Despite intractable militancy and ongoing theft from pipelines which has hobbled its oil production, Nigeria's government remains resolutely upbeat over its plans to turn things around in 2017.
Nigeria, which has been exempted from the OPEC deal to cut output from January, hopes to pull its economy out of recession on the back of the upswing in global crude prices and restore oil production to at least 2.2 million b/d, Nigerian president Muhammadu Buhari said in early December.
Negotiations with militants in the Niger Delta to end attacks on oil facilities are also progressing and a new funding scheme for upstream ventures with foreign partners was recently agreed.
For now, Africa's biggest oil producer continues to suffer from the oil price downturn as oil accounts for about 90% of its foreign exchange earnings and about 80% of the government's total revenue. The Nigerian economy slipped further into recession in Q3 after crude production, the country's economic mainstay, dropped by 25% year on year to 1.63 million b/d, according to government figures.
"The government is sure that the target to raise oil production to 2.2 million b/d or even more next year is realizable," Femi Adesina, presidential spokesman told S&P Global Platts.
"The peace deal with militants to ensure zero disruption is in progress, though slow, but I can assure you that with a show of faith, the peace deal will be consummated in no time," Adesina said.
Oil companies believe the return of peace in the restive Niger Delta region is key to the execution of the projects needed to increase production.
Just as the government needs higher oil production for more revenue, companies need the peace and security in the Niger Delta to be able to move in and repair damaged assets especially in onshore and shallow waters and even plan new projects.
"Once this is achieved, production can even reach 2.3 million b/d," said one official at a Western oil company.
But progress on peace talks with militants has already had numerous false starts with splinter groups popping up and widespread mistrust over the leadership and scope of mooted concessions to resolve the impasse.
Nigerian oil output, which had recovered sharply in October from a 30-year low of around 1.4 million b/d in May, suffered a setback after another attack on the Trans-Forcados pipeline on November 2 impacted the transportation of the crude and shut-in the popular Forcados grade.
Nigeria's oil export revenue declined month-on-month by 3% to $6.7 billion in November. Oil production had also failed to stage a recovery by year-end with field maintenance taking output below 1.5 million b/d, according to sources.
"With oil prices boosted by the OPEC and non-OPEC production cut, we companies are encouraged to invest next year but only if the Nigerian government can achieve a win-win situation with the militants in the Niger Delta," Uju Ifejika, managing director of independent producer Britannia-U, said.
KEY FUNDING DEAL
A recovery in Nigeria's oil production is premised not only on solving the Delta militancy, but also on Nigeria's successful negotiations of years of debts owed to its partners on counterpart funding for oil ventures, and introduction of new funding mechanism to drive investment in the upstream sector.
Known in local parlance as "cash call", Nigeria negotiated $1.7 billion off the $6.8 billion in unpaid bills over the last four years owed its partners including Shell, ExxonMobil, Chevron, Total and Eni, to exit the cash call arrangement.
The new funding structure is similar to Nigeria's joint venture business in Nigeria LNG Ltd., owner of the six train, 22 million mt/year Bonny LNG plant, which sources its own finances, pays taxes and royalties and dividends to the shareholders.
Nigeria is eyeing additional output of between 300,000 b/d and 700,000 b/d from onshore and shallow fields operated jointly with foreign partners over the next two years as a result of the financing deal, NNPC spokesman Ndu Ughamadu said.
"The Nigerian petroleum sector, which has recorded low investment in recent years, will soon experience an upbeat in a flurry of activities following the cash-call exit agreement between NNPC and its Joint Venture partners," the NNPC spokesman said.
"The agreement will stabilize and also increase upstream production over time. The repayment of the arrears in a sustainable manner is a key enabler to additional investment in the upstream sector in Nigeria," said Clay Neff, chairman of Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry and head of Chevron's local production unit.
