Concerns Mount over Rise in Nigeria Crude Oil Theft, Divestment

Chika Amanze-Nwachuku with agency report

Concerns are rising in the country and especially the oil industry over the magnitude of crude oil theft estimated at 400,000 barrels per day (b/d) as well as divestment by multinational oil firms operating in the Niger Delta, over what they have blamed on the harsh operating environment and absence of leadership in the oil industry.
This is coming on the back of the announcement by Royal Dutch Shell, Nigeria’s biggest oil producer, that it lost about $700 million in the second quarter of 2013, to crude oil theft, disruption of its operations in the Niger Delta, and higher costs and exploration charges, among others.

Shell on Wednesday had said it would sell four more of its oil blocks in Nigeria under its latest divestment programme.
The sale of the four blocks will bring to 12 that Shell has sold in the last three to four years to mostly local operators and their foreign technical partners.

Speaking on the harsh operating environment, oil industry sources informed THISDAY that Nigeria had become a very unattractive investment destination for the international oil companies (IOCs), especially for those that operate onshore oil concessions in the Niger Delta, where crude theft and vandalism of oil facilities have become a daily occurrence.
They blamed the magnitude of theft and vandalism, which translates to about 20 per cent of Nigeria’s crude oil output, on the refusal by the authorities to tackle the problem head on.

They said rising theft was the reason the IOCs continue to sell their onshore oil blocks and businesses in the Niger Delta, citing Shell, Agip, Total, Chevron and ConocoPhillips as examples of oil firms which have either divested or are planning to do so in the near future.

One source said: “The authorities are aware of what is happening. All this is happening under the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke’s watch. She has failed to stem the tide and this is what compelled some governors to call for her removal recently.

“What is worse is that when some of the ‘big fishes’ are caught and it is brought to the attention of the petroleum ministry or presidency, pressure is brought to bear to get them released.”

Last weekend, five northern Peoples Democratic Party (PDP) governors had met with President Goodluck Jonathan to intimate him on their gouse with the party and the handling of other national issues by the administration.
After the meeting, the governors – Aliyu Wamakko (Sokoto), Mu’azu Babangida Aliyu (Niger), Sule Lamido (Jigawa), Murtala Nyako (Adamawa) and Musa Kwankwaso (Kano) – had at a press briefing expressed dismay over rising oil theft in the Niger Delta, which is impacting on distributable revenue from the Federation Account, and had demanded the sack of Alison-Madueke. 

It is uncertain, however, if the governors mentioned their concern about crude oil theft to the president during their meeting with him.

There are also concerns that if the theft of crude oil and vandalism is not stemmed, Nigeria will increasingly find it difficult to meet its financial obligations and fund projects in the 2013 and 2014 budgets.
Already, the fall in federally collectible revenue, slowdown of accretion of foreign reserves and funds saved in the Excess Crude Account (ECA), has been traced to oil theft in the Niger Delta.

Giving more details on what has been termed the “organised, coordinated and systematic” stealing of Nigeria’s natural resources, another oil industry source explained that whilst illicit bunkering by unemployed youths and militants often takes place in the Niger Delta, it is child’s play in comparison to the theft that is perpetrated by a cartel that systematically siphons an average of 400,000 barrels of crude oil daily.

“The boys that break pipelines are obviously involved. They are the ones that break pipelines or remove wellheads from abandoned oil fields to siphon crude oil.

“A lot of them have actually been caught by the Nigerian Navy and NIMASA, which have done a fairly good job stemming the petty theft and vandalism by these boys.

“However, the major perpetrators or big fishes are hardly caught and when they are, they are released based on instructions from above,” the source disclosed.

He added that the big oil thieves succeed in stealing large quantities of crude oil through what he termed “topping”.
He said: “Topping occurs when a company is awarded a crude oil lifting contract to lift a specified number of barrels per day. So if a company is asked to lift about 30,000b/d, its vessels will go to the terminal to lift the allocated quantity.
“But it does not stop at that, because instead of lifting just the 30,000b/d, it will depart the terminal with 45,000b/d or 60,000b/d. The extra quantity is unaccounted for and sold in the international market while the proceeds end up in private pockets and bank accounts.

“This topping is also done by some of the IOCs, which also lift their share of crude oil. Some of their middle management personnel are complicit in this organised theft by permitting the vessels that lift crude oil for the IOCs to take away more than the quantity to which they are entitled.”

The source also blamed the Nigerian Petroleum Development Company (NPDC), the exploration and production subsidiary of the Nigerian National Petroleum Corporation (NNPC), which has done nothing to stop the theft of crude oil from its wellheads in abandoned oil fields.

He said if Nigeria had an automated metering system in place in all the oil terminals and wellheads, a lot of the crude oil theft would be stemmed.

He recalled that Alison-Madueke had set up the Petroleum Revenue Special Task headed by the former Chairman of the Economic and Financial Crimes Commission (EFCC), Alhaji Nuhu Ribadu, in January 2012.
The task force had been set up in the wake of the fuel subsidy protests, during which outrage was expressed over the level of corruption and mismanagement in the oil and gas sector.

In response to the demands of the public, the minister had set up the task force and mandated it to, among others, determine and verify all petroleum upstream and downstream revenues (taxes, royalties, etc) due and payable to the Federal Government of Nigeria; to take all necessary steps to collect all debts due and owing; and to obtain agreements and enforce payment terms by all oil industry operators.

