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For Africa’s biggest oil-producing country, the idea of looking for oil miles into the sea may be off the table this year, thanks to a wave of bankruptcies facing the global offshore industry.
The global offshore industry is currently struggling as some of the biggest offshore drillers struggle with low drilling contracts and bad debt headaches, a scenario that has many implications for Nigeria whose deepwater assets account for 40.47 percent of the total production of 2.1 million barrels per day (bpd).
World’s largest offshore rig owner by fleet size, London-based Valaris, has joined rivals Noble Corp. and Diamond Offshore Drilling Inc. and Arena Energy, one of the largest offshore oil and gas companies, in filing for bankruptcy.
Diamond Offshore Drilling was the first to file for bankruptcy in April after collapsing under the weight of $20 oil. With a debt pile of $2.6 billion, according to the Financial Times, the move was motivated by the unprecedented oil price crash, saying in its filing that conditions in the oil industry had “worsened precipitously in recent months”.
Earlier this month, Noble Corp filed for bankruptcy protection following the company’s inability to make an interest payment of $15 million on a loan. Noble’s total debt burden was $4 billion.
Arena Energy attributed its bankruptcy filed on August 24 to years of low crude prices made worse by the recent coronavirus-driven oil crash. The company said it has more than $1 billion of debt and $35 million of cash on hand.
Pacific Drilling SA earlier this month said it may return to bankruptcy court for the second time in less than three years, and Transocean Ltd., the world’s biggest owner of deep-water oil rigs, has said it’s exploring strategic alternatives.
In a recent report by British information provider, IHS Markit said that demand for drilling rigs would start to recover next year and gather speed in 2022. But this will only happen in some parts of the world, namely South America and Western Africa.
“Offshore drilling is structurally damaged, and recovery is not imminent,” Nicholas Green from Bernstein wrote in a note cited by Bloomberg.
The above development will be a huge concern for Nigeria, which currently has about 13 billion barrels of oil equivalent untapped in its deep offshore area.
Also, data obtained from Baker Hughes Incorporated and OPEC showed Nigeria had six rigs count last month, a sharp decline compared to 35 rigs count recorded in February 2018.
The rig count is largely a reflection of the level of exploration, development and production activities occurring in the oil and gas sector.
“The logic is straightforward. When the number of oil rigs rises, it means more people can be employed, when it drops, it means loss of employment opportunities,” said Edward Diete Koki, managing director, Alliance Capital Management Ltd.
Nigeria’s success in boosting offshore developments will, however, also depend on its efforts to make the regulatory and legislative backdrop more certain for investors.
Aside from the Bonga field, other deepwater fields such as Chevron Agbami field, ExxonMobil Erha field, Nigerian Agip Exploration Aboh field, Total Exploration and Production Akpo and Usan fields, and to the most recent, Egina field have all started exploration, drilling, and production in full swing, yet at least 80 other deepwater oil blocks are yet to begin operations.
Nigeria is currently pumping close to 2 million barrels of oil a day and it plans to roughly double that by 2020, a target that could prove difficult to achieve given expectations that offshore drilling orders will not begin to return until 2021.
