Nigerian oil service industry to feel further squeeze from oil prices – Agusto & Co

With the Oil & Gas Industry across the globe currently facing a major upheaval from the oil prices crash over the last year and a half, the slower growth in demand for crude oil and the attendant lower oil prices have left many of the exploration and production companies across the globe with no option but to slash costs and oil service companies have been quick to feel the effects, ThisDay reports.

In particular, the Nigerian Oil & Gas Servicing Industry which is estimated to be worth around $4.2 billion per annum or about 2.5% of the global market for oil & gas servicing, which was valued at $167 billion in 2014, is expected to witness some decline in activities in the short term amidst the harsher operating environment due to the significant drop in crude oil prices, Agusto & Co has said.

Agusto & Co, a credit rating and risk managing company based in Lagos, also noted that the decline is, however, not expected to be as steep as that witnessed in the United States of America, Canada and other unconventional oil producing regions due to the lower cost of producing Nigeria’s oil deposits, which are primarily conventional.

It further noted that the decline in oil prices is expected to work in favour of the Nigerian Oil & Gas Servicing Industry in the medium term as Nigeria remains one of lower cost crude oil production areas in the world. It said; “We expect to see the resources of many oil majors diverted from the higher cost crude oil production locations such as the oil sands in Canada and shale in the USA to low cost of crude oil production countries like Nigeria”.

It added that  the militancy in the Niger Delta and the impasse of the Petroleum Industry Bill had already suppressed the level of major exploration and production activities in the Nigerian oil & gas upstream industry with many of the International Oil Companies (IOCs) choosing to delay investments in major fields, while the uncertainty around these two issues remains high.
Therefore, the decline in oil service companies’ activities in Nigeria is expected to come mainly from the development of smaller wells as the cost of production can be as high as $60 per barrel on these marginal fields.

Subscribe to Our Posts via Email