Why discordant tunes over oil search in the North persist
Shell and Chevron with Oil Prospecting Licenses (OPLs) 809 and 810 awarded to them respectively, commenced the search for hydrocarbons in the North, especially in the Gongola Basin over 40 years ago under the Production Sharing Contractual (PSC) Agreement on Oil Mining License (OMLs) 118 and 132 for consolidated cost recovery.
After Shell explored and drilled at Kolmani River-1 and Chevron did the same on Nasara-1, they both backed out after dismal discoveries, and the New Nigeria Development Company (NNDC) thereafter got the two blocks on a PSC basis in the 2005 bid round. The Nigeria National Petroleum Company Limited (NNPCL), then the Nigeria National Petroleum Corporation (NNPC) became part of the deal.
In 2017, the Nigeria Petroleum Development Company (NPDC), a subsidiary of NNPC agreed to join the NNDC as part of the PSC contractor group, as well as the operator responsible for funding and technical operations.
Unlike other oil field developments, President Muhammadu Buhari added momentum by ordering the NNPC to vigorously spend state funds to explore the in-land basins for hydrocarbons. The focus was on Lake Chad and Gongola Basin.
Frontier Exploration Services (FES) was later created as a subsidiary of the NNPC to pursue the agenda. The development led to the spudding of the Kolmani River-II & III and subsequently Kolmani River-IV to determine the size of hydrocarbon find and explore deeper targets.
On Saturday, February 2, 2019, Buhari flagged off the spud for Kolmani River II Well on the Upper Benue Trough of the Gongola Basin.
About a year later, the NNPC announced the discovery of one billion barrels of oil and over 500 billion standard cubic feet of gas.
However, on Tuesday, November 22, 2022, Buhari returned to the site again to flag off the Kolmani Integrated Development Project of Oil Prospecting Licences (OPLs) 809 and 810.
According to NNPC, the development is in partnership with the Africa Oilfield Movers Ltd consortium, New Nigeria Development Company (NDDC), and NNPC E&P Ltd (formerly NPDC).
The first phase of the project is projected to entail an in-situ oil refinery of up to 120, 000 barrels per day capacity, a gas processing plant of up to 500 million standard cubic feet (SCF) per day, a power plant of up to 300-megawatt capacity, and a fertiliser plant of 2, 500 tons per day.
In another phase of the project, the NNPC said that there would be a downstream oil terminal/depot for offtake and distribution of the white products coming out of the refinery and further development of the integrated project.
Between Politics And Economic Viability
THE politics of oil in the North has been louder than the economics of hydrocarbons considering that for many years, the ghosts of marginalisation and resource control have dominated political discourse.
Oil search in the North has been described in some quarters as President Buhari’s pet project, which he started over 40 years ago. Oil discovery in the North is also seen as a sign of political stability, a development that would douse tension on resource control or a move that would make the region feel the impact of oil spills and environmental degradation associated with oil extraction.
There have also been allegations that while the country’s inland basins include the Anambra Basin, the rift basin called Benue Trough (which is segmented into Upper, Middle, and Lower parts), Mid-Niger, or Bida Basin, Chad or Borno Basin, and Sokoto Basin, the attention has only been in the North.
Most political leaders in the North, including Ibrahim Gaidam of Yobe; Aminu Waziri Tambuwal of Sokoto; Abubakar Badaru of Jigawa and others have at one point or the other been in separate closed-door meetings to discuss oil exploration in the region.
On the other hand, activists from the Niger Delta region have been unsettled by the development, as they insisted that frontier oil funding negates all business and ethical principles.
To them, spending in search of oil should be a risk undertaken by oil companies, and not the government. They also allege that spending earnings from the Niger Delta in the North was an injustice.
One such person is the former President of the Movement for the Survival of the Ogoni People (MOSOP), Ledum Mitee, who said the so-called frontier oil funding negates all business and ethical principles.
“Spending in searching for oil should be a risk by the oil company and not the government. Why wouldn’t the government also spend money to search for gold, for instance, in the Niger Delta region?
“I have repeatedly argued that committing state resources to oil exploration, which all over the world is a purely private business undertaken, is not only unconstitutional but economically irresponsible. Private companies should, alongside paying the relevant licensing and related fees, invest in such endeavours if they consider it profitable,” he added.
