By
Ulasi Joshua Ikechukwu
Abstract
Exploration and production of oil in Nigeria, which started in
the 1950’s have generated more revenue to the government,
provided the much needed foreign exchange, and attracted
other businesses with their associated income and
employment effects.
However, Nigeria has also witnessed serious negative effects
associated with oil exploration and production.
The paper highlighted several environmental, health and
economic issues resulting from oil exploration and
production in the country.
Data used in the paper were published secondary data,
which were analysed using the Excel statistical software.
1. Introduction
 Oil exploration and production activities in Nigeria are
mainly concentrated within the Niger-Delta area. This
area is located in the Atlantic coast of Southern
Nigeria, and is the world’s second largest delta
(Awosika 1995). The delta consists of the following
states: Abia, Akwa Ibom, Bayelsa, Cross River, Delta
Edo, Ondo, Imo and Rivers.
 Last year, oil was discovered in Aguleri-a town in
Anambra State. Production in this new area is yet to
begin, though.
1. Introduction (continued)
 The fact that Nigeria is a major oil producer --with
recent oil discoveries made --should serve as good
news. However, in Africa, history has shown that some
countries’ natural resources, which should have served
as a blessing, have rather left most citizens with many
woes.
 Oil production generates income needed for economic
development, but it also leads to a whole lot of issues
including environmental degradation, health hazards
and issues over resource control.
2.A brief History of Oil Exploration in Nigeria
 Oil was first discovered in Nigeria by the then Shell
British Petroleum Company
(now Royal Dutch
Shell)in 1956 in Oloibiri, a village in Bayelsa state
(Anifowose 2008).
 Commercial production began in 1958 with an output
of 5,100 barrels per day (Uyigue and Ogbeibu 2007).
 Other foreign companies were granted the rights to
explore oil within the Niger-delta region in 1960, and
in 1965, another oil field was discovered by Shell in
Warri.
2.A brief History of Oil Exploration in Nigeria
 The 1970’s marked the period of the oil boom, and
Nigeria had attained a production level of over 2
million barrels per day by this time.
 The country joined the Organisation of Petroleum
Exportin Countrues (OPEC) in 1971, and established
the Nigerian National Petroleum Company in 1977.
 Currently, Nigeria produces between 2.4 to 2.5 million
barrels of oil per day, and oil production and export
account for about 90% of her earnings.
3. Gains from Oil Exploration and Production
Rent and Factor Income:
Gains from the exploration and production of oil are
of two folds: The rents and royalties paid by the oil
companies to the national governments, and factor
incomes to capital and labour.
 Given the low level of development in many sectors of
most African economies, gains from oil production is
predominantly in the form of rents and royalties paid
to the national governments.
 In
industrialized countries, however, where
sophisticated skills and massive capital are possessed
by nationals, the gains from oil exploration and
production both as rents to the government and as
factor incomes to private oil firms.

3. Gains from Oil Exploration and Production
Availability of Foreign Exchange
 Oil production will definitely affect the external
position of the exporting country since foreign
exchange will be injected into the country by the
foreign oil companies.
 Usually, these companies will have to exchange foreign
currency for the local so as to pay for local expenses
such as accommodation, food and wages. These
transfers do not always have a cancelling out effect, as
the drilling equipment are purchased with foreign
currency. (The opposite would be the case if heavy
equipment were imported, thus putting a downward
pressure on the local currency.
Gains from Oil Exploration and Production
Exchange Rate Stability
 The availability of foreign exchange can also help
policy makers to maintain both external and internal
balance in a fixed exchange rate regime. This happens
when Central Banks purchase local currency with
foreign exchange in the international market so as to
prevent further depreciation of local currency.
 In a flexible exchange rate regime, however, having a
surplus supply of foreign exchange, thanks to oil
revenue may not help so much in local exchange rate
stability.
4. Issues in Exploration and Production of Oil
Increasing Difficulty in Exploration
 Oil
extraction may be seen to be somewhat
unsustainable because crude oil is not renewable
source of energy.
 Published data shows the demand for oil has increased
over the years while reserves are slowly becoming
depleted. The implication is that oil companies need
to find new sources of oil, or at least, alternative
sources.
 Sources of oil once considered too difficult to drill,
such as the continental shelves, are now being targeted
for possible oil rigs. Distant parts of the planet, such as
the Antarctic and inaccessible areas have also been
considered as existing oil supplies begin to run dry.
Issues in Exploration and Production of Oil
Increasing difficulty in exploration (continued)
Oil extraction is expected to become steadily more
difficult going forward.
Issues in Exploration and Production of Oil
Oil Spillage
 Oil extraction and transportation comes with a risk of
oil spills. As oil companies begin to exploit more
difficult resources, such as off-shore oil reserves, and
transport oil longer distances, the chance of a spill
increases. For instance, 2010's Deepwater Horizon oil
spill stemmed from a problem on an off-shore oil rig.
 According to Santa Clara University, only 5 to 15 percent
of any oil spill can be recovered, leaving a large amount
of oil in the environment. This oil can kill plants and
animals, disrupt local ecosystems and cause serious
damage to local businesses and tourism.
 Reliable data on oil spillage could not be obtained for
the most recent periods. However, Adati’s publication of
2012 contains figures on oil spills for the periods 1976 to
Issues in Exploration and Production of Oil
2000 as seen below.
