Kyari: Underinvestment and Infrastructure Constraints Reason for Nigeria’s Failure to Meet Oil Production Targets

Group Chief Executive Officer (GCEO) of Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, at the weekend blamed Nigeria’s persistent failure to meet its production targets on underinvestment, theft and rising pipeline constraints.

The GCEO spoke in Lagos at a Stakeholders’ Engagement Session organised in his honour by the Nigerian Association of Petroleum Explorationists (NAPE), tagged, “An Evening with Mele Kyari: Navigating the Path Ahead.”

At the event well attended by top oil and gas industry players and investors, Kyari revealed that NNPCL was leading the task of reversing the unpalatable trend in the industry with its rig share programme. He added that the company planned to drill a cumulative 53 wells as part of efforts to ramp up production.

Kyari stated that as things were, it might be impossible to promise a two million barrels per day (bpd) oil production target.

Nigeria’s production had been hovering between 1.2 million bpd and 1.4 million bpd year-to-date, lagging below the Organisation of Petroleum Exporting Countries (OPEC) quota of 1.58 million bpd for 2024 and far below the estimated production capacity of 2.6 million bpd.

The current oil production was also below the 1.78 million bpd projected output in the 2024 national budget, with a benchmark price of $77.96 per barrel.

But sharing his thoughts at the occasion, Kyari said the focus of NNPCL, the government and the stakeholders was to ensure the utilisation of resources available to Nigeria to increase oil production and tackle many issues confronting the country.

He said increasing oil production with the huge security challenges on the onshore assets was difficult, adding that aside the security issues, availability of infrastructure to deliver the crude oil volumes to the market is also a headache to the industry

With those challenges, Kyari stated that it would be difficult to convince investors to commit their money into oil production in Nigeria, when the produce would not get to the terminal or to the market due to security issues and infrastructure deficit.

The GCEO said due to the security concerns, operators had resorted to barging and trucking their crude to the terminals, not minding the high cost,  against best global industry practice.

Kyari explained, “I can see a number of people who have got marginal fields. Yes, they are drilling, but they are concerned about how to take the production to market.

“Everybody is thinking of barging. We know barging is an abnormality. Nobody is going to spend at least $7, in some cases, $21 to transport a barrel of oil to the terminal. So, barging is not normal, barging is not economical, but that’s what we are doing today.

“But the good news is that there is substantial work that is being done by government that I’m aware. Nobody speaks about it. But I know that this will come to pass. It’s already subsiding. We are already seeing the results.

“I know I cannot promise two million barrels per day. It’s not possible today. But is it practical? Yes. As at today’s data, we are inching close to 1.7 million barrels per day. 

Should we celebrate this? No. And I can tell you why. On April 17, 2020, without drilling new wells, our production shot up to 2.5 million barrels a day.”

Kyari attributed the sharp rise in oil production during COVID to the lockdown that forced oil thieves and pipeline vandals to shut down their illegal operations.

He stated that the industry must resolve the security issues and be able to take control of the pipeline infrastructure for delivery of crude to the terminals and the market.

Kyari pointed out that another reason for the underinvestment was the unattractive fiscal environment that existed before the enactment of the Petroleum Industry Act (PIA).

He said Nigeria struggled to change the fiscal terms since year 2000 until 2021, when PIA was passed, which brought a robust fiscal term that was enticing to investors. This was before the advent of energy transition that thwarted those gains in the fiscal terms, with the defunding of fossil fuels business by banks.

Kyari revealed that NNPCL was trying to reverse the ugly trend in the industry through a number of initiatives, including its rig share programme and a plan to drill a cumulative 53 wells as part of efforts to ramp up production.

He stated, “For instance, in our plans for 2024… just NNPC basket between our JV and PSC partners, we have a line of sight, commitments and plans of drilling up to 26 gas exploratory and appraisal wells, over 16 gas development wells, 21 oil exploratory wells.”

He said there was still an undersupply of close to three million bpd in the market today, which he explained was in line with the projections that oil price will not go below $80 on average in the next 24 months.

Kyari said that was why oil producing countries were rushing to produce their oil now that the price was still high, saying Nigeria is also taking its own steps, which include the NNPC’s rig share programme and the plan to drill 53 wells.

He stated, “We are doing something about that because once you have the assurance that your production will get to market, then you can get people to put money into drilling. And that’s part of the package we are doing.

“We are going to come up with a rig share programme so that the rig owners can have an assurance that when they come to this country… the cost of the rig itself will go down, we have an assurance that the rig can stay up to two to five years.

“We have been doing one rig programme, which is unbelievable. But we want to change this and this industry will align with it, so that we have a line of sight around our commitments for robust drilling activities to actually take place and increase production.”

The GCEO stated that the issues around fiscal terms and the waning investment in the Nigerian oil and gas industry prompted President Bola Tinubu to make right fiscal policies to attract investments in the gas sector, particularly the Non-Associated Gas (NAG), through his recent executive orders.

By the executive orders, Kyari said the president softened the fiscal environment, making investors now ready to take business decisions.

He disclosed that almost three major gas development projects would be taking off this year as a result of the presidential intervention.

“As we speak now, there is substantial acceleration of those decisions. I can tell you that at the back of the executive orders, there are almost three substantial gas projects that are going to take off this year,” he said.

Kyari also said project contracting got enmeshed in bottlenecks and compromised, as briefcase contractors got involved, adding that even the Nigerian content development, which was to build local capacity and retain value, also got messy.

According to him, the combination of compromises along the value chain resulted in most of the critical contractors leaving the country.

But the good news, Kyari said, was that in the last one month, the foreign contractors were showing intentions to come back.

“We will bring them back in our best interest. And this cascades outside NNPC and our partner companies,” he said.

Kyari explained further that it was the compromises in the contracting prices that led to the hike in oil production cost to as high as between $60 and $70 per barrel.

He revealed that the implication was that the companies indulged in that act took the value from procurement rather than from production, thus, making achievement of production growth difficult.

He said the president had stopped the ugly practice through the executive orders and the outcomes were now becoming glaring.

Peter Uzoho

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