Crude Oil Contracts as Boost for Nigerian Content

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Ejiofor Alike reports that the increasing number of Nigerian companies participating in NNPC’s crude oil lifting contracts, will boost efforts to domicile a large chunk of oil and gas spending in the country

A major challenge facing the Nigerian economy is that a significant chunk of the over $20 billion yearly spend in Nigeria’s oil and gas industry is repatriated abroad, thus adding little value to the country’s economy.

This capital flight stemmed from the involvement of more foreign professionals and companies in the Nigeria’s oil and gas business.
The Nigerian independent companies have not acquired the requisite technical and financial capacity to play a dominant role in the exploration and production (E&P) business, as only less than 20 per cent of the country’s daily production of over 2.1 million barrels of crude oil is produced by the Nigerian companies.

With few Nigerian facilities and manpower participating in the country’s oil and gas business, the oil sector’s contribution to the country’s Gross Domestic Product (GDP) has remained low at about 10 per cent, despite the fact that oil accounts for 92 per cent of Nigeria’s export earnings and over 60 per cent of government’s revenues.

However, in the oil service sector, Nigerian companies have demonstrated increasing capacity, supported by the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010.
The Act seeks to promote the participation of more Nigerians and Nigerian indigenous facilities in the country’s oil and gas business so that a greater percentage of the yearly spend is retained in the country for the benefit of the economy.

NNPC’s yearly term contracts
The NNPC has, over the years, used its yearly crude oil lifting contracts to promote the participation of more Nigerian companies in the oil and gas sector.
In the 2013 exercise for instance, the NNPC awarded the lifting contracts worth about $40 billion to 28 Nigerian and foreign companies, as against about 50 in 2012 term contracts.

In the 2013 tender, the NNPC not only broke with tradition and awarded no contracts directly to foreign traders such as Glencore, Trafigura and Vitol, the corporation also set out favourable guidelines to boost the participation of more Nigerian companies.
NNPC also awarded over 60 percent of the 2014/ 2015 annual term contracts for the lifting of Nigeria’s crude oil to 21 Nigerian companies.

The corporation also expanded the 2014/2015 contracts to about $52 billion worth of crude oil, up from $40 billion in 2013/2014, while 38 companies were awarded contracts to lift crude oil from June 1, 2014 to May 31, 2015.

A total of 21 indigenous companies; eight international oil traders; two foreign refineries; two subsidiaries of the NNPC and three countries, represented by their state-owned National Oil Companies (NOCs), were involved in the 2014/2015 contracts.
According to the list, 21 indigenous companies were awarded contracts to lift a total of 630,000 barrels per day of crude oil during the one-year period, representing 57 per cent of the 1,179,000 barrels per day awarded to the 38 beneficiaries.

The list also showed that eight international oil traders got an allocation of 240,000 barrels per day, representing 20.5per cent of the whole allocations, while two foreign refineries got 60,000 barrels per day, or 5.1per cent of the allocations.
Two subsidiaries of the NNPC were awarded contracts to lift 90,000 barrels per day, which translated to 7.7per cent, while three countries, represented by their NOCs also got 90,000barrels per day.

A breakdown of the allocations showed that each of the 21 indigenous traders, mostly downstream companies, got an allocation of 30,000 barrels per day.
Also included in the list were eight international oil traders, which got an allocation of 30,000 barrels per day of crude oil each.

Two foreign refineries – Fujairah Refinery Limited and PTT Public Company Limited received an allocation of 30,000 bpd each; while two subsidiaries of the NNPC – Duke Oil and Calson were awarded 30,000 bpd each.
The NNPC also entered into bilateral commitments with the Republic of Malawi; SINOPEC of China and Indian Oil Corporation Limited, with each of these entities receiving 30,000bpd.

