Nigeria’s Oil Sector: the Demand to Get the Oil in the Tank
The industry breathed a sigh of relief when Udobong (Udy) Ntia was announced as a member of the NNPCL executive leadership to oversee upstream operations.
“Finally,” said one industry colleague. “Wow, that’s a big deal,” said another. “Now, we’re moving.” was the simple but upbeat message I received from my third friend, who immediately picked up the phone and had a 22-minute conversation. We speculate on how Udy was appointed, his understanding of NNPCL’s current situation, what his responsibilities might entail, and most importantly, which key performance indicators (KPIs) will define his success in the role.
This article is not relevant to Udi, however, as his appointment is emblematic of larger issues facing the Nigerian oil industry. The real story here is that the country has been slow to respond to challenges in key sectors of its economy, entrusting the fate of the “golden goose” to those least able to drive change – especially in a deepening economic crisis.
Outsiders to the industry may find the industry’s excited response to Udy’s appointment puzzling. After all, as the old English proverb goes, “One tree cannot make a forest.” However, in this context, the appointment of this single leader to a key role in the underperforming NNPCL is a meaningful and symbolic step forward. As the late Martin Luther King Jr. famously said, “The time is always right to do the right thing.” Ideally, the right leadership would have been in place at NNPCL years ago. The next best time is now. The importance of having the right people in the right positions – particularly in NNPCL’s upstream divisions – cannot be overemphasized. Here’s why:
Upstream operational excellence drives profitability
The performance of the upstream industry is directly related to the profitability of the entire oil and gas value chain. In an industry where pressure is increasing to produce more oil at lower cost, operational excellence is non-negotiable. For NNPCL, the national oil company responsible for managing Nigeria’s vast hydrocarbon resources, the goal should be to optimize returns from its upstream assets.
However, despite having world-class reserves, NNPCL has consistently underperformed compared to its global peers. Take Petrobras, the Brazilian state oil company, for example. Petrobras has oil reserves of just over 10 billion barrels and production in 2023 will be 2.24 million barrels per day. In sharp contrast, NNPCL, which has more than 37 billion barrels of reserves, has struggled to maintain production above 1.3 million barrels in 2023. past 17 months. This discrepancy highlights the underutilization of Nigeria’s oil resources and highlights the inefficiency of NNPCL’s operations. As production costs rise and Nigeria’s fiscal break-even prices climb, it becomes even more important for NNPCL to improve the efficiency of its upstream operations.
The most successful national oil companies (NOCs) have learned to adopt the business philosophy of international oil companies (IOCs), which relentlessly pursue operational excellence to maximize profits. These companies compete by making their upstream operations more efficient, earning significant profits in their upstream operations to support their downstream operations. To achieve similar success, the NNPCL must attract and retain the best talent, especially those with experience operating at the IOC level. The clock is ticking and leadership changes cannot come fast enough.
Nigeria is sitting on gold—just waiting to be mined
Nigeria does have huge oil and gas reserves, most of which remain underexplored and underdeveloped. NNPCL holds full or partial interests in more than 50 oil mining leases in the Niger Delta, which provide more than 20 billion barrels of oil and more than 100 trillion cubic feet of natural gas. Still, the country’s oil production has been declining steadily over the past decade.
A major factor in this decline appears to be the gradual shift in oil and gas ownership to local companies, a shift that began about a decade ago. The transfer of ownership coincided with a 40% drop in output in the industry and a 70% drop in investment. As the disinvestment process continues, local companies will be responsible for more than 80% of the country’s oil and gas operations and about 50% of Nigeria’s total oil production. NNPCL, now a joint venture partner with remaining international oil companies and a growing number of local independent operators, has significant operational and strategic influence over how these resources are developed.
What is most lacking, however, is leadership that can guide these assets to achieve maximum value. Nigeria is at a critical juncture in its oil journey and without clear and decisive leadership, the full potential of these resources will remain untapped.
Quality execution must match quality strategy
To unlock the true value of Nigeria’s upstream industry, the quality of execution must match the quality of strategic thinking. Structural reforms, innovation in contracting models and alignment of incentives between NNPCL and its joint venture partners are key to driving operational liquidity. But strategy alone is not enough; execution must also be required. It is critical that NNPCL not only possesses the capabilities to design a winning strategy, but also implement it effectively, ensuring that Nigeria’s hydrocarbon resources generate significant value through a well-thought-out resource production strategy.
Drill, baby, drill
In the oil industry, there is only one way to create value: by drilling to extract hydrocarbons from the ground. Drill new wells, re-enter existing wells and restart shut-in wells while doing so efficiently, safely and cost-effectively. While getting the oil out of the ground is critical, making sure it reaches the market—”putting the damn oil in the damn tank,” as my colleagues in Texas say—is even more important. important.
The appointment of Udy Ntia to lead NNPCL’s upstream operations at this critical time is emblematic of the urgent need for effective leadership in the Nigerian oil and gas industry. However, true transformation will only come when NNPCL has the right strategy, the right talent and operational excellence required to realize the full potential of Nigeria’s vast oil and gas resources. Time will tell whether the industry’s collective optimism is justified, or whether the malaise plaguing the sector will continue to hold back the country’s progress.
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About the author
Dimeji Basel is an oil and gas executive with over 25 years of global experience working with multinational operators and oilfield services companies. During his career, he has held various operational, consulting and commercial positions with several multinational carriers and services companies. Bassir currently leads Ofserv, an independent consultancy specializing in underground engineering, project management, drilling performance improvement and reliability services. Prior to joining Ofserv, Bassir served as Country Manager for Nigeria for GE Oilfield Technology and Drilling Reliability Consultant for GE Energy Services. He has also served as a drilling performance engineer for clients including BP, Shell International and ConocoPhillips, and held field engineering positions in onshore and offshore drilling operations for Baker Hughes, Halliburton and Chevron.