For others like Prof Obiwu Iwuanyanwu, who teaches World History and Critical Theory at the Central State University, in Ohio, the United States, the oil may be one of the reasons the northern part of the country is holding to the South, stressing that the discovery should be more so the North could let go of the South.
The presidential candidate of the ruling All Progressives Congress (APC), Asiwaju Bola Tinubu, immediately after the drilling exercise was announced, pledged to sustain the project if elected president in 2023, adding that President Buhari has made history after over 60 years of oil exploration in the country.
Be that as it may, the politics surrounding oil search in the North intensified after Buhari signed the Petroleum Industry Act (PIA). The law legalised that 30 per cent of profit made by the NNPC (projected to be about $400m) be spent to explore oil in the inland basins.
The governors of the southern states had rejected that position, even as Chief Edwin Clark, an Ijaw national leader, described the initiative as “fraudulent and provocative.”
The development had initially led to the push for the ownership of NNPC Limited to be in the trust of Nigeria Sovereign Investment Authority (NSIA) instead of the Federal Ministry of Finance.
But for the Managing Partner, BBH Consulting, Ameh Madaki, announcements by the government on oil and gas discoveries in the North were more political than economic or technical.
“For years, the government has been wasting scarce resources on frontier basin exploration without meaningful results. If indeed there is a find of one billion barrels in reserves in the North, why are oil and gas companies not scrambling for the acreages?
“Like most absurd policies in the energy sector, this is another clear example of a directionless policy, and an attempt to use propaganda to manage the economy, with disastrous consequences. For dwindling production and reserves, sustained oil and gas production at high volumes is driven by investments and a stable operating environment,” he noted.
Some stakeholders noted that the current development would not have been if Buhari happened to be from another part of the country and if the current management and board of the NNPC Limited were not skewed to favour what they described as a northern agenda.
In accordance with the power vested in Buhari under Section 59(2) of the Petroleum Industry Act 2021, he appointed the current board of the company comprising the chairman, Senator Maragret Chuba Okadigbo (South East), Mele Kolo Kyari, Chief Executive Officer (North), and Umar I. Ajiya, Chief Financial Officer (North), Dr. Tajudeen Umar (North East), Mrs. Lami O. Ahmed (North Central), Mallam Mohammed Lawal (North West), Henry Obih (South East), Constance Harry Marshal (South South), and Chief Pius Akinyelure (South West).
Transparency, Accountability Concerns Cast Shadow
NATIONAL oil companies like the NNPC are expected to be transparent and accountable under the Extractive Industries Transparency Initiative (EITI). Nigeria is a member of EITI and the NNPC is an EITI-supporting company. As such, the company is one of a group of over 65 extractives companies, state-owned enterprises (SOEs), commodity traders, financial institutions, and industry partners who commit to observing the EITI supporting company expectations.
While the NNPC has been making a level of disclosure, the spending on exploration activities, especially in the North has been excluded and has remained more like a secret even though state funds are going into the activities.
At some point, Senator Shehu Sani, during a visit of members of the Kaduna State Students’ Union to his office in Kaduna, noted that, “past leaders have amassed wealth through this venture.” He, therefore, called Buhari to investigate the over $3b already spent on the oil search in the North.
This development also raises the issue of lack of transparency and accountability in the NNPC, as only Prof. Jerry Gana, in 2013, while serving as chairman of the Northern Nigeria Economic Summit, disclosed that N27b was spent on oil and gas exploration in the Lake Chad Basin at that time with additional $340m budgeted for it.
The issue became worrisome as the NNPCL failed to include details of spending by the FES, a subsidiary of the company, which focuses on prospecting crude in the inland basins from its recently released 2021 audited reports.
Energy expert, Henry Adigun stated that the exploration may not be coming at the right time given the state of the oil market, adding that the NNPCL may need to become more transparent about the activities in the inland basins.
“There is oil there, that is what I can tell you. It may not be in commercial quantity, but there is oil there. But looking at the oil market now, is it the best for us? Maybe no. The key thing is that the survey shows potential.
“Again, there must be clarity. There must be transparency on the why, and what is going on there because now, the NNPCL is using government funds, which belong to the Nigerian state,” Adigun said.
