40% Oil Loss Attributable To Measurement Inaccuracies

That Nigeria has lost a lot of revenue from oil is a fact. However, unknown to many, 40 per cent of this is caused by measuring inaccuracies in the system. Determined to put a stop to this, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) says it will no longer be business as usual for operators in the upstream sector who are used to using their meters for the measurement. The NUPRC Chief Executive officer, Mr. Gbenga Komolafe, explains that the era where the International Oil Companies (IOCs) are judges in their case is over. Komolafe further says all hands are on deck to ensure that the country meets its OPEC allocated oil production quota of 1.8 mbpd. He talks on other industry issues in this interview with JOHN OFIKHENUA.‘

Ques: Assess the upstream sector of the petroleum industry?

Talking quite frankly, the oil industry is experiencing a very difficult moment. The situation is very challenging. The upstream sector is experiencing a very challenging moment. And I will illustrate this with a number of factors. Incidentally, in the last eight years, much attention has not been paid to certain factors. Of course, there has been so much concern about the incident of crude oil theft, which of course, has impacted negatively on the volume of national oil production as well as the federation revenue.

But, what I want to point out is that the problem in the upstream is far beyond the issue of crude oil theft. It has not only been compounded by crude oil theft alone, but also the issue of low investment. That aspect needs to be looked at.
As I said, an authoritative report by McKenzie showed that between 2014 and 2022 investment in the industry dropped by about 74%. Specifically, capital investment in the industry dropped from about $27billion to $6billion.

This is very depressing. So, the impact of that alone is devastating. So, when I started by saying the upstream is faced with a very challenging hurdle, looking at it, the next question is probably needed to be looked at is what would have happened just within eight years? Yes, there are a number of factors that the upstream has become very challenging for investment.
Of course, we have the negative impact of crude oil theft. We were equally waiting for the Industry Act to provide clarity and certainty to investors. And, of course, the issue of subsidy regime that has incapacitated the NNPC in meeting its JVC cash-call. So these combined to make the industry challenging

Ques: Recently, you said inaccurate measurement was accountable for 40 per cent of crude oil losses in the country. Can you expatiate on this I was explaining from the ambit of the question you earlier raised as to our achievements. Of course as part of our regulatory focus and what we call achievements are concerned about strengthening hydrocarbon accounting in the country.

While we are putting our efforts in ensuring increasing production, increased production cannot translate to optimal revenue where you have leakages. You have to mitigate or curb leakages, sustain increased production for you to have optimised hydrocarbon revenue to the government’s federation account.

So, in the process of doing this we set up an expert committee of consultants and the commission to, actually, try to establish forensically the volume of crude oil losses just for over a period of two years – 2020 to 2022. And that, again, arose from the background of the conflicting figures that were being bandied around.

We felt duty bound owing to our statutory responsibility under the Act to avail the public with the actual figure of crude oil losses as a responsible regulator.

And again drawing from the fact that for us the figure that were being bandied were not mere data but revenue because those figures should lead to federation revenue as the oil and gas royalty is derived from the net crude.
If we are talking in terms of losses we need to actually establish it so that we know as a regulator, which is responsible to the nation that this is the exact amount of revenue that are attributable to these losses.

For us, it is not mere statistics. We set out to establish that and by the time the report was presented we found it very shocking that 39.9% which is roughly 40% of the adjudged losses were attributable to Measurement Inaccuracies (MI).
When we looked at that figure it further reinforces one of our regulatory area of focus that there is need to strengthen transparency in our hydrocarbon accounting because 40% is staggering.

As we speak, we have put in place a draft of measurement regulation that is in the process of being gazetted; it has passed through the regulation making the process as prescribed in the Petroleum Industry Act (PIA). With that the time we begin to implement the measurement regulation seamlessly, the net effect is that we will be able to reduce that number (40% MI) to what we call industry allowable errors in the best practice.
Obviously, it is not the best practice that you are losing 40% attributable to measurement error.

Ques: Who provides the measurement devices? Is it the regulator or the operator?

