A new report by the Nigeria Extractive Industries Transparency Initiative (NEITI) has revealed that the country lost a hefty N2.1trillion in one year alone due to crude oil production deferment. The huge loss was due to the perennial low crude oil production in 2020. According to the NEITI Oil & Gas Report 2020, Nigeria lost approximately 73 million barrels to crude oil delays. At Brent oil price of $71per barrel in 2020, Nigeria lost a total revenue of $5.2billion or N2.2trillion.
A similar report by the Nigerian National Petroleum Corporation(NNPC) for August 2021 put crude oil production loss in revenue for April of the same year at N248 million or 3.3mn/b. The production delays were recorded by major oil companies operating in the country. They include foreign and local oil firms. According to the report, Shell Nigeria Exploration recorded the highest deferment of 25 per cent (about 17.8mn/b), followed by Chevron Nigeria Limited, 17 per cent or 12.2mn/b, while Nigerian Agip Oil lost 11.1mn/b or 15.4 per cent of estimated production, and Shell Petroleum Development Company ranked fourth with 15.1 percent (11mn/b). For the local operators, the Nigerian Petroleum Development Company (NPDC/SEPLAT) deferred 7.4mn/b, while NNPC and Addax Petroleum deferred 1.2mn/b, and 2.3mn/b, representing 3.1 per cent of its oil last year.
Similarly, Aiteo, Continental Oil Limited and Watersmith lost a huge per cent of their estimated production either due to shut down for repairs or maintenance or power outage. Since Nigeria does not know exactly how much crude oil it produces, it will be difficult to know how much the country is expected to earn in revenue.
We believe that this problem has persisted for years unresolved mainly because, most oil companies that go for deep shore and offshore exploration are foreign firms, not indigenous companies. This is why indigenous oil firms should be given the opportunity in offshore drilling. The advantage is that they will protect the interest of the country more than that of international oil companies. To do this, our indigenous oil firms should acquire the necessary expertise in order to excel in this area.
In 2019, NEITI raised the alarm that the country lost over N123billion ($4.1billion at official exchange rate of N305/$) annually due to poor crude oil production metering. In the report it submitted to the Federal Government, it averred that unless government took appropriate and urgent measures, limitations in the metering of crude oil production would continue to pose serious threat to the nation’s revenue target. Already, government could realise only 58 per cent of its projected revenues. This has further confirmed that inadequate oil production could lead to huge revenue loss. Undoubtedly, the loss of N2.2trillion is a huge drain in the economy. A delay in crude production means less export and less income for the country. Apart from deferment, the country loses huge revenue to oil theft at an average of 200,000 barrels of crude per day, according to figures from the NNPC. This translates to 73 million barrels annually or $7.3billion a year.
We decry the huge loss of revenue on account of delays in crude oil production and urge the government to quickly fix the problem. If non-implementation of the Petroleum Industry Act (PIA) is a factor in the crude production delays, effort should be made to address it. It is sad that Nigeria remains the only oil-producing country without metering that will ascertain the accurate quantity of crude produced at any given time. Therefore, it has become imperative to install metering facility to track our oil production figures. It is not a difficult task to know exactly how much crude oil we produce in a day. Having an efficient metering system in the sector will curb the rising cases of oil theft.
In its 2012-2015 audit reports, NEITI reported that the country lost over $9.89billion worth of crude oil due to poor metering infrastructure. Within the same period, over 107 million barrels of oil were reportedly not properly accounted for. The latest figures show that Nigeria loses over 250,000 barrels of crude oil per day to oil thieves. This translates to over $25 million daily in revenue. Considering the huge revenue losses and the current volatility in the global price of crude oil and the shortfalls in projected revenues, government should not hesitate to put the metering infrastructure in place. In 2018, government approved the automated fuel system management and censor network aimed at tracking petroleum products movement across the country. Although this measure was essentially to eliminate fuel subsidy scam, there is need now to install metering facility at the oil fields. Having the meter in place will ensure transparency in the sector.
We also call for proper regulation of the sector so that the financial malfeasance associated with not having the metering facility can be curbed forthwith. Nigeria can also learn from other oil-producing countries such as Saudi Arabia, Kuwait, United Arab Emirate (UAE), Russia, USA, Brazil, and others, that have effective management of their oil production levels. Having such knowledge will help it to run the oil sector efficiently.