Crude oil, which accounts for over 80 per cent of the country’s revenue and contributes about nine per cent of the country’s Gross Domestic Product (GDP), suffered a setback between July and September 2020 when it contributed 8.73 percent of the total real GDP.
The development is not unconnected to the low oil price regime in the global market occasioned by the dreaded COVID-19 pandemic which shrunk Nigeria’s oil revenue from its hydrocarbon resources by about 90 percent in 2020.
The World Bank had estimated that Nigeria will lose up to 70 per cent of its earnings from crude oil sales in 2020 due to the devastating impact of the COVID-19.
In a report titled: ‘Nigeria Development Update 2020,’ the Bank stated that prices of crude oil which accounts for majority of Nigeria’s foreign exchange earnings were expected to remain low, supported mostly by persistent supply glut and slowed recovery of the economies of Nigeria’s trading partners.
According to the Washington-based institution, the pandemic forced Nigeria to revise its 2020 benchmark on oil production and price from 2.3 million barrels a day (mbd) and $57/b to 1.9mbd and $28/b.
The bank stated that: “Government oil revenue would be down by over 70 per cent, cutting total general government revenue to 5.3 per cent of GDP for the year.”
According to the bank, the global economy, and not just Nigeria’s, will contract by at least 5.2 per cent, impacting several of Nigeria’s major trading partners.
But in all of these, and even in the wake of daunting economic challenges posed by COVID-19, Nigeria was able to weather the storm through robust regulatory framework championed by the industry regulator-Department of Petroleum Resources (DPR).
The result of some of those polices helped save several lives of workers in the oil industry by ensuring that oil producing companies observed the COVID-19 protocols without cutting corners, review of some obsolete laws to be in tune with current realities, thus translating to increased revenue in a bid to reap the expected gains from the country’s hydrocarbon resources.
Safeguarding oil production
One of the core regulatory functions of the DPR for smooth operations in the upstream sector is crude transportation process and review as can be found in the National Liquid Hydrocarbon Production report.
Information on the DPR website explained that hydrocarbon is currently extracted from 323 developed fields located in both onshore and offshore terrains. These fields, which either contain crude oil, condensates or natural gas reservoirs, are connected to 265 production processing stations, after which the stabilised oil and gas are exported via 31 export terminals.
‘‘The onshore processing infrastructures are linked to 8 crude oil/condensates and NGLs export terminals through pipelines that span 5,284 km. Some of these delivery pipelines connected to the five onshore export terminals are utilised by both the asset operators and third-party oil producers, for transportation, storage and lifting of crude oil blends through export or delivery to domestic refineries.’’
An oil and gas expert, Mr.Tunde Akanji, explained that the fact that Nigeria relies almost solely on crude receipts for its forex income and funding of its budget makes the DPR function of crude transportation process and review even more critical to enable the government maximize revenue and be able to meet its responsibilities to Nigerians.
Akanji, who is also the Managing Director and Chief Executive Officer of Sparklight Energy Services Limited, noted that fields are drilled based on oil equivalents – oil, gas, condensates and water, adding that upon distillation, the products are separated and actual quantities are then determined, which is another highly regulated process.
He reiterated that crude oil cannot be stolen except the pipelines are compromised, because the processes of transporting the crude from well heads to terminals are highly technical and strictly regulated by the DPR.
He disclosed further that because the process of transportation is via pipelines owned and operated by private companies, products are pumped from various well heads through these pipelines – Nembe Creek (NCTL), Transnational Pipeline (TNP) among others, stressing that only the regulator, as the licence issuers for the all facilities involved in the process of crude explosion, transportation and based on approved allocations, can confidently determine who pumped what volume and when.
‘‘Of course, there would be claims and counter claims by operators, but only the DPR can resolve such disputes amicably based on available data for all parties mutual benefits.
The DPR past audits (available on its website) on upstream operations will come in handy in terms of crude losses if any.
It is also pertinent to note that upstream operations are in venture partnerships, therefore, whatever decision/penalty prescribed by the DPR in the process of the dispute resolution is shared by the venture partners according to equity holding.
A case at hand is the claims of admission of alleged admission of theft of two million barrels of crude by Shell by an online publication. it is imperative to clarify that what is being referred to as admission of theft is a process and regulatory issue arising from disputes over shared facility and Shell has already issued a statement on this.
