Nigeria’s Oil Fields Face Shutdown Amid Price Slump

Crude production cost almost
equals selling price!!!!
This is an uncertain period for
the Nigerian economy due to
the continuing fall in the
price of crude oil, the nation’s
main revenue earner, and
projections for the petroleum
industry are indeed grim,
’FEMI ASU writes
With crude oil trading around
$30 per barrel in the
international market from a
peak of $114 in June 2014,
production from Nigeria now
faces a decline as some fields
face an imminent shutdown if
the low oil price persists.
Industry players say
operating some of the fields
in the country is becoming
uneconomic, with the selling
price of oil being driven
down close to the production
cost level.
The price of the Nigerian
crude oil, Bonny Light, has
fallen to $29.47 per barrel,
according to the latest data
obtained from the Central
Bank of Nigeria.
“When oil price drops, we are
all in serious trouble, because
if the oil price and your unit
operating cost are almost the
same, it means that when you
sell the oil, there is little
profit or you are at a loss.
Many companies are not far
from there,” the Project
Director for the Uquo gas field
development, a joint venture
project by Frontier Oil Limited
and Seven Energy, Alhaji
Abdullahi Bukar, told our
correspondent.
“The unit technical cost of
many of our producers is not
far from $30 per barrel. So
many companies are in
trouble,” he added.
According to Bukar, the
average production cost for
many of the fields in the
country is $24 to $25 per
barrel.
“For some fields, the
production cost is well above $
25, maybe $28. For some
fields, it is well below $20 and
$25. Many of the older fields,
which are mostly with the
International Oil Companies,
have got high production
costs,” he said.
Global financial services firm,
Morgan Stanley, on Monday
joined banks such as Goldman
Sachs, City Group and Bank of
America Merrill Lynch, in
warning that prices could slide
to $20 per barrel.
Bukar said, “The production in
Nigeria is going to suffer. In
the last five years, we have
not invested as much as we
should to develop additional
reserves. Once, we keep going
like that, whether there is
price change or not, the
amount of oil Nigeria is going
to be producing will go down.
“When the price drops as low
as $20-$30 range, people who
have got those old fields or
fields where oil production
cost is above the selling price
will shut them down. There is
no point in producing oil to
sell at a loss.”
Nigeria, Africa’s top oil
producer, relies on crude oil
for most of its export earnings
and government revenue. Oil
production in the country has
continued to hover between
1.9 million barrels per day
and 2.3 million bpd in recent
years.
President Muhammadu Buhari
had projected crude oil
production of 2.2 million bpd
for this year’s budget, down
from 2.2782 million bpd in the
2015 budget, with oil-related
revenues expected to
contribute N820bn.
Industry experts also say the
continued decline in global oil
prices would stall a number of
deep-water projects in the
country
An energy expert and
Technical Director, Drilling
Services, Template Design
Limited, Mr. Bala Zakka, said
with oil at $30 per barrel, the
profits and projects, including
Corporate Social Responsibility
activities of many oil firms
would be negatively affected.
“Major deep-water projects
will be affected because they
are very expensive. If oil
continues to fall, a lot of
exploration and drilling
campaigns will reduce. A lot
of marginal field operators will
not be able to drill new wells.
There is every possibility that
companies will retrench to be
able to stay afloat,” he said.
The Head, Energy Research,
Ecobank Capital, Mr. Dolapo
Oni, said, “Our production is
really having issues, and I
think it might be worse in
2016. Our production is likely
to reduce this year.
“There are not as many fields
likely to come on stream this
year. Most companies just
want to focus on their existing
production. So, it is possible
we won’t see as much new
production come on stream to
reverse the trend of decline in
major fields we have. That
might make production go
down.”
Oil prices could reach as low
as $10, Standard Chartered
warned, stating, “Given that
no fundamental relationship
is currently driving the oil
market towards any
equilibrium, prices are being
moved almost entirely by
financial flows caused by
fluctuations in other asset
prices, including the dollar
and equity markets.”
Wood Mackenzie, the energy
consultancy firm, said in a
report last week that since the
oil price collapse in 2014, 68
major upstream projects
containing 27 billion barrels of
oil equivalent had been
deferred.
This, it said, amounted to $
380bn of capital expenditure
deferred by total project
spend in real terms.
High cost deep-water fields,
particularly those in Angola,
Nigeria and the Gulf of
Mexico, requiring heavy
upfront investment, account
for more than half of that
deferred production.