BusinessDay

Explainer: Who is the NNPC frontier exploration fund for?

After lawmakers passed the Petroleum Industry Bill (PIB), many Nigerians have expressed outrage at the provision in Part III, clause 9(4) relating to the creation of a Frontier Exploration Fund (FEF).

The FEF comprises 10 percent of rents on petroleum prospecting licences, 10 percent rent on petroleum mining leases, and 30 percent of NNPC Limited’s profit oil and profit gas in production sharing, profit sharing and risk service contracts.

The fund shall be applied to all basins and undertaken, simultaneously, and the NNPC would transfer the 30 percent of the profit from oil and gas to the FEF escrow account dedicated for the development of frontier acreages only.

Since these provisions were made public many conspiracy theories have emerged with the underlying erroneous assumption that the fund was created to finance drilling oil only in the North to benefit the region

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Edwin Clark, an Ijaw national leader, in a letter to the National Assembly described the 30 percent share as “fraudulent and provocative.”

The Southern Governors’ Forum also rejected the allocation of 30 percent for the exploration of oil and gas in the frontier basis in the country.

It is worth mentioning that profit from oil in this context is a commercial remuneration that is an entitlement of the concessionaire under a production arrangement. It does not refer to 30 percent of NNPC’s Limited total profits in a financial year. However, it is a significant chunk of revenue considering the deductions would be made on production sharing, profit sharing and risk service contracts.

Following Buhari’s directive in 2018 for increased oil exploration in the country’s frontier basins, the NNPC has been drilling in basins in and around Northern Nigeria.

At a ceremony to flag off of drilling activities at Kolmani-II Oil Well, Gongola Basin, Upper Benue Trough, at Barambu town in Alkaleri Local Government Area of Bauchi State in 2019, Buhari directed NNPC to intensify its campaign in the Chad Basin.

“Our next level is to ensure that exploration is extended to Chad Basin, Gongola Basin, Anambra Basin, Sokoto Basin, Dahomey Basin, Bida Basin and Benue Trough, for more prosperous Nigeria,” the president said.

Juxtaposed against the proposed host community trust fund of 3 percent of prior year capital expenditure by the Senate and the 5 percent proposed by the House of Representatives for communities where crude is currently being drilled in the Niger Delta, has fed into the narrative that the North is getting a better deal at the expense of the Niger Delta.

The inability of lawmakers to rein in the president’s baser instincts of nepotism, tribalism, dictatorial tendencies has given Nigerians valid reasons to mistrust their motives.

However, the PIB clearly states that FEF is aimed at providing the national oil company with a dedicated fund for the development of frontier acreages. It vests management of the fund in the regulatory commission.

Nigeria’s frontier basins are believed to hold vast deposits judging from discoveries made in similar terrains in neighbouring countries. However, exploration is fraught with challenges due to uneven terrain, insecurity and poor commercial prospects, which have kept away international investors.

 

Frontier basin exploration

Frontier exploration is essentially searching for hydrocarbons crude oil, natural gas and other resources, in the inland basins around the country.

According to the Department of Petroleum Resources (DPR), Nigeria’s crude oil exploration is mainly from the offshore, continental shelf and onshore fields largely in the Niger Delta.

The inland basins consist of the Anambra basin, Benin Basin, Sokoto Basin, Chad and Bida basins, the Benue Trough and some others currently undergoing exploratory studies. These basins cover geographical areas that run across both Southern and Northern Nigeria extending to neighbouring countries.

The Chad Basin covers almost 8 percent of the African continent, with an area of about 2,434,000 square kilometres (940,000sq mi) covering Nigerian states from Adamawa to Plateau.

The Benin Basin forms the onshore part of the West African miogeocline in Eastern Ghana, Togo, Benin and Western Nigeria. The Nigerian part of the basin forms part of a miogeoclinal wedge extending from the Volta Delta area in Ghana to Okitipupa Ridge, East of Lagos.

The Anambra Basin is situated West of the Lower Benue Trough, bounded to the South by the Niger Delta Basin hinge line. It extends north-westward into the Niger Valley, northward to the Jos Massif and north-eastward into Lafia. The Eastern and Western limits of the basin extend to Abakaliki and right up to Ibadan.

The Sokoto Basin of which lies in the sub-Saharan Sudan belt of West Africa in a zone of savannah-type vegetation covers mainly Zamfara, Sokoto and Kebbi states of Nigeria.

The possible occurrence of oil and gas in commercial quantities in the basin has been a subject of controversy. This is because very scanty prospective data are available said Yusuf Ishaq, an academic in a study published by the Universiti Teknologi PETRONAS.

Commercial deposits of oil and gas have been discovered and are being produced from contiguous structurally and strati-graphically related rifted basins of Niger Republic, Chad Republic, Sudan, Uganda, Tanzania and Kenya, the academic said, however, they are still not in the volumes seen in the Niger Delta.

Therefore, if the fund was used for its intended purpose, every part of the country would benefit.

What has left many analysts worried is why the country would be devoting huge resources to searching for oil in these basins when vast discoveries in the Niger Delta lie untapped and investments into gas infrastructure are abysmally low.

A bigger cause for anxiety is that the decision to sink this fund into exploration neglects the big picture that the world is moving away from fossil fuels. Nigeria has declared a decade of gas but it is still obsessed with oil. While basins such as Benin hold vast gas deposits, gas exploration is not the stated intent of the fund.

The argument that the NNPC is acquiring exploration experience drilling in these frontier basins misses the point about the energy transition.

It ignores the fact that Nigeria has other minerals that would be competitive in the future where oil sector funds should be invested in, and sacrifices investments into the tech and services sector, which drives growth in modern economies.

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