The oil industry source explained that as part of its report, the Ribadu-led task force had recommended that automated meters be fixed at oil terminals and wellheads, because the Department of Petroleum Resources (DPR) had been ineffective at monitoring and reporting how much crude oil is produced and lifted from the wellheads and terminals.

“The committee had even taken the initiative of contacting Schlumberger, the German oil service firm, to install an automated metering system in the Niger Delta.

“But all this was ignored. Instead, the presidency and petroleum ministry went out of their way to undermine and denigrate the Ribadu report, so the stealing has continued unimpeded,” he said.
He pointed out that it was very unfortunate that the Ribadu report was ignored and allowed to gather dust, explaining that Nigeria is one of the few oil-producing countries in the world without an automated metering system in place to monitor crude oil production and lifting.

Meanwhile, Shell announced that it lost about $700 million in the second quarter of 2013, to crude oil theft and other disruptions in Nigeria, Reuters reported yesterday.

The deteriorating security situation in Nigeria, higher costs and exploration charges, among others, the company said, resulted in a “disappointing” drop in its second quarter profits. 

Outgoing Chief Executive Officer, Peter Voser, who released the second quarter 2013 financial result, said the company recorded a second-quarter profit of $4.6 billion, down from $5.7 billion a year ago and well below market expectations.
He said second quarter 2013 earnings on a current cost of supplies (CCS) basis were $2.4 billion compared with $6 billion in the same quarter of 2012, as the group reeled from a $2.1 billion impairment charge, mostly relating to its United States shale oil and gas operations, costs relating to disruptions in Nigeria as well as the weakening Australian dollar on a deferred tax liability.

Voser said:  “Higher costs, exploration charges, adverse currency exchange rate effects and challenges in Nigeria have hit our bottom line. These results were undermined by a number of factors – but they were clearly disappointing for Shell.”

According to him, oil theft and disruptions to gas supplies in Nigeria were causing widespread environmental damage and could cost the Nigerian government as much as $12 billion in lost revenue per year.
“We will play our part, but these are problems Shell cannot solve alone. We have made substantial improvements to our portfolio in the last few years.

“Today, Shell is rich with new investment opportunities and is capital constrained – the opposite position to where the company was in the middle of the last decade,” Voser said.
He explained that Shell was investing in new capacity worldwide, to generate profitable growth for shareholders, adding that “in the next 18 months, we expect to see five major project start-ups, which should add over $4 billion to our 2015 cash flow.”

The CEO also noted that the company was entering a new phase of more substantial portfolio change, which would lead to a higher rate of divestments in the coming years.

“We have recently launched strategic portfolio reviews in both Nigeria onshore and North America resource plays, which will lead to further focus and divestments there, as we continue to shape the company for the future.
“Our strategy is to deliver sustainable growth in cash generation through the business cycle, underpinning Shell’s competitive dividends and returns. We are not targeting oil and gas production volumes; rather we are focusing on financial performance,” Voser said.

Also, Shell companies in Nigeria in 2012, invested $103 million towards addressing social and economic development challenges in the Niger Delta, where most of its facilities are located.

Managing Director of Shell Petroleum Development Company (SPDC), Mr. Mutiu Sunmonu, who made the disclosure at the launch of “Let’s Go” advertising campaign in Lagos, said SPDC and Shell Nigeria Exploration and Production Company (SNEPCo), in 2012, contributed over $178 million to the Niger Delta Development Commission (NDDC).
Sunmonu said the company launched the ‘Let’s Go’ advertising campaign to share its goal of being the most competitive and innovative energy company.

He explained that the campaign was intended to demonstrate “Shell’s contributions towards a better future for Nigeria and its people”.

“Shell’s messages are built around gas, health, education and job creation, and we believe these ‘life’ issues will enable Nigerians relate better to the challenges of a secure energy future,” he said.
He added that the campaign was the first of its type in its advertising in Nigeria since its corporate identity campaign about 15 years ago.

“Aside from the theme being country specific, the campaign is also Nigerian content compliant. A Nigerian agency produced all the materials using Nigerian models in locations around Nigeria,” he stressed.

The company also revealed that last year, it contributed about $42 billion to the federal government between 2008 and 2012, aside some $6 billion paid in taxes and royalties within the same period.

Also, in 2012, Shell companies in Nigeria awarded $2.4 billion contracts to local companies, representing about 64 per cent of the total number of contracts awarded in the year.

What the Petroleum Minister can do

Many believe crude oil theft is a failure of maritime security. We believe, however, that it can be checkmated by the Ministry of Petroleum Resources. Here is how:

• Restore full transparency and accountability to the oil industry;

• Implement the Ribadu report and other reports of task forces she inaugurated for the oil industry in January 2012;

• Order the immediate metering and use of technology for monitoring of crude oil production and exports;

• If uncertain, she should work with the IOCs on how to resolve the problem by first taking their calls as many of them complain of lack of access;

• Spend more time getting the job done in the Ministry of Petroleum Resources and engaging with all stakeholders;

• Monitor and safeguard abandoned and producing NPDC oil wells;

• Monitor and safeguard crude oil pipelines and infrastructure in the Niger Delta for which billions are already being spent;

• Is the federal government not worried that Shell, the country's biggest and longest-staying oil company, as well as Chevron, among others, are divesting from the Niger Delta?

• Is there a nexus between the curtailment of subsidy fraud following mass protests and the dramatic rise in the magnitude of crude oil theft?