Oil and Natural Gas in Nigeria

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History of the Petroleum Industry in Nigeria

Source: CIA

Nigeria is the largest oil producer in Africa, the eleventh largest producer of crude oil in the world and a member of the Organization of Petroleum Exporting Countries (OPEC). In 2006, total Nigerian oil production, including lease condensates, natural gas liquids and refinery gain, averaged 2.45 million bbl/d (of which 2.28 million bbl/d was crude oil). If Nigeria could bring back online all oil currently shut-in, EIA estimates that Nigeria could reach crude oil production capacity of three million bbl/d. With the help of new projects coming online, the Nigerian government hopes to increase oil production capacity to four million bbl/d by 2010.
On April 21, 2007, Nigeria held presidential elections, marking the first time in Nigeria’s history that the country passed control from one civilian government to another. During the 16 months preceding the election, militant activity in the Niger Delta (especially near Warri and Port Harcourt) has severely impacted Nigeria’s oil production potential by shutting-in an estimated 20 percent of total production. The Nigerian economy is heavily dependent on the oil sector, which accounts for 95 percent of the country’s total export revenues.
According to Oil and Gas Journal (OGJ), Nigeria had 36.2 billion barrels of proven oil reserves as of January 2007. The Nigerian government plans to expand its proven reserves to 40 billion barrels by 2010. The majority of reserves are found along the country's Niger River Delta, in southern Nigeria and offshore in the Bight of Benin, Gulf of Guinea and Bight of Bonny. Nigeria has total production capacity (total potential production capacity if all oil currently shut-in came back online) of three million barrels per day (bbl/d) including two million bbl/d onshore and one million bbl/d offshore.
In 1977, Nigeria created the Nigerian National Petroleum Corporation (NNPC). At that time, the NNPC’s primary function was to oversee the regulation of the Nigerian oil industry, with secondary responsibilities for upstream and downstream developments. In 1988, the Nigerian government divided the NNPC into 12 subsidiary companies in order to better manage the country’s oil industry. The majority of Nigeria’s major oil and natural gas projects (95 percent) are funded through joint ventures (JVs), with the NNPC as the major shareholder. The largest JV is operated by Shell Petroleum Development Company (SPDC). Additional foreign companies operating in JVs with the NNPC include ExxonMobil, Chevron, ConocoPhillips, Total, Agip and Addax Petroleum. The remaining funding arrangements are comprised of production sharing contracts (PSCs), which are mostly confined to Nigeria’s deep offshore development program.

Shell Heading Toward Stormy Waters in Nigeria (Source: Resource Investor)

• Oil production: 2.451 million bbl/day (2005 est.)
• Oil proved reserves: 36.25 billion bbl (2006 est.)

• Natural gas production: 21.8 billion cu m (2004 est.)
• Natural gas exports: 12.59 billion cu m (2004 est.)
• Natural gas proved reserves: 4.984 trillion cu m (1 January 2005 est.)

• In recent months, Nigeria has experienced increased pipeline vandalism. In October 2005, a pipeline fire in the south-western Delta State of Nigeria resulted in the deaths of about 60 people. This was followed by a December attack, in which armed men in speed boats dynamited Shell’s pipeline in the Opobo Channel. In January 2006, a pipeline attack from the Brass Creek fields to the Forcados terminal forced Shell to announce a force majeure on Forcados commitments to end-February. Additional attacks made on the pipeline and the Forcados terminal in February made it necessary for Shell to extend the force majeure beyond the end-February date. Shell estimates that more than 450,000 bbl/d of its oil production is currently shut-in because of the attacks. A February 2006 attack on the Escravos pipeline, that supplies oil to the Warri refinery, caused the refinery to shutdown. Officials are unsure of how long it will take to repair the damage. Nigeria had re-commissioned the Escravos-Warri pipeline in January 2005 after 18 months of repairing the damage caused by sabotage during the 2003 Niger Delta Crisis. In addition to pipeline vandalism, Nigeria has seen an increase in kidnappings of expatriate oil workers in the Niger Delta region. In January 2006, four foreign employees of Royal Dutch Shell were kidnapped and then held for 19 days before being released on “humanitarian grounds”. In February 2006, nine additional oil workers were kidnapped in the Niger Delta region. On March 3, 2006, six of the nine hostages were released, with the remaining three being released on March 27, 2006. The Movement for the Emancipation of the Niger Delta (MEND) is taking responsibility for the kidnappings and for blowing up a crude oil pipeline owned and operated by Royal Dutch Shell.Despite the recent attacks on Shell's oil facilities, the company’s deepwater Bonga field began producing oil at the end 2005, reaching production of 225,000 bbl/d in April 2006. Bonga is estimated to hold recoverable oil reserves of 600 million barrels. Oil from the field is stored in a floating production, storage and offloading (FPSO) unit, with capacity of two million barrels. In August 2008, Shell plans to bring online its Gbaran/Ubie field (220,000 bbl/d), located offshore of the eastern delta.

