Given the fact that Nigeria’s daily contribution to the Organization of the Petroleum Exporting Countries (OPEC)production basket has tumbled by as much as 500,000 barrel per day(bpd), coupled with the country’s crude oil production collapse to a paltry 1.024millionbpd for May 2022 from 1.399mbpd produced in January 2022, with only 11 operational rigs, Nigeria is in dire need of other crude oil production options to help it stabilise its economy and boost revenue.
The Nigerian National Petroleum Corporation(NNPC) Ltd, Nigerian Upstream Petroleum Regulatory Commission (NUPRC)
and other industry stakeholders now urgently require a rallying point to re-stabilise operations through mechanisms that they can control, outside of government bureaucratic burdens.
In monetary terms, underproduction into the OPEC basket equates to a daily loss of approximately USD50 million for a country with an excruciating debt overhang of N41.6 trillion.
To put it another way, the country is losing as much as N20 billion per day, which should worry everyone, especially host communities who now have the legal right to a fixed income from oil exploration and production activities on the backdrop of the new Petroleum Industry Act(PIA).
The most prevalent but weak justification for permitting this unusual occurrence is to blame the losses on untouchable elites stealing oil.
The loss of a country’s reputational value within the global business community cannot be measured understandably in monetary terms, but it’s damaging effect is no less painful because of the shameful excuse often publicised for the regular loss of the country’s crude oil: It is always said that “The crude cargoes have been stolen by Nigerian elites.”
EnergyDay, after very careful consideration , is of the view that oil producing companies should subscribe voluntarily, to a Domestic Production Quota Agreement, in co-operation with their host communities. This is primarily intended to ramp up the country’s onshore production profile from the bottom up.
Three interconnected outcomes will emerge with immediate and long term benefits to stakeholders, especially, the host communities and hydrocarbon producer companies .
1.Host communities will become more proactive in giving a bite to the PIA by taking ownership of the concessions afforded them in the Act . They will become more instrumental in securing revenue inflows into their communities through the 3% expenditure provision in the PIA.
1.The country’s crude production volumes are likely to increase, making it safer and more secure through the economic involvement of host communities.
1.The activities of those stealing crude oil or vandalizing pipelines will be replaced by legitimate actions and services provided by the community.
This initiative, we believe, is in alignment with PIA provisions and it is directed at industry stakeholders, especially host communities and producers, who have so much more to gain in this period of crude oil price rebound, or who may have lost so much in the past because of those extraneous factors that are now resolved through the PIA.
Undoubtedly, the need for environmental renewal, healing, and restoration is as critical as the economic rewards that stakeholders will gain through business sustainability, but how will the “Domestic Production Quota Option ” work?
EnergyDay based its recommendation on investigations and available data, but our primary focus did not extend beyond Bonny Light Crude , Forcados Crude Production Networks , Production Rig Counts and the 31 Export Terminals in the country ; assets held by NPDC and its JV Partners , Seplat Energy and a single onshore asset held by TotalEnergies were clear references.
These assets were selected from the 323 developed fields and 265 production processing facilities spread across the onshore , swampy offshore, and deep offshore terrains.
The Indorama Eleme Petrochemical Business Model, however, reinforced our conclusions. .
Our primary objective was to ascertain if onshore production volumes can be increased on the strength of collaboration between oil producing companies and their host communities without reference to normal operational challenges such as funding , ageing infrastructures and technical constraints.
EnergyDay’s conclusion is summarized in the affirmative that a select number of assets are in a comfortable position to increase their daily production and thereby close the gap between what the nation is currently producing and the export quota permitted by OPEC.
The economic rewards will be a win-win and will be shared with the host communities, who will receive 3 percent of the expenditures. Official data indicates that onshore assets can regain about 22% of current output.
Host communities are encouraged to understand the latitude at their disposal by using the PIA as a vehicle for the quick economic transformation of their respective communities.
“The Domestic Production Quota Agreement” will enable several oil producing communities to secure a steady income by working in co-operation with oil companies operating in their environment. Consequently, this will improve the number of rigs operating in the country generally.
Industry stakeholders will need to embrace the concept of “co-operation in a competitive” environment as we have proposed in the form of a “Domestic Production Quota”.