Minister: Low Prices Will Hamper Nigeria's Bid To Boost Output

Consistently low oil prices will hamper Nigeria's bid to boost output to 4 million barrels per day (bpd), Oil Minister Diezani Alison-Madueke was quoted as saying on Tuesday at an oil and gas conference in the capital Abuja. "Flexibility in capex and funding in general will be further constrained in the year 2015," the minister said in a speech read out by Joseph Dawha, group managing director of the Nigerian National Petroleum Corp. 

Africa's biggest oil producer has been hit hard by global oil prices that have around halved since June, because it accounts for up to 80 percent of government revenues and about 95 percent of foreign reserves. "Consistently depressed oil prices will limit the industry's scope to manoeuvre, start-up key projects and revitalise marginal field production thus hampering the set target of 4 million bpd," the minister said. "The industry must challenge itself to raise funding in order to meet these targets." 

Nigeria has been targeting this level for some time but has struggled to even regain its peak production of 2.44 million bpd in 2005, when militant movements attacked infrastructure in the oil producing delta region until the 2009 amnesty. Output growth has since been stunted by legislative uncertainties and rampant pipeline vandalism and oil theft. Average crude output was just under 2 million bpd in 2014, according to the U.S. Energy Information Administration. A draft of the Petroleum Industry Bill (PIB) drawn up to overhaul the industry has been sitting with parliament since 2008. Nigeria's lower house completed a report on the bill for the first time last week but passing the law is still many stages away. 

Markus Droll, Shell vice-president for Nigeria and Gabon, told the conference that the company was extremely concerned about the impact of low oil prices on 2015 funding. "Today most of the available funding in the industry is required to keep with the pace of decline. There is very little left over for growth," he said, adding that oilfield decline rates were as high as 15 to 20 percent. Shell divested much of its onshore assets last year in part due to oil theft, which has increased ahead of the 2015 presidential elections. Droll said that a lack of fiscal predictability was also holding back greater investment. "Multi-year predictable funding is needed. We can't start projects to only stop half-way through. It's just a waste of everybody's efforts," he said. Wale Tinubu, group chief executive of Nigeria's Oando PLC , said that with high oil prices "we became complacent...very few fields have been brought online in the last few years". "I expect to see downsizing, which worries me." Tinubu said he believes oil thefts will worsen as the industry lets more of its workers go.