Issues in Exploration and Production of Oil
Enviromental Degradation
Petroleum drilling can release not only oil into the
environment, but an assortment of other dangerous
substances, such as heavy metals. Drilling fluid and drilling
mud often contain cadmium, mercury, arsenic, lead,
radioactive materials and other hazardous waste. If allowed
to escape, this waste can have serious environmental effects.
Issues in Exploration and Production of Oil
Health Hazards
Workers on oil rigs, both on land and off-shore, are
routinely exposed to health and safety hazards. For
instance, rigs drilling for oil often encounter pockets of
pressurized gas which create an event called a blowout.
Blowouts can cause fires, create an explosion and
scatter drilling waste a significant distance. The 2010
Deepwater Horizon spill began with an explosion on
the drilling rig which killed 11 workers and injured
several more (ehow, 2010).
Issues in Exploration and Production of Oil
Health Hazards
 In water, oil film on the water surface could prevent
natural aeration and lead to the death of trapped
marine organism. In some cases, fish may ingest the
spilled oil or other food material impregnated with oil
and as such become inedible and unpalatable.
 Oil spill on the land could lead to retardation of
vegetation growth for a period of time and in extreme
cases, to destruction of vegetation. It could also create
potential fire hazard, as in the Oyakamo oil pipeline
spillage which render the soil unfit for cultivation and
polluted about 360 km of salt marshes as reported by
Royal Society of London in 1982.
Issues in Exploration and Production of Oil
Gas Flaring
 Statistical data associated with gas flaring are
notoriously unreliable, but an online source
(Wikipedia, 2010) has published that Nigeria may
waste up to 2 billion US dollars per year by flaring
associated gas.
 Flaring is done as it is costly to separate commercially
viable associated gas from the oil. Companies
operating in Nigeria also harvest natural gas for
commercial purposes, but prefer to extract it from
deposits where it is found in isolation as nonassociated gas. Thus associated gas is burned off to
decrease costs.
Issues in Exploration and Production of Oil
Gas Flaring (continued)
 The
international community, the Nigerian
government, and the oil companies have made serious
efforts to curtail gas flaring which was declared illegal
in 1984 under section 3 of the "Associated Gas
Reinjection Act" of Nigeria.
 Public opinion shows that both gas flaring and oil
spillage has reduced significantly in the country.
Issues in Exploration and Production of Oil
Security Issues
 The state of insecurity in some parts of Nigeria, especially
the Boko Haram menace may threaten the efforts of the
Nigerian National Petroleum Corporation (NNPC) to
explore crude oil in the inland basins of Sokoto, Chad,
Bida, Gongola, Yola and others.
Issues Over Resource Control
 In a Federal system like Nigeria, revenue accruing from
resources obtained in some states are based on certain
principles, like the Derivation Principle. This gives the state
from which the resource is obtained a commensurate
proportion of the derived revenue. In most cases, the oil
producing states would demand for a higher share of the oil
revenue. Nigeria has however overcome most of the
resource control issues of the 1960’s and 1990’s.
Issues in Exploration and Production of Oil
Oil Price Volatility
 Oil prices are volatile and their path is deeply
unknowable (Collier, 2012). It was published that in
January 2008, the bounds of the 95 percent confidence
interval for the twelve month market-based forecast
for the world oil price were around $210 and $65.
However, the actual price for that year was $37.
 Oil revenue constitute more than 50% of earnings in
most low-income oil exporting countries. A wrong
forecast of future oil prices will distort the budgets of
the countries which base their budgets on expected
earnings from oil exports.
5. Conclusion
 Oil production has provided earnings in foreign
exchange to Nigeria.
 However, several sectors of the economy, especially the
agricultural sector has suffered many setbacks thanks
to the discovery of oil.
 The challenges facing oil exploration and production
efforts include: Insecurity, Oil price volatility, resource
control, oil spillage, environmental and health hazards.
 Public opinion shows that Nigeria has put some
measures in place to overcome some of these
challenges.
 Insecurity and oil price volatility are issues that still
need to be seriously addressed, though.
References
 Adati A. A. (2012) Oil Exploration and Spillage in
the Niger Delta of Nigeria. Civil and Environmental
Research ISSN 2222-1719 (Paper) ISSN 2222-2863
(Online) Vol 2, No.3, 2012. www.iiste.org.
 Anifowose, B (2008) Assessing the Impact of Oil &
Gas Transport on Nigeria’s Environment. U21
Postgraduate Research Conference Proceedings 1,
University of Birmingham UK. .
 Awosika, L.F (1995) Impacts of Global Climate
Change and Sea Level Rise on Coastal Resources
and Energy Development in Nigeria. In: Umolu,
J.C., (Ed). Global Climate Change: Impact on Energy
Development. DAMTECH Nigeria Limited, Nigeria.
References Cont’d
 Collier P. (2012) Managing Ghana's Oil Discovery.
Centre for the Study of African Economies, Department of
Economics, Oxford University.
 eHow.com (2010) The Disadvantages of Drilling for Oil.
http://www.ehow.com/list_7147109_disadvantages-drillingoil.html#ixzz2GvwptkYP (assessed February 2013).
 Uyigue, E. and Ogbeibu A.E (2007). Climate Change and
Poverty: Sustainable Approach in the Niger Delta
Region of Nigeria.
www.2007.amsterdamconference.org/....AC2007_uyigueog
beibu.pdf.
 Wikipedia (2010)
http://en.wikipedia.org/wiki/hydrocarbon_exploration#ex
ternal_links. (assesses February 2013).