According to market intelligence firm S&P Global Commodity Insights, Nigeria’s deepwater projects, which are anticipated to begin operating between 2025 and 2030, will have the capacity to increase the country’s current crude oil reserves by at least 2.3 billion barrels.
In a recently released report, S&P stated that deepwater projects are crucial to Nigeria’s production growth and, ultimately, stability. It also explained how the Petroleum Industry Act (PIA), if properly implemented, could completely change the fiscal side of the country’s oil industry.
“The deepwater projects that are due to start up between 2025 and 2030 are estimated to hold recoverable resources of 2.3 Bbbl. Without the sanctioning and commissioning of currently unsanctioned projects, Nigeria’s overall production will likely decrease by the end of the decade.
“It’s the deepwater projects that can provide this extra production required to offset the expected production decrease. Therefore, unsanctioned deepwater projects are seen as the prime target area for fiscal and regulatory improvement, which is thought to have occurred if the assets were converted to the new PIA fiscal terms,” it stated.
A number of oil companies have recently begun to exit Nigeria’s shallow waters as well as divest their onshore assets to the deepwaters as a result of frequent attacks on their facilities in the Niger Delta.
According to the report, some of the deepwater projects on legacy terms upon conversion will see their combined Net Present Value (NPV) increase by as much as 89 per cent.
According to the firm, this is positive news for the projects and their operators and has spurred some of them and other joint venture (JV) partners to release news that the changes in the fiscals have stimulated progression towards a possible Final Investment Decision (FID).
“An example is Preowei, where operator TotalEnergies announced that it is to accelerate the development with a possible early conversion to the PIA terms due to the new fiscal structure, which contains tax advantages,” S&P said.
One of the document’s benefits was the new incremental production-based royalty, which dropped from 10% for water depths greater than 200 m to 5% for less than 50,000 bpd and 7.5% for greater depths.
“These projects should remain an area of particular focus for the government. Indeed, they could become stranded if the terms available are not acceptable to license holders.
“However, as the May 2021 renegotiation of the Bonga Southwest PSC terms demonstrated and the subsequent August 2022 renegotiation of a further six blocks, including OML 125 & 130, if the government and international oil companies (IOCs) are able to find common ground on such projects, this could raise Nigeria’s production outlook towards the end of the decade, which would also likely help to secure the country’s output over the longer term,” the report said.
Further important large projects that are key to Nigerian production remaining steady, it said, are the deepwater producing Agbami field, which has also benefited from the new terms.
If implemented, it is estimated that the NPV will increase by around 50%, with the deepwater producing Erha field seeing an NPV increase of over 400%.
The report, titled: “A Deepwater Dive: Has the PIA unlocked the key to Nigeria’s long-term production stability?”, stressed that the PIA seeks to provide a regulatory, legal, fiscal, and governance framework for the Nigerian petroleum industry as well as fund the development of host communities.
According to S&P, the new PIA has attempted to improve the country’s fiscal attractiveness by altering many facets of the regimes that apply to oil and gas assets, including royalty tax as well as Petroleum Profit Tax (PPT).
“One area of particular interest and that is crucial in preventing Nigerian production from declining is the sanctioning and timely construction of new deepwater projects such as Bonga Southwest and Owowo.”
“These increases are significant and illustrate the intentions of the government, moving forward, that in its designing of the PIA they have put project partners and fiscal attractiveness at the forefront.”
“The trajectory of Nigeria’s future oil and gas production largely hinges on the PIA and whether it is considered to be sufficiently favorable to investors. This is widely unknown as operators and partners have remained generally silent apart from the announcements made by the Preowei and Bonga development JVs,” it added.
“The PIA and whether it is deemed to be sufficiently favorable to investors will determine much of the future course of Nigeria’s oil and gas production. This is largely unknown as operators and partners, with the exception of the Preowei and Bonga development JVs, have largely kept quiet, “added to
Although it stressed that it has been a positive step that has so far been commended and should help retain and attract further investment, it stated that it is still unclear whether Nigeria’s most audacious attempt to overhaul the country’s petroleum sector will succeed. Nevertheless, it stressed that it has been a positive step that will ultimately benefit the nation.
