In Nigeria, production is forecast to fall by 35% without offshore field investments.
Across Africa, Rystad estimates delayed spending could mean 200,000 barrels per day (bpd) drop in expected output by 2025.
With collapsing oil prices costing some OPEC members not only lost revenue when they most need it to tackle the coronavirus crisis, but also market share they may never recoup.
OPEC producers such as Nigeria, Angola, Algeria and Venezuela cannot compete with the lower costs of erstwhile allies Saudi Arabia and Russia, who are flooding the market.
By comparison, Nigeria took nearly two weeks to make record cuts to its official selling prices.
The country is also struggling to sell its oil, which is rich in the gasoline and jet fuel that the world is not using as a result of the coronavirus pandemic.
Statements from Nigeria’s oil minister says that the West African country is hoping to raise daily production of crude and a light oil called condensate to 2.5 million barrels a day from about 2.2 million currently, Sylva said. Most of Nigeria’s crude is pumped by Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA in partnerships with the state.
If the price war can’t be resolved and crude prices remain low, Nigeria’s strategy of pumping flat out may have to reversed because it ceases to make commercial sense, said Sylva.
In Late 2019, Nigeria signed newly signed law to govern deep offshore oil operations set a record for the fastest bill so far passed under President Muhammadu Buhari.
First presented to lawmakers on Oct. 2, it went through Parliament within two weeks before returning for Buhari’s signature, which he appended on Nov. 4.
Under the new regulations, energy producers that pump about 80% of Nigeria’s crude will now pay levies for fields where they previously paid none. The measure will add at least $1.5 billion to the treasury next year, according to Senate leader Ahmed Lawan. These will come from a 10% royalty on output from water depths starting at 200 meters and from a price-based system that compels producers to pay extra rates between 2.5% and 10%, which could see payments potentially reaching 30%, depending on crude prices.
“A combination of complicity by Nigerian politicians and feet-dragging by oil companies has, for more than a quarter-century, conspired to keep taxes to the barest minimum,” Buhari said.
It’s the latest in a slew of policies unfolded by a government confronted by declining oil output and price and a burgeoning sovereign debt, as officials seek to sustain high levels of public spending. The administration has also moved aggressively against companies for suspected tax arrears, even demanding $62 billion from the oil companies. A claim they disputed.
“The indisputable intent of the amendment is to increase government earning,” said Dayo Okusami, head of energy and projects at at Lagos-based Templars Law.
The Nigerian National Petroleum Corp. has production-sharing contracts with producers including Royal Dutch Shell Plc, Chevron Corp., Exxon Mobil Corp., Total and Eni SpA governing deep-water fields that currently account for about two-thirds of average daily production of 2 million barrels.
Demands Oil Majors to cough out $62 billion
Nigeria is seeking to recover as much as $62 billion from international oil companies, using a 2018 Supreme Court ruling the state says enables it to increase its share of income from production-sharing contracts.
The proposal comes as President Muhammadu Buhari tries to bolster revenue after a drop in the output and price of oil, Nigeria’s main export. It’s previously targeted foreign companies, fining mobile operator MTN Group Ltd. almost $1 billion for failing to disconnect undocumented SIM-card users, and suing firms including JPMorgan Chase & Co. in a corruption scandal.
Under the production-sharing contract law, companies including Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA and Eni SpA agreed to fund the exploration and production of deep-offshore oil fields on the basis that they would share profit with the government after recovering their costs.
The sudden cash crunch is also hindering the ability of these oil producers to manage growing coronavirus outbreaks. A group of African finance ministers has called for a $100 billion stimulus package to help deal with the pandemic.
Health systems across these OPEC producers are already chronically underfunded and living conditions dangerously cramped, while the oil crunch also casts doubt on whether nations can craft rescue packages or pay soldiers and police to enforce lockdowns or combat unrest.
Nigeria, which cut nearly $5 billion from its budget, said it needs 120 billion naira ($333.33 million) to fight the coronavirus outbreak.
Most of Nigeria’s crude is pumped by the five oil companies, which operate joint ventures and partnerships with the state-owned Nigerian National Petroleum Corp.