Nigeria oil theft a global criminal enterprise

Oil theft in Nigeria

LAGOS (AFP) –  Oil theft in Nigeria is a huge criminal operation affecting companies and states around the world, but interest in tackling the problem is low, Chatham House said in a report Thursday.

The new study from the London-based think-tank, based on interviews with some 200 government, private sector and independent sources, said "Nigerian crude oil is being stolen on an industrial scale."

Estimates on the scale of the problem vary, with some Nigerian officials saying 150,000 barrels per day is stolen, costing some $6 billion a year in lost revenue.

Chatham House, which also reviewed thousands of documents, said the figure was almost certainly more than 100,000 barrels per day.

Nigeria is Africa's largest oil producer, with output at around 2.0 million barrels per day.

"Proceeds are laundered through world financial centres and used to buy assets in and outside Nigeria," according to the think-tank.

Few fully grasp the problem and those affected have shown little desire to act, it added.

"In Nigeria, politicians, military officers, militants, oil industry personnel, oil traders and communities profit," Chatham House said.

For Nigeria, cracking down could inflame tensions among powerful figures, particularly in the southern oil-producing Niger Delta region, where unrest declined after a 2009 amnesty deal with rebels, but where stability remains elusive.

Despite rhetoric about the scourge of oil theft from Western governments and foreign oil majors, neither camp has fully attacked the problem, the report said.

There is "very little incentive for foreign partners to act, including risk of a diplomatic rift and almost no leverage," in part because of Nigeria's low aid dependence.

Global oil giants like Shell, ExxonMobil, Total, Chevron and ENI all operate in the Niger Delta, but it is "unclear how much export oil" these companies lose, Chatham House said.

"We have never reached the breaking point," one oil executive was quoted as saying. "Something always happens that rights the ship."

Among the majors, Shell has been the most vocal and is likely the hardest hit given its larger presence onshore.

But companies have in recent months sold onshore assets, seemingly to focus on deepwater projects, where the risks of theft and unrest are limited.

The initial stages of Nigerian crude theft are largely known, with gangs tapping into pipelines, pumping crude to smaller vessels which take it to larger ships for international sale.

A certain amount is refined and sold locally.

Chatham House said it was less clear where the illicit crude is taken abroad and how it gets there.

It partly reaches world markets through "co-loading", where stolen oil is put on a ship carrying legal oil. Documents are forged and the vessel departs seemingly laden with legitimate cargo.

The report suggests the United States, one of the largest markets for Nigerian oil, may not be a leading destination for illicit cargo, perhaps because US refineries more rigorously inspect incoming crude.

Refineries in regional markets, including Cameroon, Ghana and Ivory Coast, were listed as likely buyers.

Various sources told Chatham House that refineries in China, India, Singapore and Eastern Europe all purchased stolen Nigerian oil, but the think-tank found little direct evidence to support any specific charge.

The report offered various possible strategies to tackle the problem, but said the priority should be to learn more, including sweeping intelligence gathering involving all those affected.

"Oil theft is a species of organised crime that is almost totally off the international community's radar," Chatham House said.

"Without better knowledge of how the stolen oil trade works, not every government can ignore it with confidence."

Concerns mount over contract cost inflation by oil majors

Houston, Texas – The allegation of contract inflation in the oil and gas industry by oil firms, particularly, international oil companies (IOCs) operating in Nigeria is generating ripples in the sector.

Sources hinted that top officials of multinational oil companies use their connections in the presidency to secure oil and gas contracts at very exorbitant rates, when compared to costs of executing similar projects in other parts of the world.

It was gathered that the oil majors often bypass the Nigerian National Petroleum Corporation (NNPC) to get direct approval from the presidency on multi-billion dollar projects that were hitherto disapproved by the corporation because final costs of their execution were ridiculously high.
A Canadian oil company operating in Nigeria was said to have recently submitted a tender for a multi-billion dollar project, for which the cost was far higher than what it takes to execute similar project elsewhere in the world, give or take a few variables.

The company was said to have been instructed by the NNPC’s exploration and production department to slash the cost in the tender because it was not justifiable.

Rather than comply with the directive, top management of the oil firm reportedly bypassed the NNPC and made straight to Aso Rock where it got twice what it originally presented as final cost of execution of the project.
“The NNPC is helpless in this regard. Oftentimes we are arm-twisted to approve such tenders, even when it is obvious that costs of execution of such projects were inflated by the oil industry operators. Our concern really is that the ripple effect would be on all us as Nigerians,” the source said.