The Sparklight CEO explained further that a simple analogy is in the telecoms sector where the NCC resolves similar disputes over collocation among network service providers arising from origination and termination of services.
He added that the public should be properly guided and knows that process reviews or reconciliation of crude volumes is not an admission of theft but the outcome of investigations arising from operational disputes on field reserves and its daily output template by operators who share common facilities like pipelines and terminals.
DPR as revenue spinner
In his capacity as the Minister of Petroleum Resources, President Muhammadu Buhari, amended the Petroleum (Drilling and Production) Regulations, 1969 (“the 1969 Regulations”). The 1969 Regulations provide, among others, guidance on the implementation of provisions of the Petroleum Act regarding applications for oil exploration licences and oil prospecting licences and guidelines on oil drilling and extraction operations.
The Petroleum (Drilling and Production) (Amendment) Regulations, 2019 (the Amended Regulations), which has a commencement date of October 9, 2019 as stated in the official gazette, amended the 1969 Regulations in order to “review certain fees payable under the Regulations and to Introduce new fees for certain applications and approvals under the Petroleum Act 13.”
The Amended Regulations revised several fees in the 1969 Regulations that were no longer reflective of current economic realities by increasing some by as much as three hundred percent (300 per cent).
For instance, the fees payable for the application for a permit to carry out geophysical or geotechnical data survey in any concession area and thosefor the approval to commence the drilling of a borehole orwell were increased from N5,000 per the 1969 Regulations to N1,500,000 per the Amended Regulations.
In addition, Regulation 59 of the 1969 Regulations that provided for the payment of fees for a total of eleven (11) types of permit, lease or licence applications was replaced with a new Regulation 59 that provides for the payment of fees for about sixty-three (63) different types of permit, lease, approval or licence applications as well as renewals of some of these permits, leases and licenses.
Furthermore, the Amended Regulations stipulates a maximum penalty of $250,000 to be issued by the DPR to any person (which includes a body corporate or unincorporated entity) that fails to comply with any of the provisions of the revised Regulations.
In addition, any permit, license or lease granted to that person may be withdrawn or cancelled by the DPR.
‘‘It is, therefore, important that operators and stakeholders review the provisions of the Amended Regulations to ensure full compliance and avoid the imposition of such stiff penalties.’’
Regulations for COVID-19
A document by KPMG on the Nigerian Oil and Gas Industry Update, quarterly newsletter, published in May 2020, disclosed that DPR issued two circulars on the management of the COVID-19 pandemic in the oil and gas sector.
This is against the backdrop of the spread of the COVID-19 in the country and the government’s efforts to mitigate this spread.
In a Circular issued on March 29, 2020, the DPR directed operators, contractors and service providers to reduce the workforce on offshore platforms.
Based on the Circular, all travels to and from offshore or remote locations would strictly be in line with the guidelines and procedure for travel to offshore/swamp location and obtainment of offshore safety permit, 2019. It also suspended staff rotation of less than 28 days, which implies that staff working offshore or in remote locations are required to stay on rotation for a minimum of 28 days at these locations.
The circular further stipulates the withdrawal of non-essential staff from offshore or remote locations and mandated that representation by government agencies at these locations be limited to one person per rotation.
In another circular issued earlier on March 30, 2020, the DPR provided measures that are to be taken by operators, contractors and service providers on activities at project and construction sites in the Nigerian oil and gas industry.
‘‘All operators and their contractors need to ensure strict compliance with relevant Government directives regarding limiting the number of personnel at project or construction sites as well as the guidelines on social distancing, curfews, lockdowns, among others as may be applicable.’’
The regulator also directed that the current situation is to be considered “force majeure” to ensure the safety and welfare of all personnel and contain the spread of COVID-19.
‘‘The DPR, therefore, communicated its expectation of the demobilization of personnel from these sites to the extent required to satisfy the relevant Government guidelines and requirements.
The Nigerian oil and gas industry is critical to the country’s economy and must be managed appropriately to ensure continuity of operations during this global health crises.
Stakeholders, such as operators, contractors and service providers, must work with Government to accomplish this for the interest of the country,’’ the circular stated.
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