A Strategic Analysis of Frontier Alternatives in Nigerian Oil and Gas Production: The Case of the Kolmani Discovery

A Strategic Analysis of Frontier Alternatives in Nigerian Oil and Gas Production: The Case of the Kolmani Discovery

Tolulope Elekula, Toyin Olabisi Odutola, Joseph Atubokiki Ajienka,

Emerald Energy Institute, University of Port Harcourt, Rivers State, Nigeria.

ABSTRACT

Nigeria’s oil and gas sector, historically concentrated in the Niger Delta, faces increasing challenges, including reserve depletion, infrastructural decay, and security concerns. In response, exploration efforts have expanded to frontier basins such as the Gongola Basin, leading to the discovery of the Kolmani field in 2019. This study presents a strategic evaluation of the Kolmani field using SWOT and PESTLE frameworks to analyze internal strengths and weaknesses, as well as external opportunities and threats. Key challenges include infrastructure deficits, regional security concerns, and heavy tax burdens under the Petroleum Industry Act (PIA) 2021. However, the project presents opportunities for government incentives, industrialization, and socio-economic development and stimulation. The analysis is based on data from NNPC’s Frontier Exploration Services, industry reports, and expert consultations. Key recommendations include engaging with government agencies to optimize fiscal incentives, leveraging advanced technologies to enhance production efficiency, and implementing robust security and risk management strategies. The study provides actionable insights for policymakers, investors, and industry stakeholders seeking to optimize Nigeria’s frontier oil and gas development.

Keywords: Kolmani Discovery, Frontier Oil and Gas, Strategic Analysis, SWOT, PESTLE, Nigerian Hydrocarbon Development

INTRODUCTION

Nigeria’s oil and gas industry has been a cornerstone of its economy for decades, contributing significantly to GDP, foreign exchange earnings, and government revenue (Obi, 2010; World Bank, 2021). However, production shortfalls due to regulatory uncertainties, infrastructural deficiencies, and security threats have necessitated a shift toward alternative hydrocarbon regions beyond the Niger Delta (Adegbite, 2020). The Kolmani discovery, located in the Gongola Basin of the Upper Benue Trough, is the first commercial oil find in Northern Nigeria and represents a potential game-changer in the country’s energy landscape (NNPC, 2019).

Despite its promise, the development of the Kolmani field faces strategic hurdles, including high capital expenditure (CAPEX) and operating expenditure (OPEX), an unstable security environment, and logistical challenges associated with its landlocked location. Additionally, the PIA 2021 imposes a 54% tax burden, which may deter investment unless fiscal incentives are introduced (Petroleum Industry Act, 2021).

This study employs SWOT (Strengths, Weaknesses, Opportunities, and Threats) and PESTLE (Political, Economic, Social, Technological, Legal, and Environmental) frameworks to systematically analyze the viability of the Kolmani field and provide strategic recommendations. Unlike previous studies that focus on geological and economic assessments, this paper provides a holistic strategic perspective, integrating stakeholder inputs, industry reports, and regulatory data to formulate actionable insights.

LITERATURE REVIEW

The Evolution of Oil and Gas Development in Nigeria

Nigeria’s oil industry began with the 1956 Oloibiri discovery, leading to rapid development and global market integration. Over time, production centred around the Niger Delta, where substantial reserves were exploited (Obaje, 2009). However, challenges such as militant activities, oil theft, and environmental degradation have prompted diversification efforts (Anifowose et al., 2012).

Nigeria holds approximately 37 billion barrels of proven crude reserves, ranking among the top 10 oil-producing nations globally (BP, 2021). Despite this potential, production has declined from 2.5 million barrels per day (bpd) in the early 2000s to 1.8 million bpd in 2020 (OPEC, 2021), necessitating a strategic shift towards frontier exploration.

Frontier Exploration in Northern Nigeria

The Frontier Exploration Services (FES) division of NNPC has spearheaded efforts to explore northern sedimentary basins, including:

• Chad Basin – Geologically analogous to oil-producing basins in Chad and Sudan but yet to yield commercial discoveries (NNPC, 2020).
• Sokoto Basin – Contains promising stratigraphy, but further exploration is needed (Obaje, 2009).
• Bida Basin – Has undergone preliminary seismic studies, but no confirmed commercial viability (Burke, 1976).
• Gongola Basin – The Kolmani discovery (2019) confirmed significant oil and gas potential, making it the most promising among these basins (NNPC, 2019).

