NNPCL: How Vandalism, Oil Theft Impacted 2021 Financial Results

•Says at 600,000bpd, Nigeria losing $150m to menace 

•Insists IPO ready by 2023

Emmanuel Addeh in Abuja and Peter Uzoho in Lagos

The Nigerian National Petroleum Company Limited (NNPCL) said yesterday that oil theft and vandalism massively impacted its capacity to make higher profits like other oil-producing countries.

The company on Tuesday announced a profit of N674 billion for the second time in its 45-year history,  134.8 per cent or N387 billion higher than the N287 billion announced by the company in 2020.

 Chief Financial Officer of NNPCL, Umar Ajiya, who spoke when he appeared on the Global Business Report on Arise News Channel, also restated the earlier promise by the company to be ready for Initial Public Offer (IPO) by 2023.

Ajiya noted that based on the current average 1.2 million barrels per day oil production against the 1.8 million bpd Organisation of Petroleum Exporting Countries’ (OPEC) quota, the country was losing almost $150 million to vandals every two days.

He explained that Nigeria was suffering underproduction to the tune of 600,000bpd against the OPEC’s quota and against the capacity of the country, which he put at about 2.7 million bpd.

As a consequence of the escalating oil theft and vandalism, the CFO said some of the oil producing companies had declared force majeure and shut-ins, maintaining that this had led to deferred production and revenue for NNPC and the nation.

“The reality is that the vandalism has impacted significantly on our performance, especially in this era where you have higher oil prices and we are operating at about 1.2 million barrels on average. At a point in this country, we had reached 2.3 up to 2.7 million barrels per day, just before COVID.

“But with the incessant vandalism and theft, our operators cannot tolerate such theft levels. When you send 100 barrels and you get probably 10 barrels at the terminal. So, as a consequence of that, some of them have declared force majeure and shut-in.

 “So, it has deferred production and consequently deferred revenue for us and the nation. Tax revenues and royalties have all declined significantly because we are unable to monetise the production, and therefore, that has affected us significantly,” he said.

He stated that the current revenue was driven by price differentials, in the sense that oil which was low in 2020 due to Covid-19 rose in 2021, stating that performance was driven by price and cost optimisation drive.

According to him, the decision to spend only a percentage of the company’s revenue has been worthwhile, while automation has also helped in increasing efficiency because every business is being held accountable.

He admitted that although the NNPCL may have underperformed its peers, it had been hindered by certain challenges which have been removed with the transition of the NNPC to a limited liability company.

He added that while N674 billion may be relatively low, the Petroleum Industry Act (PIA) will enable the company meet its set targets, including the delivery of dividends to its shareholders in billions of dollars.

On why the NNPCL was enjoying a tax break despite government revenues tight , Ajiya noted that it wasn’t a tax break in the real sense, but a reconciliation of the figures between the company and the Federal Inland Revenue Service (FIRS) as well as the upstream regulator.

He argued that the subsidy which he put at N1.7 million for 2021 did not impact the NNPCL’s bottom line, stressing that the company now does importation as an agency of government.

“Therefore, it is in account of the federation. If we incur such costs , it’s a liability to the federation and it is in our account receivable until such a time that it is settled or we have federation revenue to offset the under-recovery,” he noted.

Still on oil losses, Ajiya added that Nigeria was losing a lot of money which had negatively affected the revenues of the NNPCL.

 “Every two days, you are talking of almost $150 million down the drain, that’s what the nation is losing as we speak.”

Ajiya, who restated the earlier promise by NNPCL to be ready for Initial Public Offer (IPO) by 2023, however, clarified that being IPO-ready by next year did not mean listing on the stock exchange same year as some processes had to be followed before listing could happen.

“Talking about the issue of IPO, we have said that by next year, we should be IPO ready. IPO ready does not necessarily mean going into the stock market the same year. There is a process for you to be able to go into the market and also access capital and attract over-subscription, that’s really our goal and driver.

“And so, all our business processes, we are working on them to ensure that they are efficient enough that any due diligence that is done, whether it is legal, financial or operational that the company will meet the test of investors and as such, the offer when made, whether it’s local or offshore will in reality attract interests and over-subscription. And that remains our goal,” he explained.

On the pipeline surveillance contract with the private sector on the crude oil product line, he explained that that was introduced as a change in the NNPCL’s  operating model to allow the  private sector partner with the company on the basis of build, operate and transfer (BOT).

According to him, the arrangement entails the private partners managing those pipelines while NNPCL guarantees them throughput to pass the product through those lines.

He said the company had also brought in security contractors to complement the efforts of the security agencies, revealing that the move was also yielding some results.

“The  significant work that is going on at the moment will see us bringing back production by end of October and therefore, in terms of numbers, what I mean is dollar in the bank.  You will begin to see that in November because the crude is sold on a 30-day forward credit basis,” he assured.

On the progress being made in the refineries’ rehabilitation, Ajiya said the Port Harcourt Refinery’s rehabilitation had commenced in earnest since, maintaining that the contractor, was working to ensure that the old refinery comes into production by the first quarter of 2023.

According to him, the company had been carrying out the implementation of automated funds management system that ensures that businesses do not spend a certain percentage of the revenue they make.

“There is also cost optimisation drive across the group that businesses have to respect cost-income ratio. So, your cost appropriation should not exceed certain percentage of your income.

“ In addition to that, we do have series of tender approval limits set for the businesses and therefore, the contracting behaviour in the past has significantly been curtailed,” he explained.

He said the company had tried to reduce the overheads in the non-functional refineries to reduce the manpower levels there and deploy such workforce to other businesses that require additional workforce.