Nigeria presents a host of strengths as an oil and gas investment opportunity. As shown in BP’s latest Statistical Review of World Energy, which was released in June 2015, the country holds the largest gas reserves 180.1 trillion cubic feet (Tcf)) and the second largest oil reserves (37.1 billion barrels) in Africa.
BP’s annual World Energy Review also revealed that Nigeria is the largest oil producer and the third largest gas producer in the region.
According to a presentation by Kazeem Raimi, corporate planning manager, Seplat Petroleum Development Company, at the SPE London Annual Conference 2015, Nigeria is the 12th largest oil producing country in the world with an annual average upstream investment of $40 billion.
Approximately 70 per cent of the government’s budget comes from the oil sector, which shows just how important the oil and gas industry is to the West African country.
In his presentation, Raimi confirmed that Nigeria plans to quintuple daily gas production and almost double daily oil production by 2020, adding that the country is targeting a significant reserves increase too.
Nigeria is looking to raise its current gas output of 4 billion cubic feet per day to 20 billion cubic feet per day and raise its current oil production rate of 2.2 million barrels of oil per day (MMbopd) to 4 MMbopd. In addition, he noted that gas reserves are being targeted to increase to 300 Tcf and oil reserves are targeted to increase to 40 billion barrels.
Oil extraction costs in Nigeria are also favorable for investors, with the Unit Technical Cost of oil onshore the Niger Delta coming in at around $20 per barrel, which is approximately $30 per barrel cheaper than in regions such as the North Sea, according to Raimi.
This suggests that, even at a $50-per-barrel oil price, the cost and potential profit margins of oil extraction and production operations from certain areas of Nigeria would still be highly worthwhile.
Despite the significant strengths outlined above, Nigeria also contains a variety of risks to oil and gas investors. In an overview of the Nigerian oil and gas industry published last year, advisory firm, KPMG, reported that the process of contract award in the Nigerian oil and gas upstream sector is “tedious and lengthy.”
The report stated that the duration of contract award between the initiation and eventual execution of an agreement can take as long as 36 months, which could affect the project economics of contracts, according to KPMG.
In an effort to get around this problem, KPMG has indicated that companies tend to start the contract award process well in advance of the commencement of a project, in order to ensure that all regulatory and contractual approval processes are complied with before actual project execution.
KPMG has also reported that a recurring problem in Nigeria’s upstream sector is the inability of the Nigerian National Petroleum Corporation, NNPC, to meet its funding obligations to joint venture operations, although the federal government of Nigeria has explored other models to try to provide permanent solutions to this issue.
Other major problems faced by Nigerian oil and gas investors centre around the topics of corruption and the theft and vandalism of pipelines, although President Muhammadu Buhari has said that he will combat these issues.
As for the pipeline-related issues, which include vandals bombing gas pipelines and oil thieves piercing open pipelines, the President has also promised to take a more aggressive military posture against the people behind these acts.
The strengths and opportunities Nigeria offers “outweigh the challenges” however, according to Raimi, who said that “with risks minimized, investors will extract significant value and achieve high return on investment.”

Oluchi Ugboaja
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