Saving Nigeria’s upstream petroleum sector from total collapse

Nigeria, once a leading crude oil producer in Africa with close to two million barrels per day production is struggling to keep up despite the passage of the Petroleum Industry Act.

Though many stakeholders are looking forward to the impacts of the regulations being designed by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), how fast that can change the prevailing situation remains uncertain. KINGSLEY JEREMIAH writes.

The figure for crude oil and condensate production for September 2022 released on Monday by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) showed that the country’s crude oil production decreased to an average of 937,766 barrels per day (bpd) in September. The production figure is 3.56 per cent or 34,628 BPD lower compared to the August 2022 output at 972,394 BPD.

According to reports by the Organisation of Petroleum Exporting Countries (OPEC), Nigeria is facing a record reduction in oil production and has dropped from being the largest producer in Africa to the fourth, behind Angola, Algeria and Libya. OPEC’s monthly oil market report for August indicated that Nigeria’s production stood at 980,000 barrels a day, a decline of more than 100,000 barrels per day compared to July.

Perhaps, the biggest concern for most of the operators is crude oil theft. Just a few days after the Nigerian National Petroleum Company Limited announced the discovery of a 4km illegal crude oil pipeline in the Forcados area of Delta State, security forces disclosed on Monday that 58 illegal oil points were discovered on the waterways of Delta and Bayelsa states. Before this period, the Chairman of the Independent Petroleum Producers Group (IPPG), Abdurazaq Isa, in an interview told The Guardian that about 90 per cent of crude oil is now being lost before getting to the export terminal.

While these issues are being dealt with, on one hand, some International Oil Companies (IOCs) that have operated in Nigeria for decades are divesting their portfolio. Among other things, those affected are eager to leave the shallow water, while focusing on their businesses in the deep water and downstream for those that have an interest there.

In August last year, Nigeria passed into law, the Petroleum Industry Act (PIA), creating the Nigerian Upstream Petroleum Regulatory Commission (NRC) to deal with the challenges confronting the sector.

Sadly, just before the law came into effect, the International Energy Agency (IEA) insisted that investment in new fossil fuel projects would need to stop immediately if the world is to limit global warming to 1.5 °C, a development which commentators had described as a stunning challenge by the historically pro-fossil fuel body.

As great as the PIA may be, strong regulations are the only vehicles through which the objectives of the legislation can be achieved. With the series of engagements with key stakeholders in the Nigerian oil and gas industry, particularly with the upstream players, in the drafting of these regulations, the latest being for the Frontier Exploration Fund and the Host Community Development Fund, the need to steer the industry on the path of growth and increased value addition is no longer an option for the NUPRC, the sole regulator of the upstream segment of the industry.

Recall that in April, NUPRC started the process that will give birth to six new regulations. These regulations attempted to set modalities for oil and gas royalty, award of oil blocks, fees and rentals amidst divestment by International Oil Companies (IOCs).

The new regulations are Nigerian Upstream Fee and Rent Regulations, Petroleum Licensing Round Regulations, Domestic Gas Delivery Obligations Regulations, Nigeria Conversion Regulations, Nigeria Royalty Regulations and Nigeria Host Community (Commission) Regulations.

The others being considered by key players in the sector are; Acreage Management (Drilling & Production) Regulations, Upstream Petroleum Environmental Regulations, Upstream Petroleum Environmental Remediation Fund Regulations, Upstream Petroleum Safety Regulations, Unitization Regulations, Upstream Petroleum Decommissioning & Abandonment Regulations and Frontier Exploration Fund Regulations.

It is pertinent to note that the success or failure of the PIA is largely dependent on these regulations, which are expected to serve as the vehicles for driving the provisions of the law.

Coming at a time when Nigeria risked its oil and gas being stranded due to campaigners against fossil fuel, the Minister of State for Petroleum Resources, Timipre Sylva, had described the move by NUPRC to set the regulation as an innovative way to ensure exploitation and exploration of fossil fuel in the country.

He admitted that only effective regulations could help the country harness the gains of the PIA. “If we must continue to be relevant at the global stage, we must in designing regulations put in focus how we can balance the energy base load for Nigeria so that we will not be left behind in the energy transition train, while still harnessing our rich natural hydrocarbon reserves.

“The assent to the PIA by Mr President signalled a new era in the oil and gas sector of the economy after almost two decades of unsuccessful efforts to have the law passed in the country. The enactment of the PIA is expected to open up opportunities in the oil and gas sector of the economy,” he said.

Chief Executive Officer of NUPRC, Gbenga Komolafe, noted the feared impact of the energy transition, saying it remained critical for Nigeria to take advantage of the oil and gas supply gap resulting from the current developments in Russia and Ukraine.

Komolafe said: “This is deliberately so because we are conscious of prioritising regulations to meet the timelines in the PIA. As such, this first phase of the stakeholders’ engagement will capture robust discussions around issues dealing with royalty, licensing rounds, fees and rentals, and burning issues on implementation of host community funds in line with Section 235 of the PIA.”

According to him, there are burning issues on the implementation of host community funds in line with Section 235 of the PIA as well as finalising the 2020 bid round through issuance of a Petroleum Prospecting Licence (PPL) in line with Section 94 (2) of the PIA.

With the PIA, Nigeria is looking for ways to introduce incentives to grow crude oil and gas reserves as well as daily production. It is therefore critical that the regulations are not only unveiled on time but robust to create critically incentives for investors.

Head, of Legal at NUPRC, Joseph Tolorunse disclosed that the second phase of the development of the regulations remained a testament to the regulator’s vision and determination to implement with speed the provisions of the PlA and to build vital structures and constructive relationships within the Nigerian oil and gas industry. The input from stakeholders, according to him, would enable the sector to achieve designed objectives and meet the best international standards.

To most stakeholders, the growing uncertainties in the nation’s upstream segment are concerning and the approach to create a leeway must therefore be prioritized either through the regulatory approach already being deployed by NUPRC or many other actions being looked at by the stakeholders, including the operators.

Managing Partner, The Chancery Associates, Emeka Okwuosa noted that the situation in the oil sector must be a concern for oil operators as all levels of the economy rely on oil for a major part of their earnings.

Beyond the regulations for instance, Okwuosa stressed the need for a multi-faceted and multi-dimensional approach to some of the issues in the sector, especially oil theft and vandalism, which would see the government use blockchain technology to forestall the theft in a transparent manner, while calling for a portal wherein whistleblowers and other indigenes could forward a confidential report of people responsible for the oil theft.

On his part, former President, of the Movement for the Survival of the Ogoni People (MOSOP), Ledum Mitee said incentivising the communities is the way to go in dealing with the upstream issues.

To him, if communities are too, for instance, guaranteed some incentives like uninterrupted power and their youths are employed by them and paid living wages, the youths and community would have stakes in protecting pipelines that pass through their respective communities.

In the same vein, the former management staff at the NNPC and Chairman/Chief Executive Officer, of International Energy Services Limited (IESL) Dr Diran Fawibe’s concern is the investors, whose investment is put at risk over development in the oil sector, which he said appears to be defying solutions.

“Oil production in the country is now becoming an exercise in futility,” Fawibe said, adding, “I sympathise with the oil producers that have invested billions of dollars to explore and ship oil and gas to the international market.”
Lamenting that government revenue is now at risk more than ever, Fawibe expressed apprehension over how investors would get a return on their investments.