Concerns Over Nigeria’s Oil and Gas Regulatory Priorities
A top oil and gas investor and Executive Chairman of AA Holdings, Mr. Austin Avuru, has raised concerns about the focus of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) on decommissioning and abandonment of oil and gas assets in the country. He argues that instead of prioritizing efforts to reduce the cost of production and increase output, regulatory actions are being directed towards decommissioning exercises that may not be economically viable.
Avuru, who is also a non-executive director of the Nigerian National Petroleum Company Limited (NNPC), highlighted a specific case where the NUPRC listed an asset with 149 wells for decommissioning. He pointed out that in some instances, the value of these assets was less than the cost of decommissioning and abandonment, which he sees as a misallocation of resources.
The discussion took place during a panel session at a special oil industry dinner in Lagos, organized by the Petroleum Club Lagos to celebrate the 75th birthday of Chief Tunde Afolabi, Chairman of AMNI International Petroleum Development Company.
NUPRC’s Decommissioning Efforts
According to reports, the NUPRC had approved 94 Decommissioning and Abandonment (D&A) plans since April 2023, amounting to total liabilities of $4.424 billion. The organization had also secured over $400 million in decommissioning liabilities. Additionally, the commission had outlined plans to cut Nigeria’s oil production costs to below $10 per barrel in the medium term through a standardized tariff model and strategic collaborations.
However, Avuru expressed disappointment that the regulator was focusing on decommissioning at costs higher than the value of the assets themselves, rather than addressing the current production cost range of $15 to $30 per barrel. He emphasized the need to increase daily output and prepare for a future beyond oil, contrasting Nigeria’s approach with that of other oil-producing nations like the United Arab Emirates (UAE) and Saudi Arabia.
Lessons from Other Oil-Producing Nations
Avuru noted that while countries like the UAE and Saudi Arabia are using their oil wealth to plan for a post-oil future, Nigeria has yet to address the realities of its late-life petroleum basin. He argued that this situation demands more regulatory action plans aimed at incentivizing operators to extract remaining oil before the global transition to renewables.
He explained that the real value of producing assets is often less than the cost of decommissioning, which he described as a sign of a late-life petroleum basin. In such cases, the focus should be on low-cost production and operational efficiency to maximize recovery. However, he believes Nigeria is moving in the opposite direction.
Rising Production Costs and Economic Risks
Avuru pointed out that Nigeria’s oil production costs have risen from $2.50 per barrel to between $15 and $30. This increase poses a risk if oil prices drop, as some fields may become unprofitable and have to close. He warned that without significant changes, Nigeria and Venezuela could be the only countries left with untapped oil due to high production costs.
To reverse this trend, Avuru called for robust policies and regulations focused on solving real issues and delivering tangible solutions. He emphasized the need for regulations that prioritize maximizing production at the lowest cost and using oil revenues to fund future prosperity.
Industry Challenges and Concerns
Other industry leaders shared similar concerns. Dotun Isiaka, Managing Director of Seplat Nigeria Unlimited (SEPNU), expressed worries about government, regulatory, and partner behaviors that could hinder operations. He highlighted the pressure of being listed on stock exchanges, which requires transparency and risk management.
Isiaka stressed that while Seplat has competent teams to mitigate risks, external factors such as regulatory actions and political decisions remain a source of anxiety. He fears that progress made in recent years could be reversed if the regulatory environment does not improve.
Celebrating Industry Leaders
Despite these challenges, the event celebrated the contributions of industry leaders. Chief Tunde Afolabi was honored for his long-standing impact on the Nigerian oil and gas sector. A plaque was presented to him by the Petroleum Club Lagos, recognizing his leadership and contributions.
Other dignitaries, including former Minister of Petroleum Chief Don Etiebet, praised Afolabi as an icon and respected figure in the industry. They described him as a visionary leader who has consistently supported the growth of the sector.