With oil production in Nigeria falling significantly short of the budget benchmark and allotted quota of the Organization of Petroleum Exporting Countries, OPEC, in 2023, the Nigerian Upstream Regulatory Commission, NURPC, has drawn out an ambitious plan to improve production by attracting more investment into the industry.
In the plan contained in a document titled: NUPRC Regulatory Action Plan 2024 and Near Term (2024 - 2026), obtained by Vanguard, the Commission said it aims to reduce current industry's per barrel production cost of $25-$40 to below $20.
The Commission observed that Nigeria has performed poorly in terms of attracting investments into the oil and gas industry which has in turn led to reduced crude oil production.
Latest data released by the Commission has indicated oil production fell by 7.4 percent to 1.25 million barrels per day in the month of November compared to 1.35bpd in October. Added to condensate oil, the data also showed that total production also dropped by 6.1 percent to 1.466mbpd last month compared to 1.56mbpd recorded in October.
NUPRC in the industry outlook document noted that "that Nigeria is a petroleum-rich province is a drum beaten loudly all too often. Although Nigeria's current crude oil + condensate and gas reserves stand at 36.96 billion barrels and 208.83 TCF, corresponding to a reserve life index of about 70 years and 94 years respectively, the realities of global energy dynamics clearly indicate that resource potentials mean little.
It stated that a joint study with Wood Mackenzie on investment trends in the Nigerian upstream oil and gas in the past 10-15 years indicated "a declining appetite for investment in Nigeria's oil and gas sector by the five leading international oil and gas companies (IOCs) operating in Nigeria since before the half-decade of the 19th century.
"Furthermore, increasing competition from regional peers indicates that Nigeria is attracting a decreasing proportion of the overall upstream investment in sub-Saharan Africa (SSA) - down from 44% of SSA's total in 2014 to 30 percent in 2022. Despite an expected global uptick in upstream capital investment, CAPEX in Nigeria is forecasted to grow to only $8.7bn in 2025 over the next six years, from 2023 to 2028. Sadly, 14 countries in SSA are forecast to attract more CAPEX relative to their resource potential than Nigeria".
NUPRC explained that several factors have been identified as the causes of investment apathy in Nigeria including unpredictability in acreage availability through licencing rounds, high cost of development and production, regulatory uncertainty, disruptions in operations due to community conflicts, security challenges and related social issues.
Other challenges, it stated, include fiscals and commercial issues such as contractual bottlenecks and fiscals for offshore and deep-water gas resources and small deep-water accumulations.
To tackle these, the Commission said a firm and clear regulatory agenda for the industry by the regulator on a regular basis is imperative to build investor confidence and improve global competitiveness.
"This Regulatory Action Plan (RAP) by the Commission is aimed to fill this gap and signpost to the industry and the world that the Upstream Regulator, although young in the eyes of the law, is ready and prepared, to take the bulls by the horns and successfully navigate the challenges; and deliver the objectives of the PIA for the benefit of all stakeholders".
The document revealed that "NUPRC will ensure 100 percent use of the National Production Monitoring System, NPMS, the Annual Work Programme Portal, the Dynamic Acreage Management System, DAMS, the HOSTCOMPLY, and the Oil and Gas Industry Service Permit, OGISP, automation tools by the Commission and the industry".
To promote ease of entry into the Nigerian oil and gas industry, the Commission said it will address the issue of high signature bonus to make the Nigerian environment attractive to investors.
"The Commission has paid close attention to the impact of high asset acquisition fees on the investment attractiveness of the upstream sector. A careful review of regional Signature Bonuses across the globe based on Welligence Energy Analytics (WEA) evaluation revealed that several Host Governments are dialling back from the traditional hefty signature bonuses paid for exploration blocks.
"That review showed that Latin America has been the most active region where signature bonuses paid for exploration blocks have been disclosed. In Brazil, for instance, where multiple license rounds have been organised in the last decade, Signature bonuses paid for deepwater blocks dropped from over US$ 6 billion paid for an exploration block in 2013 to an average of US$43 million in the round of 2022". The WEA's review recognised Guyana basin as one of the highly sought-after exploration basins globally and noted that in the recent license round the minimum signature bonus was US$10 million and US$20 million for shallow water and deepwater blocks respectively.