“When we insist that the cost should be justified or reduced, the operators will accuse us of deliberately delaying projects that would boost Nigeria’s economy. The tender process as you may know is handled solely by these IOCs. They only bring it to us for approval. We only insist that costs of execution in Nigeria should be at par with what obtains elsewhere in the world,” said NNPC source, who asked not to be named.

Some oil industry operators recently alleged that the inability of the NNPC and IOCs to reach agreement on the costs of most multi-billion dollar oil and gas projects stalled their scheduled take-off.
NNPC had been accused by oil majors for delaying the execution of some multi-billion dollar oil and gas projects expected to increase Nigeria’s oil output and create thousands of jobs.

But contrary to perception that unduly delays projects execution, sources at the corporation said the NNPC’s management insistence that IOCs revise project costs that actually stalls the projects.

“The IOCs are our contractors and handle the tenders themselves, and then revert to us on the cost, which we have to approve. So our concerns have been the cost of these multi-billion dollar projects, because when we benchmark them against similar projects worldwide, they must conform to the costs that such projects will attract in other jurisdictions,” a source at the NNPC told THISDAY recently.

- Chika Amanze-Nwachuku, This Day

Shell concerned at local insecurity challenges in Nigeria

Shell, the international oil firm, lamented the insecurity affecting its operations in the country.

Chief Executive Officer Ben van Beurden, raised concern as he presented the company’s unaudited financial results for the fourth quarter of 2013.

“Compared with the fourth quarter 2012, upstream earnings excluding identified items were impacted by higher exploration expenses and lower volumes.

“A high level of maintenance activity during the fourth quarter 2013 affected high value oil and gas production volumes, including gas-to-liquids, as well as LNG sales volumes.

“Earnings were also impacted by the weakening of the Australian dollar.

Upstream Americas continued to incur a loss. The security situation in Nigeria remained challenging,” he said.

The company has previously bemoaned vandalism to its equipment in the country.

Meanwhile, Shell’s fourth quarter 2013 earnings on a current cost of supplies (“CCS”) basis excluding identified items are expected to be approximately $2.9 billion and were impacted by weak industry conditions in downstream oil products, higher exploration expenses and lower upstream volumes.

“Our 2013 performance was not what I expect from Shell. Our focus will be on improving Shell’s financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery,” said van Beurden.

The company announced audited results on January 30.

Fourth quarter 2013 CCS earnings are expected to be approximately $2.2 billion, and full year 2013 CCS earnings are expected to be approximately $16.8 billion.

CAJNewsAfrica

Dealing With Nigeria Crude Oil Theft

Time enough for the government to wield the big stick as crude oil theft continues to darken the economy

In the first quarter of this year, that is between January to March 2013, official figures from the Nigerian National Petroleum Corporation (NNPC) confirmed that our nation lost about $1.23 billion (N190 billion), to incessant crude oil theft and vandalism along the major pipelines within the Niger Delta. The Corporation, which explained that the NNPC/SPDC JV (Shell Petroleum Development Company Joint Venture) recently declared a  force majeure on Bonny Crude due to incessant crude oil theft, predicted that the situation could actually be worse in this second quarter.

According to a statement by the NNPC acting Group General Manager, Public Affairs, Tumini Green “investigations showed that 53 break points were discovered along the 97km Nembe Creek Trunkline; repair work is expected to last about six weeks. This will further reduce our April and May monthly average to about 2.2mbpd and further decrease crude oil revenue by about 554 million dollars (N83 billion).”

While these indeed are worrying developments, it would appear that the Federal Government is merely interested in passing the buck by putting the onus on the international buyers of the stolen crude. Yet the Coordinator of the Nigeria’s Honourary International Investment Council, Baroness Lynda Chalker, recently challenged the administration to provide solution to oil theft if it was desirous of convincing foreign investors to come to Nigeria.

Just recently, the Nigerian Agip Oil Company (NAOC), a subsidiary of the Italian energy major, ENI, suspended its operations in Bayelsa State. The company said “the decision was taken due to an intensification of bunkering activities andsabotage ofthe pipelines” which have in recent times seriously affected oil production activities in the area. This came at about the same time that the SDPC also raised an alarm over the criminal breach of its multimillion dollar Nembe Creek trunk in the Bayelsa State.