• ExxonMobil produces around 750,000 bbl/d of oil in Nigeria. The company plans to invest $11 billion in the country's oil sector through 2011, with the hope of increasing production to 1.2 million bbl/d. In March 2006, ExxonMobil brought online its Erha development, which is located offshore of the western delta. Erha reached peak production of 200,000 bbl/d in July 2006. Oil from Erha is stored in a FPSO, with capacity of 2.2 million barrels of oil. Very Large Crude Carriers (VLCC), capable of holding up to 300,000 deadweight tons are used for exporting the oil from the terminal. ExxonMobil also operates the Yoho field, with current output of around 150,000 bbl/d. Yoho contains around 400 million barrels of oil reserves. Yoho will be re-injected with natural gas to maintain field pressure. The $1.2 billion field is located in the shallow waters of the eastern delta. In June 2008, ExxonMobil plans to bring online its Bosi field (110,000 bbl/d) located offshore of the western delta.

• Chevron’s offshore Agbami field is scheduled to come online in 2008, with peak production estimated at 250,000 bbl/d. The majority of Agbami lies in Block 127, while one-third of it lies in the adjacent Block 128. In February 2005, the Nigerian National Petroleum Corporation (NNPC) awarded Chevron a $1.1 billion contract for the construction of a FPSO for the field, which will be undertaken by Daewoo Shipping and Maritime Engineering (South Korea). The FPSO is expected to export up to 250,000 bbl/d of oil and 450 million cubic feet per day (MMcf/d) of natural gas.

• Total, Agip, and ConocoPhillips are also involved in the Nigerian oil sector. Output at Total's Amenam field reached 120,000 bbl/d in January 2005. The Amenam field contains reserves of around one billion barrels of oil equivalent. In January 2009, Total plans to bring online its offshore Akpo field (180,000 bbl/d) and in January 2010, its offshore Usan field (150,000 bbl/d).

• Nigeria São Tomé & Príncipe Joint Development Zone (JDZ).

• Nigeria shares a Joint Development Zone (JDZ) with neighboring São Tomé and Príncipe (STP), which contains 23 exploration blocks. Nigeria and Sao Tome have agreed to split revenues from the blocks on a 60:40 basis, respectively. Block One is currently the only block in the JDZ undergoing development. The block is controlled by Chevron (51 percent), with partners ExxonMobil (40 percent) and Equity Energy Resources (9 percent). Preliminary studies have indicated that the block could contain sizable amounts of oil (up to 1 billion barrels). If recoverable oil is located, Chevron plans to bring it onstream by 2010. Blocks Two through Six were also awarded, of which, three have been approved for PSAs, while the remaining two have yet to be signed. Meanwhile, several independent U.S. based companies that were awarded shares in the blocks have relinquished their awards. Pioneer Natural Resources stated a failure to agree to specific terms of operation on Block Two as the reason for its withdrawal from the project. Pioneer’s withdrawal has opened the door for China’s oil and gas company, Sinopec, to invest in the JDZ.