The Kolmani field, situated within the Upper Benue Trough, contains an estimated 1 billion barrels of crude oil and 500 billion cubic feet of natural gas, offering a viable alternative to the Niger Delta (NNPC, 2019).

The Kolmani Discovery and Its Strategic Importance

The Kolmani discovery was the result of advanced seismic imaging and exploratory drilling conducted by NNPC’s FES division. Figure 1 illustrates the location of the Kolmani field, highlighting its position relative to major oil-producing regions.

Figure 1: Generalized geological map of Nigeria showing the location of the Gongola Basin

(Source: Journal of African Earth Sciences)

The strategic importance of the Kolmani field includes:

• Diversification of Nigeria’s Oil and Gas Base – Reduces dependence on the Niger Delta and mitigates risks associated with declining southern reserves.
• Industrialization and Economic Growth – The project has the potential to spur economic activities in Northern Nigeria, which has historically lacked major industrial investments.
• Energy Security – Increased domestic production can support Nigeria’s power sector, reducing the need for costly energy imports.

Challenges and Risks in Frontier Oil and Gas Development

Developing oil and gas resources in remote and previously unexplored basins presents unique challenges. Some key risks include:

Infrastructure and Logistics

The Kolmani field is located in a landlocked region with no existing oil and gas infrastructure. This presents challenges related to transportation of crude, requiring the construction of pipelines, roads, and processing facilities (NNPC, 2019).

Security Risks

Northern Nigeria is plagued by terrorist activities, banditry, and communal conflicts, which could disrupt operations and increase project costs (Giwa-Osagie & Ehigiato, 2015).

Regulatory and Fiscal Constraints

The PIA 2021 imposes a high tax burden (54%), which may discourage private investment unless fiscal relief mechanisms are introduced (Petroleum Industry Act, 2021).

2.4.4 Environmental and Social Risks

Concerns about potential oil spills, gas flaring, and land degradation necessitate robust environmental management strategies (Obi, 2010).

METHODOLOGY

Research Approach

This study employs a qualitative strategic analysis approach to evaluate the development of the Kolmani field in northern Nigeria. The methodology integrates secondary data collection, strategic frameworks (SWOT and PESTLE), and stakeholder insights to provide a comprehensive assessment of the opportunities and challenges associated with the project. Given the complexity of the oil and gas industry and the frontier nature of Kolmani, the study focuses on qualitative analysis to explore economic, political, social, and environmental factors that influence decision-making.

SWOT and PESTLE Frameworks

To structure the analysis, the study employs two strategic analysis tools:

SWOT Analysis:

• Assesses the internal strengths and weaknesses (e.g., resource potential, infrastructure gaps).
• Evaluates external opportunities and threats (e.g., policy incentives, market risks).
• Provides insights into risk mitigation and strategic positioning.

PESTLE Analysis:

• Examines the macro-environmental factors impacting the project.
• Covers Political, Economic, Social, Technological, Legal, and Environmental influences.
• Identifies key policy, regulatory, and market conditions shaping the project’s viability.

These frameworks provide structured, evidence-based strategic insights.

Stakeholder Input

The study incorporates qualitative insights from key stakeholders, including:

• Government Agencies: Perspectives from the Ministry of Petroleum Resources and NNPC Frontier Exploration Services (FES) on regulatory challenges.
• Industry Experts: Views from oil and gas professionals on technology deployment, financing, and risk management.
• Local Communities: Consideration of socioeconomic impacts, employment potential, and environmental concerns.

Stakeholder perspectives enhance the practical relevance of the strategic analysis.

Analytical Process

The study follows a systematic three-step analytical process:

Data Compilation and Organization

• Secondary data is gathered and categorized based on thematic relevance.
• SWOT and PESTLE analysis inputs are structured into relevant categories.

Strategic Analysis Execution

• SWOT analysis is conducted to identify key internal and external factors.
• PESTLE analysis assesses macro-environmental conditions affecting Kolmani’s development.

Interpretation and Synthesis

• Findings from SWOT and PESTLE are synthesized to highlight strategic implications.
• Policy and investment recommendations are derived based on analysis results.