While it has become very clear that what we are dealing with is an international criminal cartel, it is baffling that the relevant authorities seem clueless about how to contain these acts of sabotage that have serious economic and security implications for our country. What’s more, with these criminal cartels getting more and more emboldened, they are investing in barges, canoes, speed boats and large wooden boats which they use in their illicit business.

Today, there are reports that a quarter of Nigeria’s crude oil production is unaccounted for and this massive leakage has been going on for years. Local refineries are also springing up with all the dire implications for the environment given the pollution that come with the activities. To underscore the gravity of the situation, there are propositions before the Senate to prescribe capital punishment for oil thieves.

In adding his voice to the call in the course of inaugurating the Senate Joint Committee on Petroleum Industry Bill (PIB), Senate President David Mark said the committee should recommend ways of curbing oil bunkering. Mark insisted that “the law must have stiff punishment for those that steal our oil to serve as a deterrent to other people who plan to stealing our oil. The Bill must also ensure that the current rate of oil theft in the country is minimised to the barest minimum. It seems we are having a bad name internationally because of the rate of oil theft in the country. Oil theft deserves capital punishment”.

There is no doubt that the incidents of theft of crude oil now pose a deleterious threat to the nation’s economy. But even as we lament this deplorable situation, it is evident that the problem persists because there is some form of official complicity in what has become an organized crime. It is therefore time that the authorities took serious measures against these criminals. We have heard enough of empty rhetoric.

NIGERIA REPS PROBE DIVESTMENTS IN OIL BLOCKS BY IOCS

The House of Representatives passed a resolution to investigate the divestments of some oil blocks in the Niger Delta region by International Oil Companies (IOCs).

The probe will verify the alleged sale of Oil Mining Lease (OML) 29 and other OMLs by Shell Petroleum Development Company (SPDC), among others.
The House resolved to set up an ad-hoc committee to establish the validity of the transactions and report back within two weeks.

This decision was reached after a motion on the matter by Rep Irona Alphonsus Gerald (PDP, Imo).

In the last two years, Shell and other oil majors have sold oil blocks worth over $5 billion.
In his motion, Rep Gerald said item 12 (1) of the First Schedule of the Petroleum Act stipulates that 10 years after a grant of an OML, one and half of the area of the lease shall be relinquished to the federal government.
He said further that “OML 29 has been in the custody of Shell Petroleum Development Company (SPDC) for more than 52 years and one-half of the area of the lease has not been relinquished to the federal government as stipulated by the act.”

He regretted that against the stipulation of the act, Shell “had sold OML 29 and other OMLs,” saying the outright sale was in direct contravention of the act and undermines national interest.
He further expressed concern that Shell and other oil majors might have “hidden under the cover of waivers usually granted by the Hon minister of petroleum resources to embark on the sale of the OMLs.”
The motion was unanimously adopted by lawmakers present at plenary.

Credit: Daily Trust News

Group Urges G8 to End Crude Oil Theft in Nigeria

Crude Oil

Ejiofor Alike

A group, Stop The Theft Campaign, led by the former International Relations Advisor to former President Olusegun Obasanjo, Ambassador Patrick Dele Cole, an indigene to of Abonnema in Rivers State, has urged the G8 leaders to put to an end the increasing rate of crude oil theft in Nigeria.

Stop The Theft is a campaign to raise awareness about the scale and consequences of the illegal theft of oil in the Niger Delta and to work with partners and other interested parties to propose and advocate long term solutions

The campaign, which is coordinated by Stop the Theft Foundation, a not-for-profit organisation registered in the United Kingdom has also urged the world leaders to “investigate the global trade in stolen Nigerian crude oil, from the ships used to transport it to the money used to pay for it”.

In a statement issued at the weekend, the group wanted the G8 to also engage international experts from different sectors to discuss the development and implementation of technological and other solutions that could be employed in combating oil theft.

It also asked the G8 to support the efforts of the Federal Government to secure its territorial waters and so prevent the unhindered movement of the vessels used to transport stolen crude.

