International Oil Companies are finding it increasingly difficult to explore crude oil in onshore fields in the Niger Delta, a situation that does not bode for Nigeria’s economic stability. We urge President Buhari to task his new service chiefs to protect both personnel and assets in the troubled region.
The sector is reeling from poor regulatory and fiscal frameworks designed by government officials, persistent incidences of pipeline sabotage, crude theft, and an increasingly hostile host communities. In our hurry to milk the golden goose, we might just kill it.
Shell Nigeria is reconsidering its business operation in onshore fields in the Niger Delta, there’s no telling when it will abandon everything. This is due to unchecked pipeline sabotage and crude theft. The company pioneered oil exploration in Nigeria and accounts for nearly 40 percent of Nigeria’s total oil output. It is central to the economy employing nearly 3,000 people alongside a partnership with more than 11,000 contractors.
While some host community’s experience with the company’s operations has been unsavoury, it is still an important contributor to Nigeria’s economy. As of 2020, Shell joint venture asset’s in Nigeria includes, 340 producing oil wells; 56 producing gas wells; a network of approximately 4,000 kilometres of oil and gas pipelines and flow lines; 10 gas plants; two major oil export terminals; one power plant, and one shallow-water Floating Production Storage and Offloading (FPSO).
In 2019, Shell and its subsidiaries paid the Federal Government of Nigeria over $5.6billion dollars which at the exchange rate of N307/$1 at the time, adds to N1.7trillion.
Worse still, other big oil companies are reeling too. The oil sector is troubled enough, we do not need to add to their woes. ExxonMobil is struggling to keep its host community in Eket stable and Chevron and others record huge costs to provide security for their assets. Some are now diverting investment dollars to smaller African producers in a vote of no confidence in the country that holds the biggest reserves in Africa.
The Nigerian National Petroleum Corporation (NNPC) in its most recent operations as contained in the financial report said it spent about N50billion in ten months on sabotaged pipelines in 10 months. While these figures have not been independently verified considering NNPC’s history of opacity and corruption, they point to a serious problem with the security of oil assets.
Perhaps, some Nigerians are under the illusion that if we ride out the big oil companies, our fortunes will improve. To understand what kind of future awaits these assets, consider what is currently happening to the assets they divested to some local operators. With the exception of a few, many of these assets are rotting away.
The local operators are challenged by the inability to source financing to develop these fields. Oil and gas operations require huge capital outlay. This is why Nigerian banks with huge exposure to the oil sector, run for the hills when local oil companies come to talk about loans. Many oil sector professionals also lack the requisite technical capacity to develop some of these fields.
We understand the genuine agitation of oil-producing communities whose flora and fauna have been impacted by oil exploration. But we must make the distinction between rightful agitations for better environmental practices by oil companies and brigandage by thieves. More often than not, what occurs in some areas in the Niger Delta is crime dressed the garb of dissent.
The new service chiefs should therefore make the protection of these assets and the personnel who operate them a top priority. Nigeria’s waterways are insecure and risks of the kidnap of professionals abound. They should improve intelligence gathering and move deftly against trouble makers.
Apart from increased security in the protection of oil and gas assets, the Nigerian government needs to improve fiscal and regulatory regimes for the sector. The world is moving away from oil and nations are racing to make the most of their resources while there is time.
The current Petroleum Industry Bill has provisions, which this paper has identified that will hamstring new investments. Our fiscals are too focused on maximising government take at the expense of attracting investments and some regulations only raise costs and bureaucratic meddlesomeness. The National Assembly must look at the laws of other countries, take the input of operators and come up with a law that can help the country now before oil becomes a relic.
