Need for rethinking of local operatorship of Nigeria’s oil acreage

Recently, the department of Petroleum Resources (DPR) informed the nation that the oil reserve had dwindled from the 37 billion barrels it was two years ago, to 35 billion barrels. As it is, 90 percent of Nigeria’s revenues come from oil, even though its contribution is still less than 38 percent of its Gross Domestic Product (GDP). In the middle of this is the Nigerian Petroleum Development Company’s (NPDC) continued reduction of its daily barrel production. This implies that, it is supplying less than expected from the several acreages it is operating in. In simpler language, there is a production crisis.

In 2012, when Shell sold its 30 percent stake, and 15 percent of its partners, ENI and TOTAL in Oil Mining Leases (OML) 30, 34, 40 and 42 to Nigerian Independents, (Heritage Oil, ND Western Limited, Eland-Starcrest and Neconde Energy respectively), it was all like a new era had arrived for indigenous companies and the oil and gas industry and Nigeria. The overall anticipation was that, these companies would increase the production of the different OML they had acquired; slowly add value to the economy, and encourage a manufacturing sector while enjoying the added advantage of the Local Content policy. These were the prospects.

However, NPDC’s control of these OMLs left these expectations, as mere expectations.

The intended partnership between NPDC and local players was meant to boost production not reduce it. As it appears, most of the acreages being ‘operated’ by the subsidiary are presently underutilized, alongside its many corrupt practices and bureaucracies. Clearly, the intent of government to create opportunities for local operators and add value to the nation through its Nigeria Oil and Gas Industry Content Development Act 2010 is being endangered with NPDC’s actions, and it may not be in the nation’s interest at this time.

For instance, the decrease in production from OML 42, has made it obvious that the NPDC partnership with its Joint Venture (JV) partners may not have yielded as much success. Aside that, the production levels have not been optimal, the unethical display to retain control, mindless of its effect on the country brings it forward for examination.

NPDC’s strike actions to protest the recent transfer of operatorship of OML 42 to Neconde Energy, came with the accusation that the Nigerian company is incompetent to act as ‘operators’ in an OML it acquired. The subsidiary has wielded its numerous ‘years of experience’ in the sector as a reason it should remain as operators of the acreages, and the local companies should remain as Joint Venture (JV) partners. It is important to note that, while the local companies who bought the acreages from Shell may not have the number of years NPDC is banding around, it is noteworthy to know that, these companies have in their individual capacities made impact in the oil and gas industry, and this is why they came together to form a consortium. In essence, their coming together would imply even better competition for the industry, and increased production.

Actually, with NPDC’s years of experience, and its understanding of how the oil industry works, the subsidiary should not be traducing the creation of consortia as inconsequential. It is not uncommon in the oil and gas industry, globally and locally for companies to come together, bringing their strengths, to make things better on a project or some subject matter. In essence, Neconde is not a ‘group of inexperienced people’ coming together to form a company solely for the gains of buying an asset. Rather, it comprises of strong and tested companies, established long before the sales of the asset, uniting to get the best from a venture. Neconde for instance, like the other companies, who applied for the bid to buy Shell’s stake, are incorporated Nigerian independents, who partnered with some European IOCs to act as funders. The consortium consists of Nestoil, who have proven itself in the (engineering) service sector, Polish-based Kulczyk Oil Ventures Inc and Folawiyo Energy. It is imperative that they get an opportunity to operate the acreages, take up the responsibility of improving production, and make technical decision as they lead in funding, to achieve an expansion in oil production. Just like the indigenous company Seplat has shown.

Seplat, a Nigerian company, has become a point of reference that makes the argument of local players being in control of their OMLs, more explicit. The company escaped the partnership constriction with NPDC. Since its acquisition of OMLs 4, 38 and 41 which was producing 30,000BOPD when it bought into the leases in 2010, its production had zoomed beyond 40,000BOPD by 2011. Today, the company’s output is 52,000+BOPD. Seplat operates its assets, successfully and productively, and has increased production and added 22,000BOPD to the output handed over to it.

The story is different for OML 42 which is operated by NPDC. There is no success story to share. Actually, when Sales Purchase Agreement was concluded between Shell acting as the operating partner, and Neconde in 2011 JV, the output in OML 42 was 15, 000 BOPD, by April 2013, which is two years after the production decreased to 13, 241BOPD.

Presently, NPDC is a company hemmed in with bureaucracy issues, and its concern is genuinely not for national interest, as it continues to spread. For one, it does not have access to money it generates, and there is the lingering issue of poor spending which gives room to the subsidiary continually running out of supplies during operation, and leaving its performance perpetually below standard. Viewing its inadequacies, it is rather unreasonable that NPDC would conduct a strike that reduces power supply and upset the nation’s economic growth at large, to effect a rather selfish interest.

Going back to the primary idea of the Local Content Policy in the Oil and Gas Industry, the Nigerian Oil and Gas Industry Content Development Act 2010 (the Act) was created to open up opportunities for indigenous participation in the Oil and Gas industry, and add value to the nation, by promoting a transfer of technology and skills to Nigeria staff and labour in the industry. The importance of the policy is borne from the fact, that Nigeria’s development as a nation is hinged on industrialization. And with oil and gas being the highest source of our revenue, it is imperative that a lot of focus is given to the localization policy. It is expected that ownership of assets and development of local capacities will increase employment opportunities and open up the production of local goods. In the past, significant proportion of this amount was paid to foreign contractors for services like fabrication and engineering procurement. The result of this is a capital flight that offers the country’s industrial base rather little.

It is evident that NPDC is seeking to slow down the possibilities achievable through the LC and undermining the performance of prospective local operators like Neconde. With the recent crisis of production, it is important for the new government to rethink local operatorship of Nigeria’s oil acreage against state control. This is a time when the country needs a leap into a decade of revolutionary industrialization.

Frank Uzuegbunam