A new report by Wood Mackenzie has revealed that the oil and gas industry in Nigeria, Angola and other countries in the sub-Saharan African cut $133 billion capital expenditure (CAPEX) between 2015 and 2020 as a result of the crash in crude oil prices.
The report titled: “sub-Saharan Africa Investment and Cost Trends – Have Costs fallen enough?” further revealed that 87 per cent of oil and gas projects were downgraded, deferred or cancelled in Nigeria and Angola.
Wood Mackenzie noted that in 2017 the operating expenditure (OPEX) fell by 10 per cent as a result of lower costs, project optimisation and deferred Final Investment Decisions (FIDs).
The report, however, added that “stubborn fixed costs have pushed up the spend per barrel in some locations.”
The new report highlighted that it Nigeria, crude oil production dropped by 12 per cent, thus increasing the cost per barrel equivalent, despite the six per cent OPEX savings.
The report noted that OPEX for 2016 marked the lowest point for total spend, while operators slashed seven per cent spend between 2014 and 2017, with deepwater Angola cutting OPEX by as much as 30 per cent.
Wood Mackenzie argued that exploration is at historic low, despite the fact that it is now cheaper to hire rigs, while spend has shift from CAPEX to OPEX.
According to the report, drilling spend halved between 2014 and 2016, reflecting the oil price crash, adding that low rig utilisation contributed to the 60 per cent drop in the cost average day rates of hiring rigs.
The report also cited a drop in exploration and appraisal drilling since 2014, stressing that funding constraints with the NNPC could deter recovery in drilling.
Wood Mackenzie also noted that oil companies have focused capital investments on few key projects, with the FID for Ghana’s Greater Jubilee expected in January 2018, while FID for Nigeria’s Oil Mining Leases (OMLs) 83 and 85 is also scheduled for the same period.
Wood Mack also stated that the Nigerian operators would prioritise low cost work-overs in the short term.
“Long term production will depend on the successful transition to new funding methods and fiscal terms. Operators will focus on low cost work-overs in the near term; this alone cannot grow long term production,” the report added.
According to Wood Mackenzie, production has been hard hit by the reduced investments with militancy and project deferrals impacting heavily on Nigerian output.
“Investment outlook – an uptick in project sanctions is expected over the next two to three years as costs have fallen. These new developments will commercialize 13 billion barrels of oil equivalent of reserves before 2020,” the report added.
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