Justification of the Methodology

This qualitative, strategic approach is justified because:

• Strategic decision-making in frontier oil and gas development requires holistic evaluation rather than purely financial modelling.
• SWOT and PESTLE analyses provide a structured yet flexible framework to assess internal and external influences.
• Stakeholder input enhances the credibility and practical application of the findings.

By integrating secondary data, strategic frameworks, and stakeholder perspectives, this methodology provides a comprehensive and actionable evaluation of the Kolmani field development.

STRATEGIC ANALYSIS

Developing oil and gas resources in frontier regions presents unique opportunities and challenges. The Kolmani field, located in the Gongola Basin of northeastern Nigeria, represents a major milestone in the country’s efforts to diversify its hydrocarbon production base. However, its development requires a comprehensive strategic evaluation to determine its viability, considering economic, political, technological, environmental, and social factors.

This section applies two well-established strategic analysis frameworks—SWOT (Strengths, Weaknesses, Opportunities, and Threats) and PESTLE (Political, Economic, Social, Technological, Legal, and Environmental)—to assess the factors that could influence the successful development of the Kolmani field. These frameworks help identify risks, opportunities, and strategic actions necessary to optimize the project’s potential.

The SWOT analysis evaluates internal and external factors affecting the Kolmani project, while the PESTLE analysis assesses macro-environmental influences that could shape its development trajectory.

SWOT Analysis

SWOT analysis is an essential tool for assessing a project’s internal strengths and weaknesses and external opportunities and threats. For the Kolmani field, this framework helps determine key strategic considerations, enabling stakeholders to leverage advantages while mitigating risks.

Strengths (Internal Factors)

Significant Hydrocarbon Reserves

• The Kolmani field has over 1 billion barrels of crude oil and 500 billion cubic feet (bcf) of gas, making it a substantial resource base.
• The field’s proven volumetric estimates suggest long-term production viability.

Self-Sustainable Development Plan

• Due to its remote location, the Kolmani project is designed to be self-sustaining, incorporating its own power generation and utilities.
• This setup reduces reliance on external infrastructure, enhancing operational stability.

Government and NNPC Involvement

• The Nigerian National Petroleum Corporation (NNPC), through its Frontier Exploration Services (FES) division, is a key stakeholder, ensuring state-backed development.
• Potential government incentives and regulatory support under the Petroleum Industry Act (PIA) 2021 could improve project viability.

Potential for Job Creation and Economic Growth

• The project is expected to boost local employment and stimulate industrial development, contributing to Nigeria’s economic diversification.

Weaknesses (Internal Factors)

High Capital and Operating Costs

• The Kolmani development requires an estimated $1.9–$3.7 billion in capital and operational expenditures (CAPEX & OPEX), making it financially demanding.
• High Unit Technical Cost (UTC) of $30–$40 per barrel and Unit Development Cost (UDC) of $20–$30 per barrel raise concerns about project profitability.

Remote Location and Lack of Infrastructure

• The landlocked nature of the Kolmani field means there are no existing pipelines, refineries, or export terminals nearby.
• Significant investment is needed in transportation and logistics to ensure oil and gas delivery to markets.

Regulatory and Fiscal Challenges

• The high tax burden under PIA 2021 (54% total tax) reduces investor attractiveness.
• The complex regulatory environment could create bureaucratic delays.

Security Risks

• The northeastern region of Nigeria faces security threats, including terrorism, banditry, and local unrest, posing risks to operations.

Opportunities (External Factors)

Increasing Energy Demand

• Nigeria’s growing population and regional energy needs create strong demand for oil, gas, and power.
• The Kolmani field can support industrialization by supplying refineries, power plants, and petrochemical industries.

Potential for Local and Regional Market Expansion

• Kolmani’s proximity to Nigeria’s northern states and neighbouring countries (e.g., Chad, Niger, Cameroon) creates opportunities for regional export markets.

Technological Advancements in Oil and Gas Exploration

• Advances in seismic imaging, enhanced recovery techniques, and digital oilfield technologies can optimize resource extraction, making Kolmani more viable.

Government Policy and Infrastructure Investment

• The Nigerian government’s push for diversification in oil production beyond the Niger Delta could lead to special incentives for frontier basin projects.

Threats (External Factors)

• Political and Security Uncertainty
• The geopolitical risk in northern Nigeria, including insurgency and armed conflict, could disrupt exploration and production activities.

