On Oil and Gas (2) By Nasir Ahmad El-Rufai

Mr. El-Rufai definitely needs to check some of his facts here …. Cen’t even name the major international operators in the country!  Shame on him. Undermining his argument with some naïve inaccuracies, showing some very lazy research (and bias, perhaps?).

Sahara Reporters

21 October 2011

On Oil and Gas (2) By Nasir Ahmad El-Rufai

By Nasir Ahmad El-Rufai

Upstream activities - the exploration, production and export of crude oil are what Nigeria has become addicted to as the main source of its revenues. These activities provide three revenue streams - royalties, petroleum profit taxes (PPT) and sale of our share of crude. This week, we will look at upstream aspects and explain the jargon of the industry so we can understand this sector that has become a source of joy and sadness in our national lives.

Most Nigerians including those with only the most fleeting interest on the oil industry would have heard of the Bonga Fields and the massive reserves of crude oil and gas they produce. What most people do not know however, is that Nigeria earns no royalties from these wells because back in 1991, we signed an MOU with international oil companies (IOCs) forfeiting such royalties. So today, except from Petroleum Profit Tax (PPT), Nigeria earns little from Bonga and other deep offshore oil wells with a depth of more than 1,000 metres. This anomaly is just one of many in the oil industry that defy common sense. What have our regulatory bodies and legislature been doing? 

Unlike other national oil companies like Petrobras of Brazil and Aramco of Saudi Arabia, the Nigerian National Petroleum Corporation (NNPC) and the Department of Petroleum Resources (DPR) have limited themselves to merely regulating the industry – and failing. For instance, what the IOCs do in Nigeria is in reality project coordination and management – by contracting out, outsourcing and subcontracting virtually all aspects of oil production from exploration to ‘fiscalization’. In return for these tasks, they repatriate  billions of dollars in profit every year – money that would have helped to develop our human capital, infrastructure and create jobs.

And speaking of jobs, the relatively few Nigerians employed by oil services and related companies are engaged mostly through foreign companies who end up bringing in more expatriates than Nigerians – even in areas where there are many qualified Nigerians. Is this to say that the NNPC and the Petroleum Technology Development Fund (PTDF) cannot find or train Nigerian geologists, engineers, project managers and other skilled personnel required to ensure that at least 80 percent of workers in the oil and gas sector, like others, are Nigerians? Perhaps, we should not be too surprised, considering that until about 10 years ago, oil services companies operating in Nigeria were not even required to register in the country, and therefore paid no taxes to the Nigerian government despite the billions of dollars worth of contracts they have executed over the decades.  

The Nigerian oil industry has been rendered unnecessarily complex, but in reality has less than 10 ‘major’ players – including Shell Exxon Mobil, Chevron, Texaco [??? Part of Chevron!!] and Total [and what about ENI?]. These IOCs only have a few thousand Nigerian employees [and how many expats???], but produce millions of barrels of crude oil daily for export. Our oil exploration policy appears to be designed in the belief – or maybe the hope – that government will only regulate the industry while everything else should go to the IOCs since crude oil export was its main thrust. This environment means that our oil industry is skewed towards the dictatorship of the IOCs, including all kind of incentives, policies, agreements and MOUs with little or no positive impact on job creation and growth in the real sector in Nigeria.