Despite NOCs’ budget cut, FG explores options for oil in North

Despite NOCs’ budget cut, FG explores options for oil in North

Though National oil companies (NOCs) across the world are estimated to cut exploration budgets by $5 billion to around $14 billion this year, the Federal Government has stated that the plan to explore prospects of hydrocarbon in the Northern region of the country will continue.

The Minister of State for Petroleum Resources, Timipre Sylva, who had earlier disclosed that one billion barrels of crude oil were discovered in North-east stated that the Federal Government may consider scalable options that would ensure that the resources are harnessed and possibly processed in the region to reduce cost.

Considering that the prevailing market realities, as well as the outbreak of coronavirus, has disrupted international oil market, crashing price to record low, tracking well plans of 11 top spending NOC explorers, including three Chinese NOCs, PTT Exploration and Production Public Company Limited (PTTEP), Malaysia’s PETRONAS, India’s Oil and Natural Gas Corporation (ONGC), Qatar Petroleum, Rosneft, Gazprom, Petrobras and Pemex, would collectively slash the budget by about 26 per cent.

“When asked if the current reality in the international market was encouraging to continue exploration at the inland basins, especially with the difficulty and likely expensive geological location, Sylva said: “The discovery at the inland basin has been announced but will it be viable when oil prices are low? We are looking at various options.

“One of it is to create a hub around the production so that instead of pipping the crude oil from the North, we can create a development corridor around that product. We can build a refinery there and create businesses from the production using the oil as feedstock. We may not export but create development activities around the production.”

According to him, if the oil is discovered around the country and such corridors are created, the move will bring development and growth.

Sylva had earlier told journalists that more crude oil would still be discovered and explored in other parts of the country.

However, Wood Mackenzie Senior Analyst, who analysed spending of oil state-oil-firms, Huong Tra Ho said: “While the range of exploration budget cuts for the NOCs is slightly more diversified than that of the Majors, conventional exploration remains important for them.

“Most NOCs consistently spent between 12 per cent and 35 per cent of their upstream budgets on exploration, an average of about 17 per cent over the 2015-2019 period. This is significantly higher than the majors’ average spend of 8 per cent of upstream budgets on exploration.”

Just like Nigeria, WoodMac stated that NOCs with substantial international presence would prioritise domestic activity, with deeper cuts to the overseas budget.

Ho said: “Most NOCs on the list carry strong government mandates. Many NOCs prioritise current revenue and contribution to government budgets at the expense of capital investments for the future. A dollar invested at home remains at home in the form of local employment, local services, taxes and government take.”

According to the think-tank, NOCs with constrained domestic resources could place more strategic importance on exploration compared to those with resource abundance, stressing that organically added resources would contribute between 50 per cent and 70 per cent of their production in the next decade.

“Another key factor to supporting exploration plans is financial strength. With strong balance sheets, Petronas, PTTEP and CNOOC Ltd are more able to continue with most of their high-impact exploration ambitions.

“Some NOCs can achieve meaningful absolute savings from exploration cuts, especially if it originally makes up a big portion of the company’s upstream budget. An example is Sinopec, whose exploration spend consistently accounts for a quarter or more of upstream budget; in which case cutting back exploration significantly contributes to necessary savings.

“Exploration budget cuts while necessary today, will impact companies’ future growth and sustainability. Given how important exploration is for the NOCs and their growing share of global new discoveries, these budget cuts are likely short-term measures rather than long-term. We expect NOCs to revitalise their exploration programmes as the sector recovers,” Ho said.

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