Oil drilling operation

As the amnesty programme reduces militancy in the Niger Delta, Ejiofor Alike identifies crude oil theft as the new challenge confronting the Federal Government

Before the late President Umaru Yar’Adua introduced the amnesty programme for repentant militants in 2009, attacks on oil workers and installations that started in 2005 had reduced daily output to about 1.3 million barrels per day (bpd). However, the amnesty programme curbed destructive attacks on oil facilities and kidnapping of expatriate workers, while production was also ramped up to about 2.4 million barrels per day in the first half of 2012.

But this production figure was still below expectations in view of new production assets that were put on stream. For instance, start-up of crude oil production at Total’s Usan deepwater field in the first half of 2012 was expected by industry stakeholders to have catapulted Nigeria’s crude oil production to the pre-militancy level, when the country produced in excess of 2.5 million barrels per day.

Total, operator of Oil Mining Lease (OML138), had last February, announced the start-up of crude oil and gas production at its offshore Usan field. With a nameplate capacity of 180,000bpd, the Usan development comprises a spread moored Floating Production, Storage and Offloading (FPSO) vessel designed to process 180,000bpd and with a crude storage capacity of 2 million barrels.

Director of the Department of Petroleum Resources (DPR), Mr. Osten Olorunsola, acknowledged last weekend that the greatest landmark in the industry in the first half of 2012 was the building of the USAN FPSO. “It has a capacity of 180,000bpd and Mr. President himself actually was the one that commissioned it. It is an excellent project. I think they have reached 100,000bpd,” he said.

Before Usan came on stream, Total had added approximately 290,000 barrels of oil equivalent per day production into the country’s daily capacity in 2011. But for crude oil theft, Usan’s initial 103,000bpd output would have boosted Nigeria’s daily crude oil production to over 2.5 million bpd.

Alarming Numbers

During the period under review, the Minister of Petroleum Resources, Mrs. Diezani Alison, said the country was losing $7 billion of crude revenue yearly or 180,000 barrels of crude oil daily to theft, while $5 billion would be required annually to repair damaged facilities. However, both Shell and the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala put the losses at $5 billion and 150,000bpd, respectively.

Before the situation worsened early this year, Shell’s statistics had indicated that $1.5 billion was lost annually to illegal bunkering and crude oil theft. DPR Director at the weekend identified three areas where crude theft takes place around oil facilities. “There is one around the well-head, which we call well-head stealing. People also steal around here. Some people also steal around the flow lines and pipelines but majority of the theft happens between the processing plants and the terminals. This is where most people steal from.

“The reason is because the more you go down, the cleaner the oil you steal. If you steal one barrel around the well-head, 50 per cent may be water. If you steal around the flowlines, 40 per cent may be water. By the time you come down between the flow station and the terminals to steal, you will find out that one barrel of crude oil is one barrel,” he explained.

With the frightening extent of illegal bunkering and theft witnessed during the period there was a projected reduction of revenue flows to government, increased security costs and higher budget deficits. “Our major concern is a major decline in the price of oil or output would lead to a massive depreciation of the currency, a collapse in reserves and a huge growth in the deficit and some of the states outside of the oil-producing region might find actually themselves in a situation where they are not able to pay salaries,” Governor of Central Bank of Nigeria (CBN), Mallam Lamido Sanusi Lamido, said recently.

Declining Exports

Also, data released by the Global Water and Energy Strategy Team (GWEST) showed that Nigeria, which once enjoyed a 43 per cent market share in the United States in terms of oil supply had lost her influential position by February 2012 after the country’s crude oil exports to the US dropped to 350,000bpd. Previously, the country’s exports to the US stood at over 1 million bpd in December 2009 before it dwindled to 580,000bpd in September 2011.

Nigeria’s current production potential, according to the Minister of Petroleum Resources is 3 million bpd; while Shell’s Vice President in charge of Exploration and Production for Sub-saharan Africa, Mr. Ian Craig put the country’s short term production potential at 4 million bpd.

Renewal of Oil Leases

During the first quarter of 2012, the Federal Government renewed the oil leases held by Mobil Producing Nigeria Unlimited (MPNU), a subsidiary of United States oil giant, ExxonMobil for another 20 years, with effect from February 2012. The leases were initially renewed in November 2009 but were invalidated in March 2011.

Government also made a commitment to renew the oil leases being operated by Shell Petroleum Development Company (SPDC), Chevron Nigeria Limited and Total, in joint venture with the Federal Government.

The initial validation of Oil Mining Leases (OMLs) 67, 68 and 70 – with a combined output of 580,000 barrels of crude oil per day, was cancelled because the government claimed that its record showed that they were originally signed on March 11, 1971 and not December 1, 1968. Though no official figure was given but it was learnt that the financial consideration for the renewal was about $665 million.

Petroleum Industry Bill

The non-passage of the Petroleum Industry Bill (PIB) was another unresolved issue that slowdown investment and output in the sector in the first half of 2012. It was projected that lack of new investment due to the non-passage of the bill could result in a nearly 25 per cent drop in Nigeria’s oil production in the next two years.

The implication was that much of these investment were relocated to neighbouring countries, including Angola, Ghana and Burkina Faso, where the investment climate is more stable.

During the half year under review, the Federal Government inaugurated an eight-man special task force headed by Senator Udoma Udo Udoma, which was mandated to review the old version of the PIB and fast-track its passage into law.  The minister also inaugurated a technical committee chaired by Olorunsola to assist the special taskforce.

Fuel Subsidy Probes

During the first quarter of 2012, a House of Representatives’ ad-hoc committee under Hon. Lawan Farouk investigated the management of nearly N2 trillion spent on payment of petrol subsidy in 2011. However, the allegation that the chairman of the committee, Hon. Lawan Farouk collected a bribe from the Chairman of Zenon Oil and Gas Limited, Mr. Femi Otedola, to give his company a clean bill of health undermined the credibility of the entire report.

Lawan allegedly collected $620,000 from Otedola to expunge the name of his company from the list of indicted marketers. Though the report of the probe was transmitted to the Economic and Financial Crimes Commission (EFCC) for further investigation, the bribery scandal apparently tainted the report.

Consequently, the Federal Ministry of Finance last May set up a technical committee, which was headed by the Managing Director/Chief Executive Officer of Access Bank Plc, Mr. Aigboje Aig-Imoukhede, to verify all subsidy claims and payments made to marketers in 2011.

In the report of the technical committee, some oil marketers and importers were alleged to have committed 17 infractions that cost the country N422,542,937,668.59 in overpayments. President Goodluck Jonathan later set up a verification committee, also headed by Aig-Imoukhede to verify and reconcile the report of the technical committee.

After the N422billion was subjected to reconciliation and verification by the presidential committee, N18 billion was found to have been duplicated, while N21  billion was cleared from the report of the technical committee, bringing down overpayments to N382, 018, 250, 982.00.