Fluctuating Oil Prices and Market Uncertainty

• Global oil price volatility affects investment decisions and project profitability.
• Economic downturns or shifts toward renewable energy could reduce long-term oil demand.

Environmental and Community Concerns

• Potential oil spills, gas flaring, and habitat destruction could lead to opposition from local communities and environmental groups.
• If Corporate Social Responsibility (CSR) measures are inadequate, local unrest may arise.

Regulatory and Fiscal Risks

• The high tax regime under PIA 2021 makes the project less competitive than international alternatives.
• Potential regulatory delays, contract disputes, and compliance costs could increase operational challenges.

PESTLE Analysis

The PESTLE framework examines the macro-environmental factors that could impact the Kolmani project’s success. These external influences are crucial in shaping strategic decision-making.

Political Factors

• Government Support: The NNPC’s direct involvement enhances credibility and potential policy backing.
• High Tax Burden: The PIA 2021 tax regime (54%) presents a challenge for investment.
• Regional Security Issues: Terrorist and insurgent activities in northeastern Nigeria pose risks to field operations.

Economic Factors

• High Development Costs: CAPEX and OPEX range from $1.9–$3.7 billion, requiring substantial financing.
• Oil Price Volatility: Fluctuating global oil prices influence project profitability.
• Potential Economic Growth: Local industrialization and job creation offer economic benefits.

Social Factors

• Community Expectations: Employment opportunities, compensation, and CSR programs influence local acceptance.
• Energy Demand Growth: Increasing domestic and regional energy needs create market opportunities.

Technological Factors

• Enhanced Recovery Methods: Hydraulic fracturing and digital reservoir modeling improve extraction efficiency.
• Infrastructure Development Needs: Transport, refining, and storage facilities are essential for project success.

Legal Factors

• Regulatory Compliance: Adherence to PIA 2021, environmental laws, and safety standards is mandatory.
• Investment Risks: Potential for policy changes, contract disputes, and regulatory delays.

Environmental Factors

• Potential Oil Spills and Pollution: Risk of soil and water contamination.
• Climate Impact: Gas flaring and carbon emissions require mitigation strategies.
• Biodiversity Protection: The project must implement sustainable environmental management.

SWOT and PESTLE Analysis Summary Tables

SWOT Analysis Summary Table

Strengths	Weaknesses
Significant oil and gas reserves	High capital and operating expenditures
Self-sustainable development plan	Landlocked with no existing infrastructure
Government and NNPC involvement	High tax burden under PIA 2021
Job creation and economic growth	Security risks in northeastern Nigeria

Opportunities	Threats
Growing energy demand	Political and security uncertainty
Regional and export market potential	Fluctuating oil prices
Technological advancements	Environmental and community concerns
Government incentives	Regulatory and fiscal risks

PESTLE Analysis Summary Table

Factor	Impact on Kolmani Field
Political	NNPC involvement, high taxation, security threats
Economic	High CAPEX & OPEX, oil price volatility, market demand
Social	Community expectations, employment opportunities
Technological	Advanced recovery techniques, infrastructure needs
Legal	Regulatory compliance, policy risks
Environmental	Pollution risks, climate impact, biodiversity concerns

The SWOT and PESTLE analyses provide a structured strategic assessment of the Kolmani field’s potential and risks. The project’s strengths and opportunities position it as a key asset in Nigeria’s oil and gas industry, while weaknesses and threats highlight challenges requiring mitigation.

SWOT Analysis Discussion

The SWOT analysis identifies the strengths, weaknesses, opportunities, and threats influencing the Kolmani field’s development. The findings provide a comprehensive strategic outlook, helping decision-makers navigate key challenges and capitalize on emerging opportunities.

Strengths

One of the Kolmani field’s most significant strengths is its vast hydrocarbon reserves. The discovery of over 1 billion barrels of oil and 500 billion cubic feet of gas positions the project as a high-impact development, capable of significantly increasing Nigeria’s recoverable reserves. This gives Nigeria an opportunity to diversify its production base, reducing reliance on the Niger Delta and strengthening energy security.

The Nigerian National Petroleum Corporation (NNPC) and its Frontier Exploration Services (FES) division play a pivotal role in driving the Kolmani project forward. The government’s direct involvement ensures strategic alignment with national energy policies, potentially enhancing investor confidence.

