Nigeria: IOCs Lament Escalating Oil Losses, Say Threat Has Reached Existential Level

International oil companies (IOCs) operating in Nigeria including Shell, Chevron, TotalEnergies, and ExxonMobil have again expressed their frustration over the escalating oil losses in the Niger Delta due to the activities of oil thieves.

Speaking at the industry leaders’ panel on the topic: “The Future of Nigeria’s Energy Sector in the PIA Era,” Managing Director of Shell Nigeria Limited, Mr. Osagie Okunbor, said the high oil losses caused by crude theft had resulted to Nigeria’s daily oil production declining from 1.8 million barrels per day in the last three years to just a little over 1 million bpd.

This was just as despite current low oil production levels, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Wednesday reiterated its resolve to pursue a three million barrels per day oil production as well as raise the crude reserves to 40 billion barrels.

Okunbor also warned that the new marginal field licensees that would be operating Shell’s Oil Mining Lease (OML) 53 and 57 may experience difficulties evacuating their products.

“In three to five years, we were brought down from 1.8 million barrels a day to a little over 1 million barrels a day and frankly, most of that comes out of deep water.

“So, our OML 53 and 57 marginal field licensees, depending on how quickly they can bring production on stream, those who are on land, swamps and shallow water, evacuation is going to be an issue. So it’s an existential issue for us,” he explained.

He said two of the most important oil pipelines in the country are currently shut down with hundreds of thousands of barrels a day shut-in.

“We need to address it. If we don’t address it, we can do all the new oil development issues, that will continue to occur. But what is really going to move the needle for us in terms of bridging this gap of hundreds of thousands of barrels a day is solving the evacuation problem.

“So if there’s one thing we need to take away from this conference, it’s how we can put our heads together: Industry, government, regulators, communities, security agencies as to how we can deal with this culture,” he explained.

Managing Director of Chevron Nigeria Limited and Chairman of the Oil Producers Trade Section (OPTS), Mr. Rick Kennedy, said while the industry stakeholders collaborate to fine-tune the Petroleum Industry Act (PIA) in a manner that offers encouragement to all players, it was also imperative for the oil theft challenged to be addressed by all parties.

“My observation is that, leading up to the completion of the PIB and now with the passage of the PIA, there is the need for an unprecedented level of collaboration and partnership across industry, with the regulators with the ministry, and with NNPC.

“And I think that will do us well going forward as we all take on the challenges ahead of us, including the high crude theft that we are going through. Let’s just carry on that collaborative mind-set and ensure we address these challenges,” Kennedy said.

The Executive Director at ExxonMobil Nigeria, Mr. Oladotun Isiaka, who represented his Managing Director, Mr. Richard Laing, said stakeholders should work together to tackle the oil theft challenge as it was impacting negatively on investments in the upstream sector.

“I see two things: When you talk about production, there are two variables in there. There’s capacity and there’s downtime. So security and the downtime aspect, and I agree it is existential,” he stressed.

However, the Managing Director of TotalEnergies E&P Nigeria Limited, Mr. Mike Sangster, said the PIA had brought some level of frustrations, explaining that rather that enhancing investment, the Act was enhancing divestments by the IOCs.

“I can sense a certain level of frustration that the PIA has been passed. There’s been more, let’s say more enhancements in terms of divestments than they’ve been about new investments.

“What I would like to suggest is that we have another dialogue between the industry and the authorities, because we were involved in the definition of the PIA and we worked well with the GMD and with the minister through that process,” Sangster stated.

According to him, there have been some delays in the implementation of the Act since its assent in August last year, pointing out that it took a long time for the post-PIA regulations to be published.

The TotalEnergies boss suggested that another working group be set up between the authorities and the industry in order to finds ways to address some of the issues.

In a related development, the Nigeria Liquefied Natural Gas (NLNG) Limited has said its six-train gas processing plant is currently experiencing decline in production owing to escalating third party infringement on oil and gas production assets across the Niger Delta region,

Stressing that its production has declined by 35 per cent in the last few months, Chief Executive Officer of the liquefaction company, Dr. Philip Mshelbila, disclosed that crude theft and vandalism were gradually strangulating Nigeria’s oil and gas sector.

“We have been producing in the last month at about between 60 to 68 per cent production. In other words, roughly 35 per cent of our capacity is empty. There are many factors, but the biggest one of them is crude oil theft.

“If we don’t address this, we will not get out of this quagmire that we’re in,” Mshelbila stated.

He reiterated the company’s commitment to supply all its Liquefied Petroleum Gas (LPG) to Nigeria’s domestic market, saying the company had stopped exports of the product and was currently supplying about 400 million tons of LPG to the country.

“NLNG has high ambitions for its latest project. The long-awaited expansion will increase production capacity by 35 per cent from 22 million tons per annum (22mtpa) to 30mtpa and enhance NLNG’s competitiveness in the global market,” he assured.