In summary, over 60 percent of the 2014 to 2015 annual term contracts for the lifting of Nigeria’s crude oil were awarded to local firms.
In the 2016 crude oil lifting contracts, which were the first of such contracts to be awarded by the administration of President Muhammadu Buhari in December 2015, a total of 21 companies got the contracts.
This administration had four months earlier revoked the term contracts awarded by the previous administration.
Under the new contracts, indigenous Nigerian firms were awarded contracts to lift 41 per cent of total crude allocation, while major trading firms got 47 per cent of the crude oil allocation.

NNPC trading affiliates were awarded 12 per cent of the total allocation, bringing the total allocation to Nigerian companies to 53 per cent.
For the 2017/2018 term contracts, 39 winners comprising 18 Nigerian companies, 11 international traders, five foreign refineries, three National Oil Companies (NOCs), and two NNPC trading arms were successful.
All the contracts were for 32,000 barrels per day except for Duke Oil Limited, the oil trading arm of NNPC, which shall be for 90,000 barrels per day.

Latest 2018/2020 crude oil contracts
The NNPC recently released the 2018/2020 crude export contracts to 50 local and international oil traders, including Vitol, Trafigura and Glencore.
As part of the corporation’s sustained efforts to boost local participation in the contracts, the NNPC selected 32 Nigerian companies, unlike in the 2017/2018 contracts where 18 Nigerian companies made the list.
One of the key features of the 2018/2020 deals is that the contracts would run for two years, unlike the previous contracts, including the 2017/2018 contracts, which were for one year.

Also unlike the 2017/2018 contracts where all the contracts were for 32,000 barrels per day except for Duke Oil Limited, the oil trading arm of NNPC, which lifted 90,000 barrels per day, the crude allocations for the 2018/2020 contracts are for 30,000 barrels per day.
Each of the 50 companies will lift 950,000 barrels of crude oil in the two-year contracts, which would run from July 2018 to June 2020.
Apart from the three world’s largest oil traders – Vitol of Britain, Trafigura of
Switzerland and Glencore also of Switzerland, 15 other international traders were also on the list of beneficiaries.

The international trading firms and refiners are Switzerland- based Augusta;
Lebanon-based BB Energy; CEPSA of Spain; Indian refiner, HPCL; Litasco, a trading arm of Russia’s Lukoil; Mocoh of Switzerland; Petraco of Switzerland; Petrobras of Brazil; Sacoil of South Africa; and SEER, which is South Africa’s SacOil Energy Equity Resources Ltd.
Others are Socar, a trading arm of Azerbaijan’s Socar; Total of France; Calson, which is a joint venture between Vitol and NNPC; ZR Energy and Sonara, a Cameroon refining company.

Under the 2018/2020 deals, the corporation also awarded crude oil supply contracts to 12 governments, but it was not clear how many of the contracts
would be executed by the 50 companies.
The governments include: China, India, South Africa, Turkey, Ivory Coast, Ghana, Liberia, Niger, Sierra Leone, Senegal,Togo and Malawi
But of greater significant was the involvement of more Nigerian companies in the 2018/2020 contracts.

The 32 Nigerian companies involved are Aipec; AMG; Arkleen; Barbedos; Bono Energy; Casiva; Cretus; Eterna; Gladius Commodities; Hinstock; Leighton
Levene; Masters Energy; Matrix; MRS; North West; Oando; Sahara Group; and Ocean Bed, which is Sahara trading subsidiary.
Also included in the list of the 32 Nigerian companies is Emadeb, a fast-growing Nigerian oil trader, which has one of the biggest aviation terminal and depot in Lagos and is expanding the retail arm of its trading business.

Another Nigerian company, AA Rano, with over 120 filling stations across the country and one of the largest depots in Lagos, is also among the companies selected.
The others are Propetrol; Prudent; Setana; Setraco; Shoreline; Ultimate Gas; Voyage; West African gas; Zitts and Lords; Obat Oil & Gas, and Duke Oil, an NNPC subsidiary.
The increasing involvement of more Nigerian companies in the NNPC’s crude oil lifting contracts will boost employment, curb capital flight and enhance the contributions of the oil and gas industry to the country’s Gross Domestic Product (GDP).