Avuru: Nigeria’s Oil Industry Requires $25bn Annual Investment to Stabilise Production at 2mbpd

*Blames declining output on bad management of assets

*Says local companies also failed to optimise divested assets

Peter Uzoho

With the persistent decline in investment in the Nigerian oil and gas industry and the resultant dip in crude production, a renowned geologist and Executive Chairman of AA Holdings, Mr. Austin Avuru has said the industry would need a minimum of between $20 billion to $25 billion investments annually to stabilise output at 2 million barrels per day and 10 billion cubic feet of gas daily.

Avuru said this in a keynote paper he delivered at the Harvard Business School Association of Nigeria (HBSAN)’s quarterly discourse held in Lagos, with the theme: “Exits, Divestments and New Players: The Future of the Nigerian Oil and Gas Industry in the Hands of Indigenous Players.”
He spoke alongside other top industry executives including the Executive Vice President (Upstream) of the Nigerian National Petroleum Company Limited (NNPC), Mrs. Oritsemeyiwa Eyesan; and the Executive Chairman of ND Western Limited, Dr. Layi Fatona; and Chairman of Shoreline Natural Resources Limited, Mr. Kola Karim, among others.

Avuru narrated the glorious days of 1974 to 2011 when oil production trended between 2 million bpd and 2.5 million bpd owing to heavy investments by the international oil companies (IOCs) that were the dominant players at the time.

He pointed out that production decline set in when IOCs began their divestments from the onshore and shallow water operations and the industry regulator was not able to speedily manage the transition from the multinationals to the indigenous companies that took the assets, leading to a halt in routine investments in maintenance and surveillance by the majors.
Avuru said between 2010 and 2022, Shell and Chevron divested 20 assets to 15 Nigerian independent producers, with only a few of the local firms optimising their assets.
He added that the increase in the number of indigenous firms acquiring assets has not translated to growth in production but rather, a dip in output compared to when seven IOCs were dominant.

“Effectively, oil and gas investments and activities were muted for too long. The sector requires $20 billion to $25 billion annually to stabilise production at 2 million barrels per day plus, 10bcf/d”, he stated.
He said the industry found itself in such an ugly situation because of a badly managed transition from the divesting IOCs and the acquiring indigenous players.
While some blame the decline in production on divestment by the IOCs, Avuru argued that that was not the problem, positing that “mergers, acquisitions, divestments (are) normal business decisions in mature basins.”

According to him, those who should manage the process for a smooth transition from majors to independents turned it into an approval power play.
“Political connections rather than capacity became the qualifying criteria, in the absence of guidelines and defined processes. A long-drawn process meant that neither the divesting nor the acquiring entity was investing in the assets.

“Much worse, most of the evacuation infrastructure fell into ‘no man’s land’. The divesting IOCs stopped investing in their maintenance and surveillance. A predictable noticeable and measurable decline in production set in, but we chose to blame it all on crude oil theft”, Avuru said.
He recommended that Nigeria should have a roadmap that would lead to hitting 3 million bpd and 10bcf.
Avuru said the dismal performance could be reversed through strict enforcement of the drill or drop provision introduced by the Petroleum Industry Act (PIA), regular, transparent licensing rounds, a level playing field for entries and exits, and the re-establishment of execution capacity.

He also called for the reinvention of the NNPC to become an efficient manager rather than an operator of vast assets, stating that functional, value-driven partnerships were urgently needed at this time in the industry.
Avuru, who lauded some recent regulatory and policy initiatives introduced by the federal government and the upstream regulator, said the industry was heading in the right direction.

Specifically, he mentioned the divestment guidelines issued by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), saying that was long overdue and that more actions were needed from the commission.
He also cited the new executive orders by President Bola Tinubu on oil and gas industry, saying that “will help rebuild execution capacity, rekindle Deepwater development; rekindle gas development; address the shortfalls of the Local Content campaign.”

“Only an effective regulatory action plan will deliver the required results”, Avuru concluded.
Aligning with Avuru on the need for the enforcement of the ‘Drill or Drop’ provision in the PIA, the NNPC EVP, Upstream, Eyesan, said that would end the era of companies sitting on oil assets for many years without producing, which she noted, contributes to the production decline being recorded in the industry.
The ‘Drill or Drop’ provision states that any oil license holder who fails to bring his asset to production within a stipulated time shall lose the asset at the expiration of the time.

She said the regulator needed to redouble its efforts in bringing sanity back to the industry by ensuring that going forward, new entrants possess the required technical and financial capacity to operate before approvals are given to them.

Responding to a question on whether NNPC would be participating in the next bid round, Eyesan responded in the affirmative, saying the company would certainly bid and may be partnering with reputable and responsible companies, not necessarily IOCs.

Eyesan defended the decision of Dangote Refinery to import crude to run the 650,000 barrels per day plant, saying the company made a business decision that would offer it more yield and a higher enterprise value for the shareholders.