“The train 7 project will receive feed gas through a dedicated gas transmission system and will produce LNG, condensate and LPG. The capital investment for the project will be in the order of $3 to $5 billion subject to final design and scope with a design life of 25 years,” he added.

Despite Low Oil Production, NUPRC Insists on 40bn Barrels Reserves, 3m bpd Drilling Target

Also, despite current low oil production levels, the NUPRC on Wednesday reiterated its resolve to pursue a three million barrels per day oil production as well as raise the crude reserves to 40 billion barrels.

Speaking on the theme: “Providing Regulatory Oversight in the Petroleum Industry Law (PIA) Era”, at the 21st National Oil and Gas (NOG) conference and exhibition event in Abuja, NUPRC’s Chief Executive, Mr. Gbenga Komolafe, stated that plans were also underway to raise gas reserves to 220 Trillion Cubic Feet (TCF).

Nigeria currently has a daily oil production of below 1.3 million bpd, gas reserves of about 208.6 TCF and crude reserves of roughly 37 billion barrels.

Komolafe maintained that the Nigerian oil and gas industry had transformed from a background of regulatory uncertainties to a sector governed by clear rules and regulations as the PIA, 2021 now provides for administrative, institutional governance and attractive fiscal regimes.

In addition, the upstream regulatory agency boss noted that mechanisms for improved Health, Safety, and Environment and achieving peaceful co-existence between operators and host communities had been set out in the new law.

“The PIA 2021 has introduced incentives aimed at growing reserves and increasing Nigeria’s daily production towards attaining the government aspiration of 40 billion barrels and 220TCF of oil and gas reserves respectively and 3 million bpd production target,” he stated.

According to him, the sixth schedule of the Act now provides for production allowance wherein performance in terms of production milestone will be rewarded.

In a clear departure from the past, he stressed that the new law has introduced a mandatory decommissioning and abandonment fund and Host Communities Development Trust that has replaced the previous low-level agreements.

“These are aimed at achieving operational efficiency, higher productivity, cost optimisation, cleaner and safe upstream environment,” he said.

All these provisions, he said, was to ensure sustainable hydrocarbon exploration and production at optimum cost as well as dealing with issues of environmental remediation.

In the new regulatory regime, he noted that progressive royalty rates have now been introduced compared to pre-PIA royalty rates for all terrains, reduced royalties to 2.5 per cent for gas produced and utilised locally and introduction of hydrocarbon tax and company income tax that are cumulatively lower.

Komolafe stated that there would be zero hydrocarbon tax for deep offshore operations as well as consolidated taxation on lease- and company-basis and other fiscal incentives.

“These sweeping reforms are geared towards creating additional opportunities for new investments and higher revenue for both government and investors,” he stressed.

To ensure fairness, equity, and, justice, he added that the Act provides under Section 216 that a stakeholders’ consultation forum be held before the finalisation of the regulation which the NUPRC has already carried out.

“The PIA, 2021 recognises the immense importance of host communities and dedicated the entire Chapter three (3) of the Act to Host Communities Development.

“The objectives as stated in Section 234(1) of the Act are to foster sustainable shared prosperity and provide direct social and economic benefits from petroleum operations to host communities while enhancing peaceful and harmonious coexistence between Settlors (operators) and host communities.

“Indeed, it is noteworthy that the commission has made a tremendous stride by unveiling on June 28th, 2022, the Nigeria Upstream Host Communities Development Regulations and Procedure Guide to serve as a navigational aid for the implementation of the Host Community Development Trust (HCDT) in line with the provisions of Section 235 of the PIA, 2021,” he added.

Komolafe pointed out that the Act has also made provision for existing producing marginal field operators to be granted a separate Petroleum Mining Lease (PML) after conversion.

Likewise, he noted that any discovery declared as a marginal field prior to 1st January 2021 and not producing shall be converted to Petroleum Prospecting License (PPL) and be issued Model Licence and contract in compliance with Sections 94(1)(2) and 85 of the PIA.

He mentioned that the regulatory focus is engaging operators on the review of field development plans, identifying declining and shut-in wells aimed at enhancing oil and gas production optimisation, gas flare elimination and monetisation.

In the Post PIA regulatory environment, he stated that gas had been accorded robust focus, expressing joy that the product has been adopted as a transition fuel in the energy transition regime.

“The commission is making a concerted regulatory drive towards effective exploitation and monetisation of our gas resources in line with Section 108 of the Act.

“It is noteworthy to remark that the PIA provides for gas flaring penalties to be utilised “for the purpose of environmental remediation and relief of the host communities” as provided under Sections 52 (7d), 104 (4) of the Act,” he said.

According to him, the Act has vested the commission in its regulatory activities with sweeping powers to act as an investigator, quasi-judicial, a mediator, a conciliator as well as a business enabler.

“The whole intent is to ensure that the commission is fully equipped statutorily to discharge on its mandates. It is gratifying that the commission has effectively been deploying its statutory powers within the PIA environment to ensure an effective and predictable regulatory environment in the sector,” he said.

Emmanuel Addeh and Peter Uzoho in Abuja

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