The Scramble to Stop Crude Oil Theft, Save Indigenous Producers
A few years before the Minister of State for Petroleum Resources, Timipre Sylva challenged indigenous oil and gas companies to significantly increase their investments in oil and gas assets in the country, many of them had taken the plunge on their own.
Speaking recently as chairman and special guest at the Nigerian Association of Petroleum Explorationists (NAPE) divestment workshop in Lagos last month, the the minister urged local investors to see the exit by International oil companies (IOCs) as an opportunity to step in to fill the vacuum in the sector. Some local investors had done that too and now wonder what has hit them.
Sounding more urgent, Sylva had said, “The Indigenous Petroleum Producers Group (IPPG) and other potential investors should perceive the IOCs’ divestments in some of the upstream assets as opportunities, rather than a threat, to become more involved in the development of the Nigerian upstream petroleum sector.
In the past, he needed not to preach patriotism. Although not as big as their multinational counterparts, the locals have been proud Nigerian companies operating quietly.
From Dubri Oil in the 1980s until recently, the local business has blossomed to over 25 operators. With time, as an indication of the attractiveness of the business, many more joined.
But over time, the industry has changed dramatically with increasing challenges, some too hot for safe operation.
Community protests from the early 1990s escalated into tensions between foreign oil companies and some of the Niger Delta’s minority ethnic groups, who felt they were being exploited, particularly the Ogoni and the Ijaw. Struggle for oil wealth oil fueled violence between ethnic groups, causing the militarization of nearly the entire region by ethnic militia groups, the Nigerian military and the police force.
From 2004, the violence worsened with increased piracy and kidnappings until relative peace was restored in 2009 with a presidential amnesty programme.
But all that has taken yet another turn with increased vandalism of oil facilities and crude oil theft, which suggests that oil companies are free to produce as much as they can so long as the crude oil can be stolen.
The evidence is not hard to find:
* In June, Gbenga Komolafe, chief executive officer, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), said Nigeria lost at least $1 billion in the first quarter of 2022 due to oil theft. According to him, an unusual level of theft estimated at a daily average of 103,000 barrels recorded in 2021, had grown to 120,000 barrels in the first quarter of 2022.
* Sylva recently said that the country loses 400,000 barrels of crude daily via oil theft.
* During a stakeholder engagement with Sylva in the Niger Delta, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited, Mele Kyari, said Nigeria was losing about $1.9 billion monthly to activities of oil vandals.
Bala Wunti, the Group General Manager, National Petroleum Investment Management Services (NAPIMS), put the loss to oil theft earlier this month at 470,000 barrels per day of crude oil amounting to $700 million monthly.
Although many parts of the Niger Delta have become oil theft crime scenes, the most affected, with drastic consequences, is the Trans-Niger Pipeline, a major pipeline capable of transporting about 180,000 barrels of crude per day.
Shell, Nigeria’s biggest oil producer, reported last week that the pipeline, which serves many oil companies has been moribund since mid-June due to oil theft, with the export of Nigeria’s Bonny Light, the favourite of refineries, placed on force majeure.
Beyond the numbers, the Managing Director of Heirs Oil & Gas Limited, the upstream arm of Tony Elumelu’s TNOG Oil & Gas, Mr. Osayande Igiehon, shared their experience.
In a deal worth $1.1 billion, TNOG Oil & Gas Limited had in January 2021, bought 45 per cent stake in OML 17 and associated infrastructure, from three oil majors -Shell Petroleum Development Company (SPDC), TotalEnergies and Eni.
However, illustrating the problem they encountered soon after, Igiehon said. “We acquired the asset, OML 17, in the middle of January 2021. We took operational control by July 1. When we took over, the reconciliation of what we got at the terminal was 65 per cent.
“In December of 2020, it was about 85 per cent. In January, it was 65 per cent; but by December (2021), we got three per cent. So, that caused us and many other companies to shut down.”
Igiehon lamented that the problem, which affects many operators, is existential.
Aiteo Group as a major victim
Surprisingly, the owners of the trunkline, the Aiteo Group, have remained quiet. But industry sources say that is the style of Mr. Benedict Peters, the founder and chairman of the Group. “Although Peters may sound like a new name in the industry to some people, he is a quiet, courageous man with vast industry experience. A seen-all-done-all kind of man,” an indigenous investor in the industry said.
