Nigeria to Save $1 Billion Annually as NUPRC Addresses Errors in Oil Production Measurements

•Commission moves to reverse investment decline in upstream sector

Peter Uzoho

With various regulatory policies and initiatives being put in place and vigorously pursued by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country is about to start saving as much as $1 billion annually, previously being lost to errors in the measurement of oil production, THISDAY learnt yesterday.

The upstream regulator is also working to remove entry barriers and general investment decline plaguing the oil and gas exploration and production sector of the Nigerian economy by adopting some policy tweaks.

Multiple sources, with knowledge of the details of the regulator’s recent well intelligence report, told THISDAY, anonymously, that Nigerians would start witnessing the roll out and implementation of those policy actions in a matter of weeks.

The sources identified some of the policies to include Metering Regulation, intended to correct the existing crude measurement process that allowed the operators to tell the country the amount of crude produced, literarily leaving the country at the mercy of producing companies, with resultant losses.

Chief Executive Officer of NUPRC, Mr. Gbenga Komolafe, had last year revealed that about 40 per cent of the oil losses reported by the oil companies was as a result of metering errors and not outrightly due to theft.

To address the metering errors and save the country over $1billion annually, the sources said the commission would be conducting metering integrity audit, a major issue and a confirmation of a recent announcement by the commission’s chief executive, during his meeting with operators in Lagos.

“We have identified that if we succeed in recalibrating our meters to international best practices to the industry allowable errors, we might be able to reduce not less than 40 per cent of what we call crude oil theft. So, that is key,” one of the sources told THISDAY.

To proceed with that, he said the regulator had made the metering regulation which was the first in the country since oil production started.

The source further explained, “We discovered oil in 1956 and began exploration in 1958. We never had a metering policy. I was shocked to find out that there was no metering regulation in the industry, and it’s over 70 years, and without that, you have loopholes.

“So, if we do that, we will save the nation about $1billion annually. So, which one is better? To do that or to keep borrowing our future away. So, by policy tweak, we can actually do a lot. So, if all these policies are put in place, we can get to a level of sustainability.”

The regulator, according to the sources, was also working to remove entry and general investment barriers in the upstream petroleum sector, which had affected oil production and revenue generation.

They explained that different kinds of barriers had been created in the industry, with the front-loaded barrier being the major. They said the barriers often drove international investors to neighbouring jurisdictions, where things are easier for them.

THISDAY gathered that the commission had, after its well intelligence research, decided to address the issue of signature bonus in a way that would enable buyers of assets to quickly develop them up to production and optimise the resources.

The result of the well intelligence, according to experts, showed that Nigeria had the highest amount of signature bonus compared to its counterparts, which contributed to the drop in the industry’s capital expenditure (Capex) by 74 per cent in 10 years – 2014 to 2024.

Since the past decade, Nigeria has blamed the decline in oil production mostly on crude oil theft in the Niger Delta. It left out the fallen industry Capex, which dropped from $27 billion in 2014, to about $6 billion currently.

The sources said NUPRC was equally making policy tweaks that will reverse the movement of investments and foreign exchange from Nigeria to other jurisdictions, like Mozambique, Guyana, and Angola.

One of the steps, the sources said, was making regulations that would reduce the high signature bonus and introduce production bonus during bid rounds.

The sources explained, “As an investor, you come and bring your money and invest here. Not that we are giving the assets for free. But it’s to encourage investment. So, when you come, we move it from the front-end to the back-end, so we would have encouraged you to invest in the business.

“So, you bring the employment here, we get the value. So, by the time you start producing, you are now paying production bonus, aside the taxes, royalties.

“But it will be there that when you are bidding, just come and bring the money here. By the time you have already spent your money and you are loading your crude, you can’t run away.

“Our people will be working, graduates will have jobs to do, and you as an investor will see the volumes coming out and you will say, ‘let me pay my production bonus’.

“So, we found out through the well intelligence that this is what we are not doing that other jurisdictions are doing and the money is going there, and competition is increasing.”