NNPC, Shell, others to invest $25.3b in oil, gas upstream

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NNPC, Shell, others to invest $25.3b in oil, gas upstream

Capital expenditure (capex) into oil and gas upstream in Nigeria will hit $25 billion in the next three years.A research body, Globaldata, revealed that the country would add at least $8.4 billion per year on 249 oil and gas fields from 2018 to 2020.

The Nigerian National Petroleum Corporation (NNPC), Royal Dutch Shell Plc and Eni SpA were expected to lead the investment.Already, industry players were hopeful that progress made with the signing of part of the Petroleum Industry Bill would unlock investment opportunities hovering around $250 billion.

NNPC would invest $5.3 billion into the country’s upstream projects by 2020, while Royal Dutch Shell Plc and Eni SpA would follow, with $4.7 billion and $2.8 billion respectively.

According to globaldata, ultra deep water projects will be responsible for over 28, representing $7.2 billion, shallow water projects will account for $6.7 billion or 26 per cent of the spending, while deepwater and onshore projects will necessitate $6.0 billion and $5.5 billion respectively in over the period.

Planned shallow water conventional oil field being operated by Nigerian Agip Exploration Ltd Zabazaba-Etan Project, was projected to lead the capital investment with $4.8 billion.

Similarly, a conventional oil field in the Niger Delta Basin operated by Esso Exploration and Production Nigeria Limited, Owowo West is expected to witness capital expenditure of over $1.8billion.

It put the average remaining capital expenditure per barrel of oil equivalent (boe) for Nigeria projects at $6.7. Ultra-deepwater projects have the highest remaining capex/boe at $11.20, followed by deepwater projects at $9.7. The shallow water and onshore projects have capex/boe at $7.0 and $3.3 respectively.

In a related development, research expert, Woodmackenzie has said the cost reduction efforts by the industry have largely been successful, adding that the Final Investment Decisions (FIDs) for upstream projects are set to witness new low cost cycle.

According to the report, 2017 saw a significant recovery in upstream FIDs, with the number of project sanctions more than doubled compared to 2016.
“Cost reduction efforts by the industry have largely been successful. The primary focus has been to reduce project footprints through fewer wells, smaller facilities, and the greater use of subsea tie-backs and existing infrastructure. Lower costs, lower breakevens, higher prices and improved corporate finances all contributed to an upgrade in industry sentiment and more projects getting sanctioned in 2017,” the report said.

Principal analyst at Wood Mackenzie, Jessica Brewer, said: “We are seeing significantly smaller projects, alongside a greater appetite for brownfield and expansion projects, and more subsea tie-backs.

“Brownfield developments are popular in the current capital-constrained environment, with less spend and execution risk than a greenfield project, and a faster route to first production. Both investors and operators want to see faster cycle times and quicker returns on upstream projects.

“We should continue to see operators favouring a ‘leaner and meaner’ path in 2018. At the beginning of the year we selected 30 projects we thought were most likely to make FID, and they follow many of the trends we saw emerge in 2017. Average capex continues to fall – averaging only US$2.2 billion – while capex/boe is now only US$4.9/boe, versus US$11.3/boe back in 2011.”

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