Examining Challenges Affecting Crude Oil Production in Nigeria
By Ikenna Omeje
Nigeria’s crude oil production is faced with numerous challenges, which in recent years, have resulted in low production, thereby affecting the country’s revenue. Oil export accounts for about 70 percent of Nigeria’s revenue and about 90 percent of its foreign exchange earnings.
According to the Nigeria Employers’ Consultative Association (NECA), the failure of the country to meet its 1.8 million barrels per day OPEC+ allocation, has resulted in the country losing $2.5bn monthly.
In December 2022, the country’s crude oil production rose to 1,235,317 mbpd. This is according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) report. This figure is higher than 1,185,604 mbpd recorded in November. Also, the blended condensate rate rose to 47,913 from 40,691 in November 2022, according to the report.
The 1,235,317 mbpd recorded in December, represents a growth of 4.2 per cent. While this maybe a leap in progress, it was a 0.57 mbpd shortfall.
“Crude oil production grew in the month of December 2022 by 4.2 per cent month-on-month to 1.23m barrel per day, but remained significantly short of the 1.8m barrel per day allocated by OPEC to the nation, amounting to about $2.5bn loss monthly at an average of $100pb,” said the Director-General of NECA, Adewale-Smatt Oyerinde in a statement recently.
“Deliberate efforts must be made to reverse some of the current policies and implement new ones. All leakages associated with government revenue must be blocked (oil theft, skewed concessions, fuel subsidy, etc.). A wholesome review of the tax administration to make it more equitable and investor-friendly should be initiated,” he noted.
Oil theft
Nigeria’s crude oil production has been on a downward spiral since 2020. The drop in production is attributed to increasing incidents of oil theft and vandalisation of pipelines in the Niger Delta region. Despite having about 37 billion barrels of proven crude oil reserves, Nigeria has been struggling to meet its OPEC+ quota of 1.8mbpd as a result of these challenges.
The NUPRC in July, disclosed that the country lost $1 billion in revenue in the first quarter of 2022, due to oil theft in the Niger Delta region.
Stakeholders have noted that addressing the lingering oil theft and vandalism of infrastructure would require a concerted effort, and pointed out that the continued crude theft in the region was a much bigger issue than the host communities’ hostilities.
Losses as of 2019 in the Niger Delta was in the region of 30 percent. However, oil theft in the region took a new dimension in 2022 with losses of 80-90 percent recorded, forcing companies to declare force majeure.
NEITI report
The Nigeria Extractive Industries Transparency Initiative (NEITI) disclosed recently that that from its industry reports, Nigeria lost 619.7 million barrels of crude oil valued at $46.16 billion or N16.25 trillion from 2009 to 2020.
In a statement, NEITI noted that the losses were from theft and sabotage, based on information and data provided by an average of eight companies covered by NEITI process over the years.
According to NEITI, a breakdown of the losses shows that in 2009 when the agency commenced reporting of crude oil theft, Nigeria lost 69.49 million barrels valued at $4.31billion. The figures for 2010, 2011 and 2012 revealed that 28.31million, 38.61million and 51.58 million barrels which were valued at $2.29billion, $4.39billion and $5.82billion were lost respectively.
NEITI oil & gas industry reports for 2013 to 2020 also showed that the losses to crude oil theft did not abate as 78.30million barrels valued at $8.55billion was lost in 2013 alone, while 2014 and 2015 witnessed combined losses of 67.29 million barrels valued at $5.57billion. 2016 recorded the highest losses of 101.05 million barrels that was valued at $4.42billion.
Between 2017 & 2020, NEITI reports indicated losses of 36.46million barrel ($1.99 billion) in 2017, 53.281 ($3.837billion) in 2018, 42.248million barrels ($2.772billion) in 2019 and 53.056million barrels ($2.21billion) in 2020.
“NEITI lamented that it was regrettable that at a time Nigeria’s economy is largely dependent on oil revenues, some Nigerians would choose to collude with foreign nationals to steal and sabotage the main sources of revenue for the federation,” the statement said.
