Nigeria looks to use its shallow water fields to boost production


Nigeria has struggled for months to increase output despite the phasing out of OPEC quotas. While the country’s oil production capacity exceeds 2 million barrels per day (bopd), it produced 1.3 million barrels per day last year, according to government data. Nigeria’s underperformance, coupled with continued imports of refined petroleum products, exposes it to several macroeconomic risks as oil prices enter a new supercycle. For example, the country’s petrol subsidy scheme has become so expensive since the start of the year that the government is now planning to use its 2021 €2bn euro bond sale to fund it.

But while Nigeria cannot control oil prices, it can certainly work to increase oil production to reduce vulnerabilities and try to make the most of the current oil price cycle. In fact, taking a closer look at current shallow water market activity, observers are hopeful that capable local players can begin to bring the needed changes to the country.

Nigeria relies on its onshore fields for nearly half of its oil production, but repeated crude thefts and pipeline sabotage make it challenging to boost output in the short term. Meanwhile, deepwater fields are maturing, with no clear sign that the recently enacted Petroleum Industry Act (PIA) will revive interest in capital-intensive greenfield deepwater activities in Nigeria.

This makes shallow water fields the most promising opportunity to increase production in the short term. So far, shallow-water assets account for less than a quarter of Nigeria’s oil production, despite offering cheaper development options. But some developments are back on the table as local independents step up to replace the country’s IOC.

Nigerian independent First E&P has secured first oil at OML 83 and 85 at its Anyala & Madu complex during the COVID-19 pandemic. Since production started in October 2020, the company has become the third largest local producer after SEEPCo and Seplat.

Related: Misconceptions about OPEC in the West

West African E&P (WAEP), a joint venture between First E&P and Dangote Industries, is now developing the Kalaekule field on OML 72. Further west, the new operator of OML 120, General Hydrocarbon Limited (GHL), is also relocating and will advance the redevelopment of the Oyo field this year.

These projects are currently supporting offshore market activity in Nigeria and have one thing in common: local content. With the IOC shunning additional investment in Nigeria and withdrawing some licenses, Nigeria can only rely on local operators and local service companies to take the lead.

Both WAEP and GHL have selected Century Group, the only Nigerian wholly-owned company currently providing FPSO solutions, to provide the required FPSOs for the Kalaekule and Oyo fields. One of the oft-overlooked Nigerian service providers, the company has over the years developed the capabilities needed to safely and cost-effectively operate and maintain critical oil and gas assets.

While the narrative about Nigeria is dominated by the exit of its largest foreign investor, the local capabilities the country has built up over the past few decades are often underestimated. Since the passage of the Local Content Act in 2010, several Nigerian energy companies have accumulated expertise in operating and maintaining critical infrastructure assets. These local players may lack the financial muscle of the IOC, but they have demonstrated their ability to successfully navigate the risks on the ground in the country.

Continued development of shallow-water fields in Nigeria is sending a hopeful sign to an industry that is deeply concerned that divestment by international oil companies will affect its future. Rather than risking new market entrants and instead putting the right assets in the hands of the right teams, the country is steadily finding new equations to help it navigate the current market volatility.

by Hawilti

More popular reads from

Leave a Comment