Nigeria's $50bn Oil Plan Sets Sights on 2030 Production

Nigeria’s newly approved $50 billion deep offshore investment framework is geared towards oil production in the next decade, with projects under the scheme likely to start producing around 2030 or 2031, VNL Capital Asset Management Chief Investment Officer, Dr Ifeanyi Ubah, has said.

Ubah said the long period required to develop deepwater oil projects meant the policy could not be judged mainly by present crude oil prices. He made the comments in an interview on Arise News’ Global Business Report, where he discussed the offshore framework, OPEC’s oil demand outlook and crude prices.

His assessment puts the value of the framework in the investment decisions it could support over several years, as Nigeria prepares projects that will take time to reach production.

“These projects are usually long term, so starting a project this year will probably end around 2030/2031, which even from OPEC’s current reports, demand expectation is expected to be modest during that period. So this is more or less positioning for its own cycle, rather than Nigeria chasing the buck,” he said.

Tax relief and profit sharing shape project economics

The financial terms attached to the framework could also influence whether oil companies commit capital to deepwater projects, Ubah said.

Qualifying projects could receive tax incentives of up to $11.50 for every barrel produced. The framework also provides for a 70:30 profit-sharing arrangement between contractors and the government.

“The tax incentives are something almost like $11.50 on every barrel, and aside from that, we still have the 70/30 reset between the government and contractors. That is actually a huge incentive on the economics,” he said.

The incentives could improve the financial returns from deepwater developments. Ubah said the terms were significant enough to improve the economics of such investments and attract new capital into the sector.

The $50 billion size of the framework therefore points to a long-term investment programme, with the timing of production an important part of the calculation. Projects that begin under the scheme now would have to pass through the lengthy development period associated with deepwater operations before oil can be produced.

Ubah also connected the policy to the need for new investment in Nigeria’s oil and gas industry. He said the framework could attract private and foreign capital into the sector, giving investors financial incentives to commit funds to offshore developments.

The investment could also have effects beyond oil production itself. Ubah said the framework could create skilled jobs and improve Nigeria’s local technical capacity.

His comments came as questions were being raised about the timing of major offshore investment against projections of modest oil demand growth around the period when the projects are likely to start production.

To Ubah, that timing is part of the reason the framework should be viewed as a long-term investment decision. The projects are not being developed simply to benefit from the crude oil market as it stands now, but to prepare production capacity for the period when the developments reach completion.

The tax incentives and profit-sharing terms are therefore important parts of the framework's investment proposition. Together, they could affect how contractors assess the cost and potential returns of deepwater projects that may not produce their first barrels until 2030 or 2031.

Ubah said the combination of investment incentives, private capital and offshore development could also help build the skilled workforce and technical capacity needed within Nigeria’s oil and gas industry.