“Stolen Nigerian crude oil is transported on internationally registered vessels, sold to international buyers, processed by international oil refineries and paid for using international bank accounts. The environmental impact of the trade, and associated illegal oil refineries that process it in the creeks of the Niger Delta is devastating. A region already regarded as an environmental tragedy is being further degraded and efforts to rehabilitate the region cannot proceed until this illicit trade is contained,” the group said.

The group noted that oil theft in the Niger Delta represented over $7 billion of lost revenue that could be used to implement projects and programmes that would boost economic growth and social development in Nigeria.

It urged the G8 leaders, who met recently in Ireland to discuss tax, trade and transparency, to also look at how to address the problem of oil theft in the Niger Delta.

“While we recognise that the Nigerian Government must play the lead role in the fight against oil theft, it cannot successfully put an end to the illicit trade acting alone. Members of the international community must partner with Nigeria to develop and implement long-lasting solutions,” the group added.

In recognition of the need for global partnerships to end oil theft, the group also called on the Nigerian government and the international community to co-operate and agree on specific international engagement to fight this growing problem by establishing an intergovernmental working group to discuss the menace.

It noted that in 2008, the late President Umaru Musa Yar Adua had called for international support in the fight against blood oil, adding that the global leaders pledged their support.

“That support is now even more urgently needed. It is time for this problem to take a prominent position on the agendas of the Nigerian government and the international community,” the group added.

The group also stated that if the G8 were to truly deliver on its objectives and improve transparency in the extractive industries sector, oil theft must be on its agenda, stressing that without a solution, it will be impossible to deliver economic development and the social and environmental rehabilitation of the Niger Delta region.

Nigeria Crude Oil Theft: The Billion Dollar Gambit

Barges of stolen crude oil

Will this not reinforce failure in the fight against the criminals?

President Goodluck Jonathan recently announced that the federal government has set aside $1 billion for the implementation of a comprehensive programme to curb oil theft and the vandalism of oil and gas infrastructure in the Niger Delta. “Oil theft is an aspect of global terrorism which has become a big industry on its own. It has become a major threat to the Nigerian economy and we need to work with all stakeholders to curb it,” said the president at an event where the vice-president of Shell Upstream International, Mr. Mark Droll, disclosed that the declining rate of crude oil production of Nigeria’s hydrocarbon resources may be as high as 15 to 20 per cent.

While we have no problem with a new resolve to fight what has become a major economic and security challenge for our country, salient questions must still be asked on whether throwing a billion dollar at it is the way to go. For instance, what was wrong with all the previous efforts to contain the haemorrhage? What assurance is there that this is not another case of throwing good money after bad? But perhaps more specifically, of what use is the “Technical Committee on Oil Theft” that has been established, according to the Senior Special Assistant to the President on Public Affairs, Dr. Doyin Okupe? Do you need a committee to fight what isclearly an organised crime?

As most accounts have indicated, oil theft impinges not only on our economy but also has serious security implications. Indeed, to underscore the gravity of the situation, the Senate recently lent its weight behind those seeking capital punishment for oil thieves if only that would help to redress the problem. According to Senate President David Mark, in the course of discussing the Petroleum Industry Bill (PIB) that is yet to be passed, “the law must have a huge punishment on those that steal our oil to serve as a deterrent. The bill must also ensure that the current rate of oil theft in the country is minimised to the barest minimum. It seems we are having a bad name internationally because of the rate of oil theft in the country. Oil theft deserves capital punishment”.

It is difficult to fault the Senate President on the gravity of a situation in which almost a quarter of Nigeria’s oil revenues is being appropriated daily by some criminal gangs. Yet as we have consistently argued on this page, it is also evident that the problem persists because there is some form of official complicity while the political will to address it is lacking. We recall that the European Parliament once pledged its support for efforts to track sellers of stolen crude by demanding the certificate of origin for their products. According to Mitchell Rivasi, acting President of ACP-EU, “we need to get traceability of oil to avoid theft. The oil companies are involved in this and everybody is making big money. The bunkering tankers are better equipped than the Nigerian Navy. This is a huge international organised crime. We did it with diamond; we can also do it with oil”. 

Since no serious efforts have been made to follow-up on such international commitment, it would appear that the local authorities seem to have given up on any serious attempts to rein in the criminal gangs. Yet there can be no solution until Nigerians themselves resolve to fight the menace.