Reports say, his competence and profound industry insight were the traits that attracted him to Alhaji Sayyu Dantata of MRS Oil Nigeria Plc, who head-hunted him to his company as executive director.
Experiencing rapid promotion on the strength of his integrity of character, he became the company’s managing director in five years.
From there, he founded Sigmund Communecci (a petroleum products supply and trading company) in 1999.
After a successful operation in the downstream sector, he decided to push the limits, landing him upstream. Sigmund Communecci was rebranded in 2008 into Aiteo, to reflect its diversified operations.
In 2014, Aiteo raised the single largest debt-financing in the Nigeria oil and gas sector from local banks to become a successful bidder for 45% percent of OML 29, which includes the Nembe Creek Trunkline.
OML 29 was operated by the SPDC joint venture of the NNPC(55%), SPDC (30%), Total E&P Nigeria Limited (10%) and Nigerian Agip Oil Company Limited (5%).
The field had an average production of 23,000bpd when Aiteo acquired it. The story changed as output experienced exponential growth between August 2015, when Shell fully exited the facility and December 2016. Aiteo recorded a 400 per cent jump of the average production of 80,000bpd, peaking at 90,000bpd in one year.
Aiteo is now a conglomerate with footprints all over the oil and gas industry. Today, beyond exploration, refining, and production, the Group is also involved in bulk petroleum storage, trading, marketing, supply, power generation, and distribution.
Speaking about the increased vandalism of oil facilities and crude oil theft recently, Mr. Peters reportedly said, “It painful to see Nigeria bleed so much revenue at a time every dollar is needed for many government programmes. Also, the industry is capital-intensive, so expending resources and effort to produce crude oil only to discover at the terminal that the oil is way below what you pump into the trunkline is, of course, sad.
” Operators elsewhere are currently declaring huge turnover, but it appears the oil thieves are the ones reaping the petrodollars and putting the whole industry at an existential risk here.
“But in business, one does not get hysterical over losses, particularly in this case where the government, also a victim of the criminality, is determined to address the situation.
” This is our country, we all belong here, so it is now a case of all hands on deck.”
Renewed efforts to stop the theft
Although it is still a long way to go, government’s efforts appear to be showing results but require co-ordination.
* According to reports, the collaboration between the Nigerian National Petroleum Company Ltd and the Nigerian Navy, launched on April 1 through ‘Operation Dakatar Da Bararrwo,’ has saved the country the theft of N25bn worth of crude oil.
*The Nigerian Navy has reportedly handed over to the Economic and Financial Crime Commission (EFCC), 70 out of 147 vessels arrested over illegal oil bunkering and crude oil theft.
* The Nigerian National Petroleum Company Limited (NNPC Ltd.) has launched ‘Crude Theft Monitoring Applications’ to curb oil theft and pipeline vandalism.
* More recently, in a development showing the situation’s seriousness and complication, a supertanker, MV HEROIC IDUN, fled from Nigeria’s AKPO oilfield but was arrested by Equatorial Guinea forces.
* Speaking on this, President Muhammadu Buhari, who is also the Petroleum Resources Minister, said, “We will not allow a few criminals to have unfettered access to the nation’s crude oil supply, hence I have directed our security agencies to speedily bring to a halt the activities of these vandals in the Niger Delta.”
* With the flurry of activities of the various arms of security to stop the crime, what was missing was a control centre for proper co-ordination to prevent duplication of efforts and a situation where the Navy announces the arrest of persons and vessels but thereafter nothing is heard again. Worried about that, as do many other stakeholders, the Senate has called for prosecution of suspects to instill confidence in the process.
* Inaugurating a Presidential Committee on National Economy, President Buhari stressed the need for the country to address oil theft. He acknowledged the impact of the theft on the nation’s revenue and urged Nigerians to support the government in the efforts at addressing the menace.
Clearly, the battle with entrenched oil thieves, who have obviously invested heavily in the crime, and sundry challenges is a tough one, but with the national economy now struggling, it one Nigeria, cannot afford lose.
Bisi Daniels is an author based in Lagos