engine, but investment in new projects has also dried up.

“Since deepwater output peaked at over 820,000 bbl/d in 2016, it has been in decline. Despite a decent hopper of tie-back and standalone projects, no greenfield deepwater project has been sanctioned in over a decade,” Welligence Intelligence said in its report.

Industry analysts say the focus has shifted to Nigerian independent oil firms like Oando, Seplat, First E&P, and Aiteo as major IOCs exit onshore and shallow water production in Nigeria

These local companies have been active in picking up assets from the majors since the early 2010s as industry data show their share of operated production has steadily increased from about 10 percent in 2010 to around 25 percent.

However, industry experts express doubts over whether these local independents have the financial and operational capacity to fully meet the ambitious target.

According to Welligence Intelligence, many of these firms struggle with onshore production challenges, especially in the oil-rich Niger Delta region.

“A majority of this peer group has struggled to unlock value from the acquired portfolios. A combination of onshore evacuation challenges, difficulty with accessing financing and limited operational capabilities have hampered development plans,” Welligence report noted.

“The independents exposed to the Eastern Delta have endured more challenges, particularly from evacuation, as losses along the export system (Bonny & Brass and their associated infrastructure) have been higher (10-20 percent) compared to losses in the Western Delta terminals (Forcados & Escravos), which have averaged (1-10 percent) in the last 12 months,” it further said.

Seplat Energy, for example, has emerged as one of the country’s top producers. Since its acquisition of OMLs 4, 38 and 41 from Shell in 2010, Seplat has significantly expanded its production. Recently, Seplat secured ministerial approval to acquire ExxonMobil’s joint venture portfolio in Nigeria. However, achieving further growth will require substantial investments.

“Achieving production growth from the acquired ExxonMobil portfolio will come at a cost,” Welligence report noted.

It said, “Although the company is one of the few independents listed on the London Stock Exchange (LSE) and has access to financing, it may look to bring in another partner if it plans to aggressively ramp up production in the near-term to reduce the pressure on its balance sheet.”

Deep-water projects and bureaucratic hurdles

Nigeria’s deep-water sector was once seen as the backbone of its oil growth strategy, with production peaking at 820,000 bpd in 2016.

Yet, investments in this sector have tapered off, with no new deep-water project sanction in nearly a decade. With the government’s 24-month timeframe for production growth, this lack of momentum in deep-water projects remains a major obstacle.

“The deepwater sector will remain core for the Majors in Nigeria. But production has been in decline over the years. As a result of the declining production base, all the Floating Production Storage and Offloading ( FPSO) are currently underutilised and operating at less than 50 percent capacity,” Welligence report said.

The Nigerian government is promoting tie-back projects in the deepwater sector, such as Shell’s Bonga North, TotalEnergies’ Preowei, and ExxonMobil’s Owowo, in hopes of bringing them online within the next six to 12 months.

But Welligence noted that these initiatives, if approved, are only expected to contribute an additional 300,000 bpd by the end of the decade, far from the one-million-barrel goal.

Infrastructure Deficiencies and Crude Theft Challenges

One of the most persistent issues facing Nigerian oil production is infrastructure decay, particularly in onshore and shallow-water sectors, which have suffered from frequent vandalism and crude theft.

According to Welligence Intelligence, crude theft and sabotage in the Niger Delta result in losses of between 10-20 percent in some areas, compared to lower rates of 1-10 percent in the Western Delta.

The impact of these issues is exacerbated by aging export lines and terminals. For example, Aiteo, which operates the Nembe oil terminal, has managed to boost production by over 50 percent this year, but transportation remains costly and unreliable.

“Barging crude oil as an alternative to pipeline transport is a stopgap at best, incurring costs up to five times higher than pipeline transport,” according to Welligence analysts.

Some firms, such as Eroton and Oando, are actively seeking alternatives to these traditional infrastructure networks. Eroton is working on a dedicated pipeline project called the Alternative Crude Oil Evacuation System (ACOES), but delays have hindered its progress.

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Without a more robust permanent solution to the evacuation challenges in the Eastern Delta, achieving these production targets will be daunting,” according to Welligence analysts