“The Agency particularly expressed delight over the new collaboration between Offices of the Secretary to the Government of the Federation and that of the National Security Adviser in coordinating the investigations and its wisdom to appoint NEITI in this Special Panel. This is in view of the Agency’s strategic relevance to guide the Panel with reliable information and data.
“NEITI in the statement also explained that as an agency with legitimate interests and mandates in enthroning transparency and accountability in the oil and gas sector, it will seek technical support where necessary from 57 member countries of the global Extractive Industries Transparency Initiative to help tackle the international dimension of oil theft in the work of the investigative panel.
“NEITI further disclosed that after a careful review of the Terms of Reference of the Panel on Oil Theft Investigation, it found the terms of reference of the Committee, comprehensive, incisive, and attainable.
“The Panel is among other things required to establish the ramifications of crude oil theft/losses in Nigeria; ascertain the causative factors immediate and remote of crude oil theft/ losses in the country; with the widest possible amplitude, identify persons/entities whether public, private or foreign, involved in the criminal enterprise; Ascertain the illegal insertion into the Trans Escravos Pipelines (TEP) around Yokri area in Burutu Local Government Area of Delta State.
“Other recommendations in the Terms of Reference are to establish the level of culpability of identified persons/entities in the enterprise; Examine the specific roles of Regulatory Agencies; Security Agencies Tiers/Arms of Government and International Oil Companies(IOCs) in aiding and abating the criminal enterprise; Assess the efficacy of the security architecture/arrangement in tackling crude oil theft/losses and associated petroleum products and recommend appropriate, commensurate and sufficiently, deterrent sanctions on all those culpable. The Panel is also expected to recommend steps, procedures, and processes to be taken by the government to eliminate the enterprise in the industry to prevent future occurrences.
“NEITI gave the assurances that working with other members of the Panel who have been carefully selected to carry out the oil theft investigation, the agency will rely more on its multi-stakeholders to support the work of the Committee.
“NEITI, therefore, appealed to civil society, the media, development partners and extractive companies to devote time, energy, and resources to provide reliable information and data to the oil theft investigation panel through the open call for submissions of Memoranda from individuals and as groups to the Panel.”
Efforts to curb theft
To address the problem of oil theft in the Niger Delta region, the Federal Government, through the Nigerian National Petroleum Company (NNPC) Limited, recently awarded pipeline surveillance contract to an ex Niger Delta militant, Government Ekpemupolo, otherwise known as Tompolo. The contract is reportedly worth N48 billion annually (N4b per month). Award of contracts to private individuals in the oil reach region appears to be working in curtailing incessant oil theft in the area.
The Tantita Security Services Nigeria Limited (TSSNL), a surveillance company operated by Ekpemupolo, has discovered several illegal pipelines since it began operation.
The Chief Executive Officer of the NNPC Limited, Mele Kyari, said on the margins of the 2022 Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC) that improved security in the Niger Delta region was bringing back oil and gas companies, especially in the deepwater.
With improved security in the region, he noted that Nigeria’s crude oil production could increase to 2.2 mbpd by June this year.
In September, Nigeria’s crude oil output was just 938,000 bpd, while total liquids production averaged 1.14 mbpd. However, with the Shell Petroleum Development Company of Nigeria Limited (SPDC) resuming export operations at Forcados Oil Terminal, and other companies bringing back their production, the country’s crude oil production output is expected to increase astronomically.
Speaking on a panel at the 11th Practical Nigerian Content (PCN), which held in Uyo, Akwa Ibom State with the theme, “Deepening Nigerian Content Opportunities in the Decade of Gas”, the Chief Upstream Investment Officer, NNPC Upstream Investments Management Services (NUIMS), Bala Wunti said: “Crude theft affects all architecture that funds the country. When the oil theft reached its peak, everything including gas production was affected.”