Absence Of Data On Discoveries Worries Geologists, Explorationists
FOR most explorationists, the oil find and related activities ought to be science-based, where results of findings are open and tested for global acceptability and further research, but the NNPC’s FES has not been able to explain to geologists and researchers the breakthrough that led to its one billion crude oil discovery.
“Can someone discover a cure for HIV/AIDS and hide the discovery? The person will be everywhere talking to researchers in the medical field. FES has not been able to explain to all of us who have been practicing in the industry for decades,” a source, that pleaded to remain anonymous, told The Guardian.
While the Nigerian Upstream Petroleum Regulatory Commission had disclosed last month that Nigeria’s crude oil reserves stood at 37 billion barrels, the commission became silent when The Guardian requested to know if the current reserves included the one billion barrels at the Gongola Basin.
In 2010, Nigeria said it would increase crude oil reserves to 40 billion barrels, but that target has remained a mirage 12 years after.
The Organisation of Petroleum Exporting Countries (OPEC)’s recent statistics and the NUPRC showed that the country could be in retrogression in terms of reserves.
According to the statistics, the reserve, which stood at 37. 200 billion in 2010, dropped to 36. 247 billion in 2011. It was 37. 139 billion in 2012 before it went down to 37. 071 in 2013. In 2014, it stood at 37. 448 billion, and later dropped to 37.062 in 2015 and remained at 37.453 billion in 2016. It remained the same through the years and currently stagnated at 37 billion, that is, as of last month.
For geologist and publisher, Toyin Akinosho, details of the inland basin discovery do not add up.
“Like any geoscientist, I want to believe that one billion barrels of crude oil were discovered in a cretaceous basin in Nigeria. But the NNPC hasn’t provided me a basis for trusting their figures. From the data that they shared, those numbers seem plucked from the air,” Akinosho said.
Akinosho noted that if indeed there was a project and it is as large as 120, 000 BOPD and 500MMscf/d, it should attract funding.
“But the default for international funders, for non-industrialised African countries, for a project of this scale, is export. I’m curious about who else is in the African Oil Movers Consortium, the funding partner in this project apart from SEEPCO, which is a proven oil producer,” he stressed.
The geologist added that the agitation for improved quality of life would never go away, adding that if indeed a crude oil development project happens in Gombe and Bauchi states, the sub-national governments in those states would receive derivation funds to develop the oil-bearing communities.
He added that it would be myopic to think that the northern takeover of the levers of control at the NNPCL would wither just because there is oil in the North.
Another renowned oil and gas expert, who pleaded anonymity said that what is playing out like oil find in the North is not convincing, pointing out that such a scenario has not played out in the last five decades of his career.
“Here is a question that I have no answer to offer. If the grandfather of the President of Nigeria had come from Ughelli, and the management of NNPC and its board structure skewed differently, would the crude oil decision to drill a producer well be different under a risk-averse decision-maker?
“I don’t have an answer and time will tell when more information is made available. This is a national asset and not a northern asset. Remember, petroleum resources anywhere are owned by the federation. I don’t even know whether it is a concessionary or contractual arrangement. Oh no, I don’t have to know, but the nation ought to.
“I am sick and tired of decisions like this having a sectional undertone and biased interpretation of a stochastic economic event with a pronounced deterministic outcome. Are the one billion barrels discovered proven reserves? If so, has the discovery been certified by the Commission and added as booked reserves? Are the current estimated proven reserves in Nigeria inclusive of these one billion reserves in the OPEC Bulletin, BP Statistical Review? These are legitimate questions to ask. I am not sure that I have seen anything like this in my petroleum career journey that started 40+ years ago,” the source said.
A Public-private partnership consultant, Joseph Tsavsar said that the exploration did not make economic sense. At a time when the country is wallowing in debt, and when state governments can no longer fund budgetary allocations, Tsavsar said “It is purely political and corruption of the highest order to apply public resources on projects that have no value to the public.”
According to him, the oil prospect is far from reality, adding that the prevailing operation is an Oil Prospecting License (OPL) pending when the economic value is established.
Tsavsar said while it may take more than five years for the licence to become an Oil Mining License (OML), the economic deposit of the discovery must be established before anyone celebrates, or talks of producing for refining and the power projects
“As regards the $3bn investment, I don’t know where and what for because we are not there yet. It is only wishful thinking,” Tsavsar said.