Just recently, the Nigeria Extractive Industries Transparency Initiative (NEITI) disclosed that the nation has lost over 136 million barrels of crude oil estimated at $10.9 billion through pilfering and sabotage between 2009 and 2011. Against the background that a huge chunk of the proceeds from oil theft are used to buy arms, is establishing another billion dollar technical committee the solution the authorities can come up with?

Current Potential of Iraq Crude

Potential of Iraq Crude

By Grant Smith

More than 1 million barrels from Iraq’s Kurdish region were shipped from Turkey to Europe last week, according to Turkish Energy Minister Taner Yildiz and Kurdish authorities. Iraq’s government, which says the Kurds have no right to sell oil independently, tried to stop the shipment and asked theInternational Chamber of Commerce to intervene.

“Iraq has a huge amount of potential, and yes, there will be delays, but they will deliver,” Amrita Sen, chief oil market strategist at Energy Aspects Ltd. in London, said by e-mail on May 6. The consultant forecasts production of 3.3 million barrels a day this year, rising to 3.65 million in 2015.

Credit: Bloomberg.net

Iraq Crude Oil Production - Overtaking Iran

Iraq Crude Oil

By Grant Smith

Iraq overtook Iran in 2012 to become the second-largest producer in the Organization of Petroleum Exporting Countries. It would need to produce about another 6 million barrels a day to top Saudi Arabia.

Iraq is seeking to overcome the constraints on exports, Ghadhban, the prime minister’s adviser, said in an interview in Dubai. That includes adding a third mooring point at the southern Basra oil terminal by July, which will increase capacity by 900,000 barrels daily, he said. Companies have been shortlisted to build a pipeline to Jordan’s Aqaba port, the government said in April. Another link crossing Iraq from north to south is under construction, providing an alternative route for crude from northern fields.

Iraqi crude is still sought after because the country is offering 60-day credit terms, compared with the 30 days typically available from Middle Eastern suppliers, according to Namdeo of Hindustan Petroleum. (HPCL) The refiner is increasing purchases by 8 percent this year to 3.25 million metric tons.

Credit: Bloomberg.net

Effect of Iraq Crises on Global Benchmark

By Grant Smith

Brent crude, a global benchmark, is trading above $100 a barrel for a 23rd consecutive month, the longest stretch in data starting in 1988. Prices will average more than $100 this year and in each of the next three years, according to analyst estimates compiled by Bloomberg. It traded at $110.27 a barrel at 11:10 a.m. in London.

Iraq’s production contracted 7 percent since reaching a 35-year peak of 3.6 million barrels a day in February, according to the International Energy Agency. The Basrah Oil Terminal in southern Iraq is scheduled to load 2.5 million barrels a day of crude for export this month and 2.7 million in June, according to loading programs obtained by Bloomberg News.

Shipments from the south, the only region exporting regularly, will probably stall at about 2.5 million barrels a day, unless work on storage tanks, pumping stations and other infrastructure is completed, the Paris-based IEA said in a report May 15.

“There are still lots of uncertainties regarding deliveries,” B.K. Namdeo, refineries director at Hindustan Petroleum Corp., said in Mumbai on May 13. “If the situation continues or worsens, we may have to cut Iraqi oil imports next year and switch to countries like Iran.”

Credit: Bloomberg.net

Iraq Oil Revival Stalls Again as Violence Pinches Growth

By Grant Smith and Nayla Razzouk  

The revival in Iraqi oil output has stalled again.

Production forecasts for 2014 are getting less optimistic. The Oil Ministry’s official target is 4 million barrels a day by the end of the year. More likely it will be 3.75 million, Thamir Ghadhban, an adviser to the prime minister, said in an interview May 14. Or perhaps 3.4 million, about the same as last month, according to the average of six analyst estimates compiled by Bloomberg News.

Violence and conflict are pinching growth for OPEC’s second-biggest member. While Iraq added about 2 million barrels to daily production since 2003, the year of Saddam Hussein’s ouster, attacks on pipelines and an oil-revenue dispute with the semi-autonomous Kurdish region are diminishing the country’s dependability as a supplier. They’re also contributing to making oil more expensive, VTB Capital said.

“Iraq always seems to be the producer of the future,” Mike Wittner, head of oil market research at Societe Generale SA in New York, said by phone May 13. “The entire world has been upbeat on Iraq’s prospects for the last couple of years. But it’s not steady growth. They have to get the security situation sorted out, or that’s going to continue to hamper them.”

