Africa’s richest man, Alike Dangote, said at an oil industry event on Wednesday that given the right conditions, the Nigerian National Petroleum Company Limited (NNPCL) can become the Saudi Aramco of the continent in the near future, but an analysis of the two organisation’s operations indicate the odds are heavily stacked against this reality.
Whereas Saudi Aramco, officially the Saudi Arabian Oil Group, a Saudi Arabian public petroleum and natural gas company based in Dhahran that has become one of the largest companies in the world, typifies the country’s pride, Nigeria’s NNPCL is the best representation of the country’s rot and decline.
Aramco pays the Saudi Arabian government billions of dollars in dividends, while NNPCL’s structure and operations make it difficult to deliver dividends for Nigeria, bogged down by heavy subsidies, inefficient operation, and corruption.
Saudi Aramco has been up to date with its quarterly and yearly financial reports, making transparency a benchmark for its operations. For example, the company has released its quarterly report that revealed a $32 billion net profit and other transactions made in the period.
This is not the same case for the NNPCL. The last time the state-owned company published its annual financial reports was in 2019, and the monthly report was released in August last year.
“We want the NNPC Limited to resume the publication of monthly reports,” the International Monetary Fund (IMF) said in its latest staff report for the 2022 Article IV Consultation.
“While the authorities have published the annual financial reports of the NNPC since 2019, the publishing of monthly reports of oil fiscal transfers to the government have stopped following the conversion of the NNPC to a public limited company. Staff recommended the resumption of publication of the monthly reports along with the audit of oil fiscal revenues received from the NNPC,” the IMF added.
Saudi Aramco has both the world’s second-largest proven crude oil reserves, at more than 270 billion barrels (43 billion cubic metres), and largest daily oil production of any oil-producing company.
Aramco traces its beginnings to 1933, when a concession agreement was signed between Saudi Arabia and the Standard Oil Company of California. A subsidiary company, the California Arabian Standard Oil Company, was created to manage the agreement.
In 1980, the Saudi government increased its interest in Aramco to 100 percent. Eight years later, the Saudi Arabian Oil Company (now renamed Saudi Aramco) was officially established — a new company to take over all the responsibilities of Aramco, with His Excellency Ali I. Al-Naimi becoming the first Saudi president in 1984, and the first Saudi president and CEO in 1988.
Meanwhile, controversies surround the ownership, operations and structure of the NNPCL. According to the Petroleum Industry Act (PIA), the shares of NNPCL are held by the Ministry of Finance Incorporated and Ministry of Petroleum Incorporated in equal portions, on behalf of the Federal Government.
Though the Nigerian Governors Forum (NGF) supports the unbundling and commercialisation of the company, it faults the aspect of the PIA provisions that places its ownership on the Federal Government.
The NGF said the NNPCL should be owned by Nigeria Sovereign Investment Authority, according to a communiqué released by Kayode Fayemi, former chairman of NGF, in 2021.
“The NGF recommends that given that the three tiers of government own the corporation, the new incorporated entity (NNPC Limited) should be owned by a vehicle that holds the interest of the three tiers of government – for now, the institution that is positioned to carry out this mandate is the Nigeria Sovereign Investment Authority,” the communiqué reads.
“This amendment as well as the proposed 3 percent share of oil revenue to host communities and 30 percent share of profit for the exploration of oil and gas in the basins will be responded to at relevant channels including the National Assembly and the National Economic Council.”
Aramco has moved to strengthen its relationship with international oil companies (IOCs) and is investing outside of the Kingdom of Saudi Arabia in a bid to strategically position itself as a global power in the oil and gas market.
In March, Aramco signed definitive agreements to acquire a 10 percent interest in Shenzhen-listed Rongsheng Petrochemical Co. Ltd. for RMB 24.6 billion ($3.6 billion at current exchange rates), in a deal that would significantly expand its downstream presence in China.
Through the strategic arrangement, Aramco would supply 480,000 barrels per day (bpd) of Arabian crude oil to Rongsheng affiliate Zhejiang Petroleum and Chemical Co. Ltd (ZPC), under a long-term sales agreement.
Aramco Overseas Company, a wholly-owned subsidiary of Aramco, will acquire the interest in Rongsheng, according to a statement by the oil company.
The NNPCL, however, is crippled by familiar foes including oil theft, Niger Delta challenges, IOCs leaving on the back of insecurity and transitioning to cleaner energies, and lack of political will, among other things.
Analysts say this divestment wave in an oil industry facing existential risks and not making new investments could herald the end of Nigeria as a major oil producer.
Olufola Wusu, energy lawyer and partner in the law firm Megathos, said that the steady stream of divestments without major projects bringing much-needed fresh capital to Nigeria’s oil and gas industry could be a concern for policymakers or a signal to do things differently.
Read also: Dangote, Elumelu hail NNPC’s performance under Kyari
Fed up with brutal thefts and sabotage of their oil and gas infrastructure, hostile host communities that have forgotten that welfare is the government’s primary job, and multiple government agencies that have legitimised blackmail in the name of taxation, oil companies are protecting themselves from the risks by keeping the fields in deep water.
“The offshore oil blocks on the high seas appear free from social problems, relationships, corporate social responsibility obligations, oil theft, and other ‘disorders’ that appear to have alarmed the IOC,” Wusu said.
According to the Nigerian Upstream Petroleum Regulatory Commission’s latest oil production status report, Nigeria’s crude oil production fell to 998,602 bpd in April this year, the lowest in seven months.
Uwaye Omijie, an oil production engineer at Midwestern Oil and Gas Company in Delta State, said the Forcados oil terminal, through which about six oil lease agreements are exported, has been out of service for more than two weeks.
“While the Forcados oil terminal is closed, factories have halted production, leading to a drop in Nigerian production in April, which is normally harvested in May,” he said. If the oil terminal doesn’t show up by next week, Nigeria will set a lower record in May than in June.”
