Energy transition puts NNPC drilling under scrutiny

As the world accelerates efforts to curb oil exploration on account of climate change concerns, analysts are calling for intense scrutiny into the activities of Nigeria National Petroleum Company Limited (NNPC), which is leading a flurry of exploration drilling in frontier basins across northern Nigeria.

A key concern many have is that there is not much available data other than the claims of the company and the government that these sites are proven basins as the country pumps billions of oil revenue into the project.

Nigeria still has the potential for major discoveries. Unlike the Niger Delta, many places in the country likely host many frontier basins with a significant number of large untested prospects. But the President Muhammadu Buhari government has focused mostly on drilling in northern basins.

Damilola Akinsanya, an oil and gas expert, said that frontier basins “are basins where exploration activities have not been carried out and where carried out, such exploration activities have only been short-term and a significant quantum of the deposits are still undiscovered”.

The classification of petroleum basins into “mature” or “frontier” is used to draw the distinction between basins that are well explored and those that are less explored or drilled, according to Akinsanya.

However, the bulk of new exploration activities funded by the government are on a frontier basis. Analysts say the problem with NNPC’s frontier exploration drive is that the state-owned company does not possess the integrity and technical competence to warrant confidence.

Read also: Forex scarcity, energy costs, others hurting manufacturers — LCCI

The world is in an energy transition, moving inevitably to a low or net-zero carbon future. Fossil fuels are now being phased out, a process which a 2021 S&P Global Commodity Insights report notes will take only several decades.

Consequently, according to the report, “investor preferences are changing. Many no longer support hydrocarbon projects, or at least they don’t support projects that are not ‘agile’ — in terms of time-to-develop-or ‘advantaged’ – in terms of cost of development and carbon emissions. This means that frontier exploration – the riskiest of all exploration activities is also losing steam. These days, only around a dozen companies are actively pursuing frontier exploration worldwide.”

“But while frontier exploration activity is decreasing globally, sub-Saharan Africa seems to be an exception, with several high-impact frontier wells being drilled today in frontier areas. And companies have plans to do more in frontier basins across the region. In fact, sub-Saharan Africa’s rig market — which is an important indicator of upstream activity — is improving,” the report said.

This is why Nigeria should make current drilling efforts count. “Large discoveries tend to result in the production of barrels with lower costs per barrel and lower carbon intensity per barrel,” said analysts at S&P Global.

The results from the current drilling activities by NNPC will constitute an important signpost as to whether the trend of drilling frontier wells will continue and what value it would give the country.

Nigeria is heavily reliant on oil earnings, making the oil and gas industry the nation’s most critical in terms of fiscal contribution to the economy. According to the National Bureau of Statistics, the country earned N21 trillion ($45.6 billion) from the sale of crude oil in 2022.

The Petroleum Industry Act, which came into operation in 2021, established the Nigerian Upstream Petroleum Regulatory Commission and in Section 9 entrusts the commission with the function, among others, of promoting the exploration of frontier basins of Nigeria, but the NNPC appears at the moment to be in the driving seat.