Iraq’s exports to Europe have been curbed since early March because of sabotage on its northern pipeline to Turkey. New supplies from the Kurdish region are mostly halted because of the dispute with the central government. Prime Minister Nouri al-Maliki may need to form a broad coalition to remain in power after last month’s parliamentary elections, potentially slowing oil-policy decisions.

Effect of Current Crude Oil Prices on Fuel Supplies

By Ben Sharples

Crude inventories in the U.S., the world’s largest oil consumer, probably rose to 391.5 million in the week ended May 23, according to the median estimate of eight analysts in the Bloomberg survey. Stockpiles expanded to 399.4 million through April 25, the highest level since the EIA began publishing weekly data in 1982.

Gasoline supplies probably climbed by 250,000 barrels last week, the survey shows. Distillates, including heating oil and diesel, are projected to have dropped by 200,000 barrels.

The EIA, the Energy Department’s statistical arm, will release its weekly stockpile data at 11 a.m. tomorrow in Washington, a day later than usual because of the Memorial Day holiday. The industry-funded American Petroleum Institute is scheduled to publish a separate report today.

“Investors have one eye on what’s happening in Ukraine,” said Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney. “If inventories decline again, the market will focus on it, regardless of ample supply.”

WTI has technical resistance along its 30-day upper Bollinger Band, data compiled by Bloomberg show. Futures halted advances in early March and mid-April near this indicator, at about $105.25 a barrel today. Sell orders tend to be clustered around chart-resistance levels.

Credit: Bloomberg.com

546m Gallons of Crude Oil Spilled in Nigerian N'Delta in 50 Years, Say NGOs

Oil tanks

By Ejiofor Alike

About  546 million gallons of crude oil have been spilled into the Niger Delta over the last 50 years. The quantity amounts to 11 million gallons a year, representing about 50 times the estimated volume spilled in the historic Exxon Valdez Oil Spill in Alaska, United States, in 1989.

These revelations are contained in a letter written by 13 Nigerian and five international Non-Governmental Organisations (NGOs) on the National Oil Spill Detection and Response Agency (NOSDRA) Bill, before the Senate.

The letter, a copy of which was given to THISDAY Wednesday, stressed   the need for the passage of the NOSRDA Amendment Bill 2012 into law, as well as the need to ensure remediation and protection of the environment in the Niger Delta.

“The bill is due to be discussed in a Senate hearing on 12 February. The reform of the NOSDRA Act 2006 will provide clearer regulations and a strong response mechanism to deal with oil spills which will save millions of lives and improve the livelihoods of all the communities living in the Niger Delta,” it said.

The letter noted that in 2011, the United Nations Environment Programme reported that the Ogoniland region in the Niger Delta alone could take 30 years to recover from oil spills.
The NGOs called for an end to the spilling and destruction of the environment and the unacceptable devastation on the lives of local communities in the areas of oil exploration.

“This can be achieved by strengthening the institutional and regulatory power of NOSDRA, and enshrining the ‘polluter pays’ principle in law, which the NOSDRA Amendment Bill 2012 will do,” it added.
The groups urged   the lawmakers to forge ahead with the NOSDRA Amendment Bill 2012 for the betterment of the environment and Nigerians.

Among those who endorsed the letter were Thelma Diwari, representing CBNHRSD; Head of Centre for Environment Human Rights and Development (CEHRD), Zabbey Nenibarini;  Nick Hildyard of Cornerhouse; and the Executive Director of Foundation For Environmental Rights, Advocacy & Development (FENRAD), Nelson Nnanna Nwafor.

Nigeria FG Seeks Supports of EITI to End Crude Oil Theft

Crude Oil Theft

President Goodluck Jonathan on Monday urged the Extractive Industries Transparency Initiative (EITI) to do more to support efforts by the Federal Government to stop the exportation of stolen crude oil from Nigeria.

The president made the request when the Chairperson of EITI, Ms. Claire Short, paid him a visit at the Presidential Villa, Abuja.

He called on EITI to join the Federal Government in working to ensure that refineries that received stolen crude oil from Nigeria were identified and punished.

``The efforts of EITI in criminalising `blood diamonds’ from African mines have helped in curtailing that illegal business.

``I urge you to also support Nigeria as we confront the forces stealing Nigerian crude oil.

