Risk Impacts on the Economic Performance of Oil and Gas Projects in Nigeria

Abstract

Despite the risks and uncertainties associated with investment in the petroleum industry, Nigeria remains attractive to foreign investors, due (partly) to the high rate of return on investment, the presence of a prodigious hydrocarbon base and the existence of a reliable legal framework for the protection of such investment. This study attempts to identify the key elements of risks and uncertainties in the Nigerian oil and gas industry and their associated impacts on the economic performance of capital projects, using data obtained from experts in the industry. The study reveals that the reservoir area, the hydrocarbon formation thickness, the porosity, the production drive mechanism and, hence, the recovery factor are the most significant uncertainty factors in oil exploitation. The major economic uncertainties identified include the crude oil price and joint venture cash calls (the latter is currently on the decline, due to the improved Government commitment to its cash call obligations).