By and large, 2021 has been a missed opportunity for African oil producers. While the continent’s hydrocarbons sector yielded several discoveries and Nigeria finally signed its landmark Petroleum Industry Bill into law, decreasing output across the board means that African producers have not maximised benefits from the strong rebound in commodity prices.
This is particularly the case with sub-Saharan Africa’s three biggest oil producers Nigeria, Angola and the Republic of Congo. Despite OPEC quotas increasing, and leaving room to ramp domestic production back up, the three countries have been unable to pump more barrels.
In fact, the difference between their allocated OPEC production quotas and their actual production reached as much as 548,000 barrels per day in August this year. From January to October 2021, the three countries have missed on over $29bn worth of oil production according to Hawilti’s research and estimates.
Volumes differentials between OPEC quotas and actual production increased to 30,000 bopd for Congo in August. They are even more significant for Nigeria and Angola, especially at a time when their oil prices reference is high: Nigerian and Angolan oil prices stood constantly above $70/bbl between July and September 2021. Both the Girassol Blend and Bonny Light were selling at an average of over $80/bbl in August.
Nigeria’s oil sector has been massively underperforming this year so far. Its oil GDP was down -12.65% in Q2 2021, its fifth consecutive negative quarter. Despite setting an oil price benchmark of $40/barrel in its 2021 budget, the country is also failing to meet its oil revenue target. Between January and May 2021, gross oil revenue stood at NGN 1,490.76 bn against a pro-rata target of over NGN 2,000 bn. Because of its inability to increase production, Nigeria is very likely to miss its yearly gross oil & gas revenue target of NGN 5,185.57 bn.
Reasons abound, but chief amongst them is the lack of investment, especially from international oil companies (IOCs) in the Niger Delta, where the focus for the past decade has primarily been on divesting. Meanwhile, new local operators who have taken over critical onshore assets have been left cash strapped by the double oil price crash of 2014-2016 and 2020. Coupled with aging infrastructure, continued insecurity and repeated vandalism on pipelines, Nigeria’s oil production is simply unable to meet the needs of the hour. The declaration of Force Majeure by Shell at the Forcados oil terminal in August only aggravated the situation, with the country loosing 2.6m barrels of production between July and August 2021.
Production and export figures from the country’s five IOCs-operated onshore oil terminals are the most representative of Nigeria’s current situation. While the Bonny, Brass, Qua Iboe, Forcados and Escravos terminals pumped about 165.5m barrels in H1 2020, volumes were down below 130m barrels in H1 this year according to data from the Department of Petroleum Resources (DPR).
Source: Department of Petroleum Resources
Hopes are that the newly signed Petroleum Industry Act will both lead to the development of undeveloped deep-water discoveries by IOCs while unlocking fresh capital into brownfield opportunities with local operators onshore and in shallow water. Hawilti’s research on M&A deals in the country’s hydrocarbons sector suggests investors are increasingly looking at brownfield investments in the region, at a time when several key local operators are looking at farm-in, technical and capital partners.
Meanwhile, Angola also continues to suffer from under-investment in the past decade even though the outlook for its oil & gas sector is positive. Recent fields put into production such as Zinia 2 in May and Cuica in July have done very little to reverse production decline and the country had to revise its yearly production target down to 1,193,420 bpd this year.
However, Angola had already met its oil revenue target for the year by the end of Q3, with Kz 4,200 bn already collected in the first nine months of the year against a yearly target of Kz 4,059.4 bn. The country’s short and medium-term outlook is also positive because IOCs have been extremely responsive to the bold policy moves of the Lourenço administration. Most majors operating in the country have already approved new projects, especially subsea tie-backs, infill drilling and marginal fields developments ventures. Those will be supporting production in the short-term, while three new FPSO-based production hubs are in the making by TotalEnergies, Eni and BP.