Abstract

In this paper, we described changes expected to occur in the upstream petroleum exploration industry’s activities in response to oil price dynamics. We observed that an increase in oil price accelerates production activities and expand profit margins but, for some reasons, does not imply increase in new oil well exploration. Applying statistical Vector Autoregressive Model on annual data obtained from Nigerian petroleum industry, we empirically ascertained that oil price increase could lead to higher crude production but does not simultaneously translate to more well-drilling and appraisal. Therefore, while oil price may affect the return, viability of exploration and production ventures, it should not be a key strategic factor in deciding on petroleum exploitation policies by host governments.

Key words: Nigerian petroleum industry, exploitation strategy, oil price dynamics, vector autoregressive model.