People & Money

Nigeria Losing Millions of Oil Export Dollars To Maintenance Problems

Under investments for several years in the oil and gas industry in Nigeria and Angola has continued to make them struggle to boost output to their OPEC quota levels, and this may be the situation until 2022.Complex maintenance problems also have made it difficult for the two leading African oil producers to boost output.

According to Reuters, the the difficulties that Angola and Nigeria are having in trying to boost production also reflects a general trend amongst the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries who are also struggling to ramp up production after almost two years of production cuts. OPEC countries and other major oil producers, known as OPEC+, had in April 2020 agreed to cut crude oil production in an effort to raise prices that seriously were hit by the new coronavirus pandemic.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed in July to add 400,000 barrels per day (bpd) to production from August until December 2021, slowly phasing out the unprecedented supply cuts.

However, Nigeria and Angola have under produced by an average of 276,000 bpd so far this year; both have a combined OPEC quota of 2.83 million bpd according to Refinitiv data. They are likely to remain below quota through the end of the year, according to industry sources and Reuters calculations.

The oil not pumped is worth hundreds of millions of dollars.

Kola Karim, chief executive of Nigerian producer Shoreline Natural Resources which has eight producing fields pumping around 50,000 bpd, said the backlog meant it would be one to two quarters before Nigeria could pump at its full capacity.

The maintenance backlog covers everything from servicing wells to replacing valves, pumps and pipeline sections. Companies are also behind on plans to do supplementary drilling to keep production stable. These issues impacted virtually all companies in Nigeria, Karim said.

Also Read: Nigeria and Russia Not Complying with OPEC Oil Production Cuts

“So now things are breaking…we’re now facing the music,” he told Reuters, though he added that the country would catch up on production by early 2022 as companies rush maintenance and repairs.

Two sources, one at Nigerian state oil company NNPC and another close to Angolan state oil company Sonangol, confirmed the countries were struggling to raise output.

Spokesmen at NNPC and Nigeria’s oil and finance ministries did not reply to requests for comment.

Oil Minister Timipre Sylva told journalists last week that he expected Nigeria to meet its quota within a month or two, but did not specify how. The government has previously pointed to a recently signed oil overhaul law as key to boosting investment and production.

But an official of the Department of Petroleum Resources (DPR) in a confidentially disclosed that the high level of corruption in Nigeria’s oil sector will make it difficult to attract investors. According to the source, the activities of the current management of the DPR along with some highly placed officials of the Ministry of Petroleum Resources are not investment friendly. He cited the last marginal field bid round which according to him is  adjudged as the most corrupt marginal field bidding exercise that has ever been conducted in Nigeria  as an example of how poor governance hinders experienced investors’ participation in the country’s oil industry.

Angola’s finance ministry told Reuters that it could struggle to meet its target for years.

In June, Angola’s oil minister, Diamantino Azevedo, lowered its targeted oil output for 2021 by 27,000 bpd to 1.19 million bpd, citing in a statement production declines at mature fields, drilling delays due to COVID-19 and “technical and financial challenges” in deepwater oil exploration. That is below the current 1.33 million bpd quota.

Angola pumped roughly 1.3 million bpd in 2020, down from its record peak above 1.8 million bpd in 2008.

It has embarked on a string of reforms to boost output.

“The reality is only five countries can actually hit these quotas in our view,” said Amrita Sen of Energy Aspects. “The rest are struggling with high decline rates and underinvestment.”

Those five are Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Azerbaijan.

In Nigeria, five onshore export terminals run by oil majors, which typically export around 900,000 bpd, handled 20% less oil in July than the same time last year, despite relaxed quotas, according to analysis by the consultancy Hawilti Ltd. The decline indicates lower production from all the onshore fields that feed these terminals.

Only French oil major TotalEnergies’ new deep offshore oilfield and export terminal Egina, have been able to quickly turn the taps back on, said Mickael Vogel, director at Hawilti, citing an analysis based on data from Nigeria’s Department of Petroleum Resources.

Also Read: Coronavirus & Infrastructure: Invest in Maintenance Rather Than New Projects

Onshore oilfield output has lagged as companies struggled with a lack of workers and cash.

“Putting those wells back onstream has been more challenging than they thought,” Vogel said.

Nigeria has not met its quota since July last year according to Refinitiv data.

Angola, Africa’s second-largest exporter, has pumped below its target since September last year.

It has struggled for years as its oilfields age and decline, and exploration has been insufficient to compensate, Justin Cochrane, director for African Regional Research for IHS, said.

Angola’s largest fields began production in the early 2000s and are past their plateau.

The country introduced a string of reforms in 2019 aimed at boosting exploration, including allowing companies to produce from marginal fields adjacent to those they already operate. The pandemic stunted the impact of those reforms. Since then, only three offshore rigs have resumed work.

“They’re swimming against the tide with declines outpacing new production,” Cochrane said.

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