NEITI Calls for Review of Oil Producing Agreements

By Modupe Gbadeyanka

The need to urgently review the Deep Offshore and Inland Basin Production Sharing Agreement between Nigeria and oil companies has been stressed by the Nigeria Extractive Industries Transparency Initiative (NEITI).

In a statement signed by its Director in charge of Communications and Advocacy, Dr Orji Ogbonnaya Orji, the agency explained that the urgency to review the obsolete legislation without further delay was in view of the revenue losses to the federation by the use of the old agreement in computation of revenues to be shared between the government and oil companies.

NEITI recalled that the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1993 provides for: “ a review of the terms when prices of oil crosses $20 in real term; and a review of the terms 15 years after operation of the agreement and five years subsequently.”

However, NEITI said it observes with concern that Nigeria was yet to adhere to this important provision even now that the price of oil was revolving around $70 per barrel.

In an Occasional Paper released by NEITI which reviewed three years of NNPC’s financial and operations reports, NEITI has noted that crude oil production under the Production Sharing Contracts (PSCs) has since overtaken production under the Joint Venture arrangements.

A careful look shows that the Production Sharing Contracts (PSCs) accounted for 44.8 percent of total oil production while the Joint Ventures (JVs) contributed 31.35 percent.

A historical analysis of this development by NEITI shows that JV Companies accounted for over 97 percent of Production in 1998 while PSCs contributed only 0.50 percent.

This trend continued until 2012 when PSCs accounted for 37.58 percent while JVs contributed 36.91 percent.

From the publication in 2013, PSCs contributed 39.22 percent while JVs contributed 36.65 percent, 2014: PSCs; 40.10 percent and JVs 32.10 percent; 2015: PSCs 41.45 percent and JVs 31.99 percent while in 2017 the contributions stood at PSCs 44.32 percent and 30.85 percent respectively.

The NEITI Occasional Paper further explained that: “Other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/ Marginal Fields contributed 2.39 percent to total production in 1998 and by 2017 this had risen to 24.83 percent.

“This figure clearly shows the changing structure of oil production in Nigeria, where PSCs (which contributed a mere 0.5 percent to total production 20 years ago) have dramatically overtaken JVs (which contributed 97 percent to total production 20 years ago)”.

Between 2015 and 2017 covered by NEITI’s Occasional Paper review of NNPC Report, Nigeria produced 2.126 billion barrels of crude oil and condensate.

A Further review of the NNPC Report shows that:  “Production was highest in 2015 with 775.6 million barrels produced. Production was lowest in 2016 with 661.1 million barrels produced, while production in 2017 was 690 million barrels.

“The year 2016 was a difficult year for oil production because production was shut in a number of oil terminals”.

NEITI said its major concern is that now that the PSCs account for about 50 percent of total oil production and major source of revenues, the delay or failure to review and renew the agreement means that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.

On lifting of crude oil, the NNPC Monthly Financial and Operations Report disclosed “international oil companies (IOCs) lifted more crude oil than the government.

“Total lifting of crude oil and condensates was 2.135 billion barrels. Of this sum, IOCs and Independents lifted a total of 1.367 billion barrels, while government’s lifting by NNPC was 721.16 million barrels.

“This means that the operators lifted 64.01 percent of total crude lifting’s, while government through NNPC lifted 33.76 percent. When expressed in monetary terms, total government lifting of oil amounted to $35.893 billion while the figure for IOCs and Independents was $68.591 billion”

The NNPC Report further disclosed that refineries received 15.15 percent of total domestic crude lifting out of which 41.32 percent was utilized under the Direct Sale Direct Purchase (DSDP) program of NNPC.

On Refineries and domestic crude utilization, the report disclosed that for the 3 years under review, Nigeria’s refineries recorded an average capacity utilization of 12.26 percent.

A further breakdown shows that Kaduna refinery had the lowest capacity utilization of 9 percent while Warri and Port Harcourt recorded 9.73 percent and 15.4 percent respectively.

One striking feature of the NNPC financial operations report is the disclosure that the corporation lost the sum of N547 billion in its operation between 2015 and 2017.

Out of this amount, the NNPC Corporate Headquarters recorded the highest revenue loss to the tune of N336.268 billion.

On the contrary, the report revealed that the Nigeria Gas company made a huge profit of N141.324 billion.

NEITI said while it applauds the monthly voluntary disclosures by the NNPC, it was important to note that NEITI through its auditors under the EITI framework has not independently verified the information and data from the NNPC reports.

“NEITI has not, except for the year 2015, independently validated the data from NNPC. This will be done in ongoing and future reconciliation reports. What has been done here is a preliminary analysis of the data that NNPC has made available for the three-year period.  The figures examined here do not represent the sum total of all revenues from the sector, as other payment streams like royalties and taxes from JVs, signature bonuses, transportation rental fees, NESS fees, penalties and others are not covered by the NNPC financial and operational reports”  the NEITI Report concluded.

NEITI however commended the NNPC for the reconciliation of the crude swap under-delivery transaction executed during the crude- for- product- swap.

NEITI also urged the corporation to sustain the new spirit of openness while encouraging the citizens to use the information and data from the NNPC’s disclosures to promote public debate required in implementing the on-going reforms in the extractive sector.

The NEITI Occasional Paper series which reviewed the 3 years of NNPC operations and financial reports is the third in the series. In the pursuit of EITI global Open Data Policy, NEITI has data set for the three years (2015 -2017) in excel format readily available on its website in support of public interest, analysis and debate.