``The theft of crude oil from Nigeria involves the collusion of foreigners and the stolen crude is refined abroad.

``EITI can use its mechanisms to help us track down the thieves and those who receive the stolen crude oil,” he said.

News Agency of Nigeria (NAN) reports the president observed that Africa was losing a lot through leakages in the mining and extractive industry.

He urged Short and her colleagues at EITI to help to end the exploitation of Africans and African nations by multinational companies engaged in the extraction of the continent’s immense natural resources.

The president said that an expanded inter-ministerial committee would be inaugurated next week to ensure greater synergy in NEITI’s investigations.

He said that the committee would also facilitate the implementation of NEITI's recommendations for greater probity in Nigeria’s oil industry.

Jonathan said that the inauguration of the committee was in line with the Federal Government’s commitment to giving the NEITI all necessary support and freedom to discharge its duties,

The president commended EITI’s efforts at discouraging exploitation and corruption in extractive industries across the world.

He assured Short and her team that Nigeria would continue to strive for even greater openness and transparency in its oil and mining sectors.

RPT-Canada crude-by-rail exports reach record high of 160,000 bpd

Canadian exports of crude oil by rail hit a record high of 160,000 barrels per day in the first quarter of 2014, Canada's National Energy Board says, a more than 50 percent rise from the same period a year earlier.

Canada shipped 160,164 bpd out of the country by rail between January and March, a sharp rise from the first quarter of 2013, when it exported 105,632 bpd, the NEB said on Friday. The first-quarter figure was a 7 percent increase from the final quarter of 2013, when 149,479 bpd were exported by rail.

The crude-by-rail boom in Canada has been gathering pace over the past two years as producers seek alternatives to congested export pipelines that can leave crude bottlenecked in the oil-rich province of Alberta and weigh on prices.

Midstream companies such as Gibson Energy Inc and some major Alberta oil sands producers such as Imperial Oil are rushing to build new unit train terminals that can load more than 100 cars or up to 70,000 barrels of crude in one go.

Canada, which has the world's third-largest crude reserves after Saudi Arabia andVenezuela, exports around 2.6 million bpd in total. (Reporting by Nia Williams; Editing by Peter Galloway)

Credit: Reuters

Protecting Nigeria’s Revenue Through Crude Oil Hedging

Tanker vessel

By Wale Adebayo

Crude oil accounts for about 80 percent of Nigeria’s export earnings. It may therefore be surmised that any drop in the international price would have a significantly negative impact on the Nigerian economy and create a massive budget deficit. A budget deficit would lead to drawdown in our foreign reserves.  Nigeria’s foreign reserves currently stand at about $36.5billion as at April 2012. The foreign reserves figure is anticipated to continue to grow under the current democratically elected government of President Goodluck Ebele Jonathan together with proper management by the trio, the Central Bank of Nigeria Governor Mallam Lamido Sanusi Lamido, Honourable Minister of Petroleum Dieizani Alison-Madueke and Honourable Minister of Finance Dr. Ngozi  Okonjo Iweala.

2011 Production, Revenue and Excess crude oil revenue

In the 2011 budget, $62per barrel (pb) was provided for in the 2011 Appropriation Bill. In simple terms, this means our crude oil budget benchmark is put at $62 pb and if the international crude oil price falls below $62pb our budget will go into deficit. At $62 benchmark and a production output of 2.3m barrel per day in 2011 that gave an annual production of over 839million barrel and revenue of $52 billion per year. At $100pb Nigeria earned $83.9billion in 2011 (NGN 12.6 trillion naira).The excess crude oil earned for 2011 should be approximately $31.9 billion (approximately NGN4.8 trillion excess crude oil revenue in 2011).

However, we should not forget that Nigeria operate joint venture (JV) agreement with the major international oil company at 55% to 45% JV agreement. This means Nigeria earned 55% of $31.9billion excess crude oil which came to about $17.5 billion (NGN2.6 trillion naira) in 2011.

