By Adewale Sanyaolu
Nigeria’s hope of funding its N21.83 trillion 2023 budget may hit a brickwall as hopes of an early return to improved oil production appears threatened with some International Oil Companies(IOCs) not listing Nigeria as part of their new investment priorities in the new year..
Industry observers say the development could further put a strain on the Federal Government’s lean resources since it may have to look elsewhere to fund the budget.
In the 2023 budget, government is projecting that the country’s daily oil production estimate of 1.69 million barrels (inclusive of Condensates of 300,000 to 400,000 barrels per day) will give it an oil revenue target of N1.92 trillion at $70 per barrel oil benchmark.
The new investment strategy shows that Chevron will use 70 per cent of its capital allocation for production on oil fields in the U.S., Argentina and Canada.
Both Chevron and ExxonMobil are focusing more on shareholder returns and less on speculative spending, and they are both reining in investments in large international oil projects focusing more on investing in the Americas.
ExxonMobil says, it will allocate a similar portion of its budget to places like the Permian Basin, Brazil and LNG projects, The Wall Street Journal reported last week. Both companies are moving out of places like Asia, West Africa, Russia and parts of Latin America, the report says.
A senior fellow at the Centre for Strategic and International Studies, a Washington think tank, told The Wall Street Journal that: “The cases of them going to new countries are few and far between. It’s a natural consequence of investors demanding higher returns. Companies are being more selective.”
It marks the end of an era where oil companies would search globally for oil to add to their booked reserves. Exxon has already sold or proposed to sell assets in Chad, Cameroon, Egypt, Iraq and Nigeria, the report says. They mark the largest sales for the company since 2018 and come as part of an overall plant to try and offload at least $15 billion in assets.
Exxon’s production is down about 18 per cent since its peak in 2011, while Chevron’s international output has fallen by 3 per cent since last year. Chevron has moved out of areas like Azerbaijan, Denmark, the United Kingdom and Brazil, the report says, though it does maintain assets in Venezuela still.
An analyst at Truist Securities, Neal Dingmann, added that: “You have investors leaning on you harder than they have in the past. It’s going to be critical that they prune their other [noncore] businesses.”
Exxon’s 5 year plan calls for up to $25 billion in spending each year through 2027 to try and boost production by 500,000 barrels a day. It also plans on trimming $9 billion in costs by the end of this year. Chevron is also ramping up spending 25 per cent to $14 billion this year – a figure that is still well below its pre-pandemic budget.
But a portfolio manager at investment firm Invesco Ltd., Kevin Holt, thinks that institutions are not convinced oil companies won’t run into spending problems again: “They don’t think the industry will stick to capital discipline. It’s going to take a little more time.”
The industry is also focusing on moving to low carbon methods of business. Research fellow at Columbia University’s Center on Global Energy Policy, Tatiana Mitrova, concluded, telling WSJ: “the majors are quite well positioned to develop the new technologies like hydrogen, carbon capture and other new things that will help the industry decarbonise.”