"Similarly, signature bonuses in regions like the Middle East (e.g. Israel) and North Africa, where blocks have been awarded recently, are estimated to be around US$10 million. In South-East Asia, for instance in Indonesia, signature bonuses are in the region of US$1 to 1.5 million while in Thailand's recent bid round, bidders were expected to offer at least US$3 million signature bonus. In Sub-Sahara Africa, on the other hand, signature bonuses paid for exploration blocks awarded in recent years have not been disclosed, but license bid rounds in Angola and Nigeria have attracted hefty signature bonuses in the past", according to WEA. For example, the Angolan Block, 15/06, raked in more than US$900 million in signature bonus in April 2006, as reported by Energy Intelligence, 2006.
"The import of the above narrative is to showcase the current disposition of several regional host governments towards entry fees such as signature bonuses which has a huge implication on the direction of flow of investments.
"Recognising that the era of front-loaded huge signature bonuses is over, the NUPRC, in the ongoing deep offshore licensing round, has become a lot more pragmatic in ensuring that entry fees do not become a barrier to entry for investment in exploration blocks offered. As a responsible regulator, the Commission will continue to review the prevailing global investment climate to ensure that the entry fees associated with all future licensing rounds are competitive in the context of global realities and energy transition imperatives and advise the government accordingly".
The Commission said it shall in 2004 implement identified measures to accelerate the execution of oil and gas development and production in Nigeria through fast-tracking of end-to-end approval processes, to expedite bringing barrels to market.
On the Host Community Trust Fund, the Commission said it shall in 2024 "establish a framework aimed at ensuring that host community trust funds established pursuant to the PIA embark on activities in their respective beneficiary communities aimed at ensuring peaceful operations by reducing significantly and ultimately eliminating all forms of disruptive agitations by host communities in the operational areas.
"To this end, the Commission shall, in collaboration with the settlors or the Trusts and the Trustees of the various Trust Funds institute a quarterly dialogue series with Settlors and the Trust Funds as a platform for proactive engagement between the Commission, the Settlors and the Trust Funds on all issues concerning the progressive implementation of the Trust objectives and the establishment of harmony and peace in the host community beneficiary areas.
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"In a similar vein, the Commission shall ensure the full functionality of the recently launched HOSTCOMPLY platform to ensure simplified administration of the HCDTs for easy and efficient oversight of the Commission on the funds' administration and implementation of the HCDT projects as provided in the PIA".
With the 650,000 per day Dangote Refineries and Port Harcourt Refinery expected to begin operations in the new year, the Commission to enforce the Domestic Crude Supply Obligation to ensure that the refineries have adequate feedstock to end Nigeria's importation of petroleum products.
It stated: "Nigeria despite being a major oil exporter, has faced the paradox of importing refined products, leading to increased costs and vulnerabilities in the face of global oil price fluctuations. To this end, the Petroleum Industry Act 2021, in Section 109 introduced the Domestic Crude Supply Obligation. The DCSO is a policy that mandates oil-producing companies to allocate a specific percentage of their crude oil production for domestic refining.
"The Commission has fully operationalised the implementation of the Domestic Crude Oil Supply Obligation since the regulation was gazetted a few months ago. Alignment with Nigerian Midstream and Downstream Petroleum Regulatory Authority, NMDPRA, operators and refineries on the operating framework has fully commenced in line with PIA provisions.
"It is believed that the implementation of the DCSO shall bolster socioeconomic growth for Nigeria including energy security and reduced import dependency of refined products. An effective feedback mechanism shall be adopted to manage stakeholder expectations during the implementation of DCSO.
"The overarching thrust of this policy is to promote adequate supply of crude oil for domestic refining and consumption while fostering responsible resource management, energy security, economic stability, and sustainable development", the Commission added.
