How Nigeria’s PSCs Crude Oil Output Fell to 34% in 12 Months Amid Perennial Underproduction

Emmanuel Addeh in Abuja

Oil output from Nigeria’s Production Sharing Contracts (PSCs) with partnering firms fell to a record low of 34 per cent within a period of 12 months, underscoring the seriousness of the country’s perennial inability to produce enough crude oil for export.

A THISDAY review of the latest Oil and Gas Report released by the Nigeria Extractive Industries Transparency Initiative (NEITI), covering 2021, showed that only 12 of the PSC blocks recorded production, while 23 other blocks, representing 66 per cent of total number of PSC blocks had no output.

The Nigerian National Petroleum Company Limited (NNPC) on behalf of the federation, participates in PSCs, which is an arrangement or contract where the partnering  oil company undertakes to fund operations for an agreed number of years.

Essentially, if the effort is successful, the company will be subject to pay Petroleum Profit Tax (PPT), Royalty and other bonuses/levies to the government. However, the company is entitled to recover its costs, in-kind, through ‘cost oil’.

The arrangement therefore frees government from financial burden since the company bears cost of exploration and production. However, oil produced under those contracts have now waned, according to the NEITI report.

“In 2021, 12 of the PSC blocks made production while 17 blocks did not produce. There were also six inactive blocks.

“Only 12 (34 per cent) of the PSC blocks recorded production, while 23 other blocks, representing 66 per cent of total numbers of PSC blocks did not produce. Total production from the PSCs, which was 242.96 million barrels represents 42.92 per cent of total production of the 566.13 million barrels,” the report stated.

Despite all the efforts to ramp up production, Nigeria has for over three years been unable to raise oil export or meet the Organisation of Petroleum Exporting Countries (OPEC) output.

That is in spite of its much-talked-about Africa’s biggest oil producer status, with over 37 billion barrels of crude reserves.

At the last review, Nigeria was producing at least 560,000 barrels per day less than its required OPEC quota of 1.742 million bpd, effectively hobbling the nation’s ability to earn its desperately needed foreign exchange.

NEITI recommended that there was the need for the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and NNPC to speedily review the technical, operational and other constraints limiting production from the idle PSC blocks with a view to optimising production from the PSC arrangements.

“Where these issues cannot be resolved, it should consider revocation of licenses and subsequent allocation to other interested parties,” NEITI said.

Besides, the report stated that in all, 54 companies produced crude oil resulting in a total metered production of 634.60million barrels. However, it added that 68.47million barrels were lost to production adjustment, measurement error and theft/sabotage, leaving a balance of 566.13 million barrels as ‘fiscalised’ production for the year under consideration.

Still on the matter of oil sector underperformance, the report noted that a total of 29 companies suffered crude losses from theft and sabotage amounting to 37.57 million barrels.

Theft and sabotage occurred mainly in three terminals, namely Forcados, Brass and Bonny with Bonny having the highest volume of theft (28.91 million barrels) accounting for 31 per cent of metered production into the terminal.

This was followed by Forcados which experienced theft in the volume of 7.12 million barrels, amounting to 9 per cent of metered production into Forcados Brass Terminal had the least volume of theft with 1.54 million barrels amounting to 7 per cent of metered production.

“Cumulatively, a total of 37.57 million barrels of crude oil was lost to theft and sabotage in 2021, making 19 per cent of production delivered into Bonny, Brass and Forcados Terminals.

“Total deferred crude production for 2021 unilaterally disclosed by companies was 70.09 million barrels, about 3.5 per cent higher than the previous years’ deferred crude production of 72.70 million barrels,” it stressed.

A total of 28 companies populated the deferred production template, the report said, with Shell Petroleum Development Company (SPDC) having the highest contribution (23.16 per cent) and Conoil having the least contribution (0.06 per cent). “The major reason stated as the cause of deferred production was repairs and maintenance,” it said.

While the sum of $194.85million and N9.73billion were the pipeline transportation revenue earned from Joint Venture (JV) operations, during the period, NEITI noted that although the dollar receipt was remitted to the federation account, the naira receipt had yet to be remitted at the time of the report.

“Furthermore, there was no adequate disclosure of tariff rate and volumes with respect to what was paid to NNPC by the JV operators, underscoring what the report described as opaqueness in accounting for transportation revenue,” it stated.

NEITI urged the NNPC and partnering companies to provide the basis for computation and ensure that revenues due to the federation are remitted as soon as received.

“The sum of $702.19 million and N343.56 million were the miscellaneous revenue earned from JV operations. While the dollar receipt was remitted to the federation account, the naira receipt has neither been remitted to the federation nor was it properly accounted for,” the report said.

According to the report, discrepancies in records raise concerns about the integrity and accuracy of the data provided by the NNPC and other operators.

“NNPC should improve data management processes and establish controls to prevent future discrepancies. Regular monitoring, data reconciliation, and cross-verification can help minimise the occurrence of such discrepancies and maintain data integrity,” it added.

As part of the problem of discrepancies in figures, NEITI stated that for instance, the sum of $1.57 billion (N624.67 billion) was validated as export gas revenue based on Crude Oil Marketing Division (COMD) record for the year, but that NAPIMS reported the sum of N563.98 billion as export gas revenue.