Weaknesses

Despite its strong resource base, the Kolmani project faces substantial development challenges. The field is landlocked, meaning no existing oil and gas infrastructure is in place to facilitate production. Unlike the Niger Delta, which has extensive pipelines, processing plants, and export terminals, Kolmani’s development will require significant upfront capital investment in infrastructure.

Security remains a critical challenge. The North-Eastern region of Nigeria is prone to insurgency, terrorism, and banditry, increasing operational risks and necessitating additional security measures, further inflating project costs.

Opportunities

The Kolmani project presents a unique opportunity to unlock energy-driven industrialization in Northern Nigeria. Given the region’s energy deficit and lack of industrial infrastructure, the field’s development can spur economic growth, create employment opportunities, and attract new investments in refining, petrochemicals, and power generation.

A key opportunity lies in government incentives. If the Nigerian government revises fiscal terms under PIA 2021—such as tax reductions or investment incentives—it could significantly improve the project’s attractiveness.

Threats

The major external threat to Kolmani’s success is regional insecurity. The presence of armed insurgents and local resistance movements can lead to delays, sabotage, or project cancellations, requiring substantial risk management strategies.

Market volatility also poses a serious risk. Global oil prices fluctuate due to geopolitical tensions, OPEC production policies, and energy transition trends. A prolonged low oil price environment could erode project profitability.

Environmental concerns are another critical issue. Oil spills, gas flaring, and water resource usage for hydraulic fracturing could attract regulatory scrutiny and local opposition. Sustainable environmental management will be crucial to maintaining the project’s long-term viability.

PESTLE Analysis Discussion

The PESTLE framework provides further strategic insight into the macro-environmental factors affecting the Kolmani field’s development.

Political Factors

Government support is a double-edged sword. While NNPC’s involvement brings credibility, the regulatory framework under PIA 2021 creates significant taxation challenges. The 54% tax burden discourages investment, and potential investors may seek better fiscal terms elsewhere.

Economic Factors

Kolmani’s high development costs and capital-intensive nature raise questions about financial feasibility. Securing financing from either private sector partnerships or sovereign investment funds will be critical to mitigating funding risks.

Social Factors

The project’s potential to generate employment and industrialization in Northern Nigeria positions it as a catalyst for regional development. However, community engagement is crucial to prevent local resistance and ensure equitable benefits distribution.

Technological Factors

Advanced seismic imaging, well stimulation, and digital oilfield technologies will be essential to optimize Kolmani’s recovery efficiency. Technological advancements in cost-effective drilling techniques can help lower UTC and UDC.

Legal Factors

The PIA 2021 framework presents a compliance challenge. Ensuring alignment with local regulations while lobbying for favorable investment policies will be essential.

Environmental Factors

Kolmani’s environmental impact—oil spills, land disturbances, and emissions—must be carefully managed. Implementing sustainable exploration and production techniques is necessary to maintain environmental and social acceptance.

Strategic Recommendations

Based on the SWOT and PESTLE analysis, the following strategic recommendations are proposed:

Policy Advocacy for Favorable Fiscal Terms

• Engage the Nigerian government to revise tax burdens under PIA 2021.
• Advocate for incentives such as tax holidays, reduced royalty rates, and investment credits.

Security Risk Mitigation

• Implement community-driven security initiatives to reduce local opposition.
• Leverage military and private security partnerships to safeguard project infrastructure.

Infrastructure Investment Strategies

• Develop cost-sharing partnerships with infrastructure providers.
• Explore public-private partnerships (PPPs) for pipelines, roads, and processing facilities.

Sustainable Development and Environmental Compliance

• Adopt carbon management strategies to reduce emissions and flaring.
• Implement best-practice waste management and water conservation techniques.

Technology and Innovation Deployment

• Invest in cost-effective drilling and recovery enhancement technologies.
• Utilize AI-driven reservoir modeling for enhanced production forecasting.

CONCLUSION

The Kolmani field presents a significant opportunity to expand Nigeria’s oil and gas production while fostering regional development. However, strategic challenges—such as high taxation, security risks, and infrastructure deficits—must be addressed to ensure project feasibility.

The SWOT and PESTLE analyses highlight that government support, policy advocacy, and innovative investment strategies are essential for successful project execution.

Moving forward, engagement with key stakeholders, financial optimization, and technological advancement will be crucial to unlocking Kolmani’s full potential.

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