2012 Production, Revenue and Excess crude oil revenue

The Federal Government has set an oil production target of 2.48 million barrel per day and oil price of $72 per barrel benchmark for the purposes of revenue projections in the 2012 budget
Crude oil revenue at current international crude oil prices of over $100 (which is above the benchmark of $72 for 2012) is about $248million per day (assuming $100 average daily price). This would come to about $90.5billion at the end of 2012. Excess Crude Oil revenue in 2012 assuming oil continues to trade at over $100, will be over $25bn (NGN3.8 trillion naira)

Also we should always remember the 55%-45% joint venture agreement. This means Nigeria is projected to earn $13.9 billion (NGN2 trillion) in excess crude oil revenue in 2012. ( This is more than enough to take care of Nigeria infrastructure problem and still have enough saving for the Nigeria Sovereign Wealth Fund account).

Oil Price Shock in 2008

It is highly optimistic to assume that the government will continue to earn this excess crude oil revenue though. However, the oil market is very volatile and dangerously unpredictable, as was witnessed in 2008 when crude oil peaked at about $140 and yet fell to $30 in the same year. This sudden price drop saw a number of oil-producing nations suffer substantial losses and massive budget deficit, which is why hedging against such occurrences, has become extremely important.

The best way to guarantee Nigeria’s oil revenue, based on our budget benchmark of $75pb for 2012, is for the government to hedge our crude oil production at the budget benchmark as strike price using the money we derive from the excess to buy a put option at 75 strike- protection on our production against a fall in the international crude oil price below $75. This has to be done urgently given the current downward trend in the global commodity price .

Benefits of Hedging

Below are the benefits of Hedging to Nigeria government:
• increasing accuracy of budgeting
•  guaranteeing a minimum price the Government will receive for its crude oil sales.
• reassuring the Federal Ministry of Finance and Central Bank that it will be able to meet its budget obligations to ensure satisfactory funds are available for National development.
• promoting transparency, accountability and consistency of foreign exchange earnings as hedges can be benchmarked against international Oil prices in US dollars $
• reducing uncertainty of the future international market events
•  supporting long-term financial planning and cost control
• creating greater certainty of cash flows;
•  It will also guard against any production shortfall and
• resulting in a favourable Credit Rating for the Nation by international rating agencies

Hedging Instruments

Hedging is done using financial contracts (put options or call options), which gives the right but not the obligation to buy or sell an asset against another at a pre-determined rate (“strike”), and at a pre-determined time. Buying an option gives full hedge and unlimited participation if the price move is favourable and should guide against budget deficit/shock due to any fall in the international crude oil prices below our budget benchmark price. It will also guard against any production shortfall.

The Cost of Hedging

This is dependent on the trading price of crude oil at the time of hedging. If it is trading close to our strike (budget benchmark) it will be costlier than if it is further away from the benchmark. For example if Nigeria decided to hedge now using the Nigerian budget benchmark at strike price $72 and with oil trading at over $100, it would be cheaper than if oil were below $100 and close to the benchmark

Mexico as a Case Study

(Lesson from Mexico)

Mexico is one of the major crude oil producing countries and has over the years been involved in hedging of their crude oil productions using options. Mexico’s oil hedging program is one of the biggest from a single entity in the derivatives market.
In 2009, Mexico spent a total $1.5bn to hedge a total of 330m barrels at a budget benchmark of $75 strike. When oil dropped to as low as $28pb in 2008, Mexico made more than $5bn on those hedges. As they were fully hedge and was able to sell at the strike price of $75 even though oil was trading at $28
In 2010, seeing the advantages, Mexico spent a total $1.17billion to hedge a total of 230million barrels at a budget benchmark of $57 strike in 2010, and $812m to hedge a total of 222million barrels at a budget benchmark of $63 strike in 2011. Mexico has already taking care of her 2012 crude oil through hedging.

The Way Forward for Nigeria Government

Given the current market price of over $100, there is need for the Nigerian government to act swiftly and consider starting a hedging program for our crude oil production. At the current price, we can get the hedging done much cheaper than we would if the price were to fall. The Nigeria government can also consider hedging in parts - for example 40% to 50% of daily productions like some other oil producing countries.

Advisor Role to the Federal Government on Crude Oil Hedging

Nissi-Lloyds Capital & Investments LLC is available to provide advisory services to the Federal Government of Nigeria on Crude oil hedging. Currently an industry leader in deal origination, execution and distribution, Nissi-Lloyds Capital has advised on many transactions across several sectors and assets as well as demonstrated market leadership capabilities in derivatives structuring and advisory.

Adebayo is  MD/CEO of Nissi-Lloyds Capital & Investment LLC, Lagos.