Backlashes Aplenty Amidst Economic Woes
OF late, backlashes and accusations have trailed the NNPC with the only recent success being the oil discovery in the Gongola Basin.
As the country plummeted into a debt of N42.84 trillion and the naira crashed to a record low, the Central Bank of Nigeria in July said that the NNPCL should be blamed for the free fall of the naira in the official and parallel markets. The state oil firm fired back by saying it remitted $2.7 billion.
But the development took a new twist about a week after the oil drilling started in the North, with the CBN saying: “The official foreign exchange receipt from crude oil sales into our official reserves has dried up steadily from above US$3.0b monthly in 2014, to an absolute zero dollar today.”
Almost 80 per cent of Nigeria’s foreign earnings come from oil, and the NNPCL and its subsidiaries hold these earnings in trust for the Nigerian people.
Going by the book, about $400m will be spent yearly to explore oil in the inland basins. If the reserves in the basins are proven, prospecting could take nothing less than five years, in some cases over 10 years for oil to be produced. If it takes five years, the company may spend about $2b on prospecting.
This is coming at a time that the nation is wallowing in debt with state governments struggling, and some calling for the scrapping of the NNPCL, as they no longer make a contribution to FAAC from the state oil company.
There are indications from FAAC reports that about N14.3b has been spent on exploration activity this year alone, with another N20.681b spent in the first seven months of last year.
With crude oil production at its lowest, subsidy payment holds the economy to ransom amidst scarcity of Premium Motor Spirit (PMS), dilapidated refineries, vandalism, and theft as illegal pipelines render operators out of business.
A former governor of the Central Bank of Nigeria and deposed Emir of Kano, Lamido Sanusi, in October called for the unbundling of NNPCL, declaring the national oil company as a money pit and not a “cash cow”.
The Governor of Kaduna State, Nasir el-Rufai, also pointed out that the failure of the NNPCL to remit any revenue into the federation’s account since the beginning of this year has put many states into severe financial distress.
Stakeholders See Huge Prospects
A FORMER President of the Petroleum Technology Association of Nigeria (PETAN), Bank Anthony Okoroafor, said that the country needs to ring-fence the budget for exploration and development in the frontier basins and deepen reserves.
“I have always supported exploration and development in the frontier basins. This is a good development. Since no evacuation is possible hence the development of a refinery and gas plant. If the volume of the reserve is proven, a refinery in that zone can ease the foreign exchange pressure and scarcity of petroleum products in the entire North,” he said.
Energy scholar and an economist at the University of Ibadan, Prof. Adeola Adenikinju, said should the reserves become proven, whatever money that has been spent would be recovered, and it would boost production and exports.
“This will mean more revenue for governments at all levels and derivation revenue for the states that host the oil and gas fields,” Adenikinju said. He warned that there’s a need to, however, learn from the Niger Delta experience, how host communities are treated, as well as the environment.
Replicating Niger Delta In The North
YEARS of oil production in the Niger Delta has led to prolonged environmental degradation. With the North now being in the equation, concerns are mounting on what becomes of the environment, especially for the region faced with serious environmental challenges, insecurity, and poverty.
The founder of Nextier, Patrick Okigbo insisted that with the new oil field, stakeholders must express a commitment to environmentally friendly practices in the new oil drilling areas.
“The government should firmly apply its petroleum host community trust regulations, and ensure that human development issues are properly implemented.
“The government should adopt state-of-the-art artificial intelligence technologies to monitor oil production from the oil well to its distribution points,” he added.
According to him, the most decisive step in ensuring integrity and accountability in the oil industry in Nigeria is to identify the culprits behind oil theft, expose and punish them.
Okigbo added that given the increasing global drift away from hydrocarbon energy, the remedial steps for improving the oil industry need to be taken in the shortest possible time.
Leeway For Oil Drilling In The North
WHILE the possibilities of hydrocarbons exist across locations in Nigeria, making decisions based on economic realities is of utmost importance.
Without accountability, transparency, and inclusivity of exploration activities across the inland basins, oil exploration in the North will be seen as an agenda designed to benefit a few people.
Being a science-based exercise, players in the industry should have details, and clarity of the exploration activities in the region. At a time that the rest of the world is shifting attention to sustainable energy, and looking for solutions to climate change, Nigeria must align with short and long-term goals. This is because environmental concerns and host community issues are better addressed sustainably before they go out of hand.