By LOUIS IBA
There were palpable fears of an imminent decline in Nigeria’s foreign exchange earnings over the weekend, as it emerged that yields from crude oil production fields have been steadily plunging in the last one year. The steady drop is likely to affect the 2013 Federal Government’s budget of N4.9 trillion naira.
Experts estimate a 25 per cent drop in existing field yields and, with no new oil fields brought on stream to boost new yields for the country, it is very easy to predict the future would be tough for the industry. But the greatest fear is that the plunge from Nigeria’s oil fields, attributed largely to the over exploitation of existing wells and the delay in the passage of the Petroleum Industry Bill (PIB) into law, may alter income earning not only to the country, but also to oil producing states and host communities to oil assets.
And the various budgetary forecasts (especially for capital projects) hinged on huge earnings from large volume of sales of crude oil at the international market would certainly not be spared. The 2013 Budget, for instance, is based on an oil production capacity of 2.48 million barrels per day benchmarked at $75 per barrel up from the 2.5 million barrels per day for 2012 at $75 per barrel. But till date, crude oil prices have remained at above $100 per barrel, enough to fuel the over N1.54 trillion capital expenditure allocation under the 2013 Budget to grow infrastructure like electricity, roads, education, healthcare and security.
The fear, according to analysts, is that because it takes almost a six-year period to start up and commission a new oil project, future budgetary forecast hinged on incomes or earnings from the oil sector might have shrunk, as the past one year had witnessed a lull in investments in new oil projects that would supply the required oil for the future.
“It is very clear that revenue income from the oil sector would drop in the nearest future,” one industry source told Daily Sun. “That is very certain. The truth is that the inability to pass the PIB into law has led to a form of apathy in new investments by operators that should yield new oil fields producing to enable the country sell in the future, and so there is bound to be a shortfall in our revenue from the sector in the nearest future,” the source added.
This fact is highly corroborated by top officials of the industry, who volunteered to speak with Daily Sun. Leslie Blair, CEO of Eland Oil & Gas Plc., told said that “crude production in Nigeria may start dropping quickly and noticeably because existing oil fields are declining naturally.” Blair, whose firm is a new entrant into the Nigerian upstream market put the decline rate at between 20 to 30 per cent and he went ahead to express strong fears that the impact might be too harsh if the slid was to meet somewhere along the line with a drop in the global price of crude oil.
“When once the general decline in crude oil production from the fields starts it will be very serious for the entire economy, especially if the price of crude oil also starts to drop at the same time” Blair said. “It will affect revenues to the federal government, states and local governments as well as the host communities,” he added. Osten Olorunsola, Director of the Department of Petroleum Resources (DPR) also agrees with Blair as he insists that all was not well with the industry with the lull in investment.
And the regulatory agency boss has also warned of future dire consequences for the larger economy with depleting oil and gas reserves. “For the first time in many years, Nigeria’s oil and gas reserves are on the decline,’’ Olorunsola said, adding that there is need to invest in the petroleum industry. Without any doubt, the over three years delay in turning the PIB into law had perhaps wrecked the greatest havoc on the industry as operators have become very wary of committing funds into fresh investments to discover new reserves and drill new fields, and experts have warned the nation cannot escape paying for this delay.
A bleak future is unavoidable in terms of income earnings for the country from the oil sector. Signs that all will not be well in the future has even been made more obvious by the DPR boss, who alerted that it would take six years of sustained investments to close the gap – or dip – created by the absence of investments to grow or sustain the industry, following the non-passage of the PIB in the last three years.
Olorunsola agreed investors were wary committing funds into project developments until the passage of the Petroleum Industry Bill (PIB) so as to avoid any policy summersaults with the new bill which may be inimical to their investments. Most analysts have therefore urged a speedy passage of the PIB into law as it has become very obvious that the bill has been immersed in a lot of politics over royalty and tax related issues, which has also stalled its passage into law.
Ranked among the world’s top 10 crude oil producer nation, Nigeria relies heavily on the oil and gas sector for its source of foreign income earnings. And the sector also contributes more than 35 per cent of the country’s GDP. And in recent years, oil producing states – and host communities to oil assets – have had their fortunes changes with massive improvements infrastructure and job creation for indigenes, great thanks to more revenue accruing to them from proceeds from the oil sector.