‘Oil revenue may drop further to 25 per cent of budget’

With Nigeria’s revenue from oil and gas dropping by N425.52billion in the first quarter (Q1) of 2020 to N940.91billion, according to the Minister of Finance, Budget and National Planning, Zainab Ahmed, operators have noted revenue from the sector is expected to tank further in the course of the year.
  
Speaking during a webinar organised by the Nigerian Association of Petroleum Explorationists (NAPE), the Chief Executive Officer, Seplat Petroleum Development Company Plc, Dr Austin Avuru, said oil revenues are no longer viable for the economy, and it is unlikely to witness high oil prices anytime soon.
  
Specifically, he said oil prices might not hit between $45 and $55 per barrel until 2022/2023.
  
According to him, with Q1 collection hovering around 46 per cent, expectations of revenue from the oil and gas sector are not promising, and would drop further between 25-35 per cent between Q2 and Q4.
 
Speaking on “The new normal: Post Covid-19 for the oil and gas industry in Nigeria,” Avuru urged companies to begin to look at ways to reduce production costs and diversify their portfolios.
  
“While shocks have been witnessed before now, the shock occasioned by Covid-19 led to a supply shock as 25million barrels were shut off as a result of unprecedented demand drop.
  
“Demand had grown between 2005-2020 and that led to high cost of production. Investments in the oil and gas sector are drying up as the sector continues to compete with renewables.
 
“Energy transition is real and demand for oil and gas will continue to dwindle. Nigeria needs to start adjusting to the new normal by diversifying the economy. We will be forced to focus on gas for power generation rather than for revenue generation via export like oil,” he added.
  
For companies, he noted that they must now use the crisis to boldly reposition their portfolios and transform their operating models, saying, “Portfolios have to be diversified, especially for independent producers; basin niche players need to emerge rather than expanding footprints to cut production costs, while companies with weak balance sheets will not survive except they consolidate.
  
“Operators need to capture the regional market by exploiting the West African Gas Project. Energy transition opportunities need to embraced.
 
“Oil revenue has been trending downwards and with a regime of low oil prices, plans have to be put into the price scenario to be a long term low cost oil producer.
 
“The difference this time is that there is no easy revenue for the country and we no longer have the luxury of sitting back without doing anything. Difficult decisions have to be taken at this time, especially regards deregulation in the downstream sector and even in the power sector,” he added.
  
On the timing of marginal oil bid rounds, he said there is no right time to hold the bid rounds as government can still earn some income from the fields if there are activities in them.