“One, we have security agencies in which the Navy, the police, and everyone within that space was involved. The second is the regulators angle. At this stage, all regulators are made to fully be part of the efforts. Third is the operators’ angle. And, of course, all operators were involved. The fourth angle is the community angle in which all impacted communities have to be brought under the umbrella of a structured arrangement in the collective effort against crude oil theft. In all, these efforts were able to do three things; Detect, deter and respond appropriately,” he noted.
Special investigative panel
The Federal Government, through the Office of the National Security Adviser (ONSA), Maj Gen Babagana Monguno (Retd.), recently set up an 11-man Special Investigative Panel to look into cases of oil theft and oil losses in the country.
Inaugurating the panel, Monguno said that losses in revenue as a result of theft in the Niger Delta region was threatening the country’s economy.
He noted that with the scale of the theft and losses and the alleged complicity of regulatory agencies/officials and security personnel as well as the involvement of international collaborators, the enterprise is deeply entrenched and would be extremely, difficult to exterminate without very stern and decisive action by the government.
Monguno said: “The extent of the oil and revenue losses threatens the economy, constraining the administration to revert to less popular monetary and fiscal policies to address revenue side constraints with dire implications.
“Government has been briefed on the dwindling economic fortunes including, the inability to replenish foreign reserves and reduction in revenue thereby, affecting accruals into the Federation Account.”
“The menace of oil theft/losses is completely unacceptable, considering its attendant impact on the economy, national development and security.
“It is an affront to government and its institutions, which must be tackled without further delay.
“It is in this connection that the government, worried by the ugly trend, among other things, directed the setting up of a Special Investigative Panel on Oil Theft/Losses in Nigeria to investigate all aspects of crude oil theft, identify the culprits and submit its Report for necessary action,” he added.
Creating enabling environment
The Shell Bonga-Southwest project is on course for Final Investment Decision (FID) by 2024, according to Wunti.
unti who represented the company’s Executive Vice President, Upstream, Adokiye Tombomieye, at the 11th PNC, informed that the Nigerian National Petroleum Company (NNPC) and its partners were making efforts to bring in an American oil giant to be part of the FI
“I did mention that we’re going for FID on Bonga North either last quarter of this year or first quarter next year. I did mention that Bonga South-west is going to sleep, we’re going to focus on 2024. We’re aligning with all our partners to focus on doing Bonga South-west/Apar
“We’re bringing one American more to make it for Aparo. So we’re targeting the FID in 2024. Several other projects with Chevron, we hope to do the FID before the end of first quarter of 2023 – the Agbami Gas Project. All these are coming with significant gaseous hydrocarbon,” he said.
Located in deepwater, Bonga Southwest/Aparo, operated by Shell Nigeria Exploration & Production (SNEPCo), is a conventional oil development, which was discovered in 2001. Bonga Southwest/Aparo lies in block OML 118 (OPL 212P), OML 140 (OPL 249), and OML 132 (OPL 213), with water depth of around 4,395 feet.
The Bonga Southwest/Aparo conventional oil development will involve the drilling of approximately 24 wells and includes FPSO and subsea trees.
While this is commendable, stakeholders have continued to call on the Federal Government to make the environment friendly for investors. Although the enactment of the Petroleum Industry Act (PIA) has addressed some concerns raised by stakeholders, there are still some grey areas that need to be addressed.
The Director-General of NECA, Oyerinde is of the view that there is need for reduction in tax rates in order to enhance economic activities, promote sustainable consumption and attract investors.
“With over 50 different taxes, levies and fees and Company Income Tax hovering around 35 per cent, raising taxes in order to increase revenue will be counterproductive. As the nation nears the mark of N77trn in debt with negligible impact on infrastructural development, the incoming government must develop strategies to diversify the revenue base through the revival of the country’s lagging non-oil sectors.
“While there have been projections for a global recession in 2023, the time for a major paradigm shift in our economic philosophy is now. Over the last decade, the country has spent over N10tn on fuel subsidy, about N15.5tn on Capital Expenditure, N2.5tn on Health and about N3.9tn on Education. This is a misplacement of priority and shows that critical developmental items such as education, health and infrastructure have suffered due to crass misplacement of our economic priorities,” he concluded.