Yes, incidentally since oil was discovered in Nigeria in 1956 and the production commenced from 1958, it has been the operators that have been providing the metering devices. It has been the operators.
What our past experience as an oil producing nation has been is that we accept the figures from the operators’ device the way they display it to us. The regulatory position that we have impacted upon is aimed at reversing this trend in a manner that these operators and licensees will no longer be a judge in their own case.
It is fundamental principle of justice that they cannot continue to be a judge in their own case. That is not transparent. That is the trust and philosophy behind the measurement regulation and I have been able to explain to the operators that it is not in the interest of transparency that this should continue. We are going to work the measurement regulation which will become effective in the weeks ahead.

Ques: Last year, there were issues that some of the oil fields that were awarded were also allocated or licensed by the Mining Cadastre Office (MCO) as mining titles. Have the two organisations, NUPRC and the MCO, reconciled these conflicts?

Yes, we are aware of the issue. As I said, both offices are working to resolve the issue. And we are working in harmony with the office of the Surveyor-General.

Ques: You also concluded the 2020 marginal field bid round last year. How far have they gone in terms of production?

As I said, increasing national oil and gas production remains our core focus. Of course we inherited the marginal bid in an inconclusive manner and we quickly put measures in place to bring the exercise into conclusion. Primarily, it was to ensure that the awardees hit their first oil and begin to add to the national oil production.

The truth of the matter is that we have succeeded in issuing PPL that is Petroleum Prospective Licenses to those successful awardees in line with the provisions of the Petroleum Industry Act. That is a success and in terms of status, some of them have forwarded their Field Development Programmes (FDP) and some of the FDPs have been approved.

And we are aware that some of the awardees, happily enough, are in the process of recording their first oil. We are engaging with the others to follow suite and bring these awards of the marginal fields into production.

These are efforts towards ensuring that the brown fields contribute into increased national oil production. And aside that, is part of our efforts to enhance national production for our robust oil reserve of, as at now of about 38 billions of oil, very large oil reserve.
We have equally commenced a bid for seven deep offshore virgin blocks. And this is a process that has not happened for almost 15 years. We are very committed to ensure that the exercise is concluded in a transparent and competitive manner successfully so we are almost midway through with that exercise which by the calendar we have put to the public is supposed to round off in the life of this administration.

Ques: Has Nigeria increased its crude oil production to surpass the OPEC quota?

Well, we are very optimistic about attaining and surpassing our OPEC quota. Nigeria’s OPEC quota is about 1.8 million barrels of oil per day. Currently, with the kinetic effort being deployed by the joint security forces, the NNPC and the regulator, as at now, we have been able to attain 1.6mb/d in terms of our crude oil production.

But having said that, we are very optimistic as a commission that we have the capacity to attain and surpass our OPEC quota of the figures through the intentional efforts that the commission is making, engaging the investors.

The commission, as part of its efforts and achievements, set up a committee that identifies the candidates that were shut-in wells that could quickly be re-streamed to bring supplementary volumes to enhance the national oil production.

That effort is yielding expected success. But our core focus is how we can get the mega projects like the Prowe, Bonga North, the Bonga South West Aparo, the Owowo to major projects with combined volume of about 400,000 barrels per day.

We are engaging the operators to ensure that these projects come into fruition in real-time. With this happening and the FDPs that have been approved, we are very much optimistic that we will achieve and surpass our OPEC quota.

Ques: How safe is the Nigerian crude oil?

In terms of safety, I can say as a nation we have recorded so much success with the collaborative efforts that is being made in terms of curbing the crude oil theft menace. Of course, you could see at the last quota of 2022, we were operating near 1.1million barrels a day and from what we are seeing, the crude oil and condensate, we are operating around 1.6million barrels a day.
So, to me, that is the best measure of how safe the Nigerian crude oil is.

Ques: Which aspect of the upstream will you advise the incoming administration to focus on to jump-start the economy?

For us, as a commission, apart from our regulatory mediatory roles, we also offer advisory roles to governments and investments and the activities of the industry generally. Part of what we set out to do is, we are going to really conduct inquest. We are going to engage the operators and consultant like Mckenzie to dig into how within eight years as nation we have lost 74% of investments in a manner unacceptable compared to what is happening in some other African regions like Angola, Garbon, even Ivory Coast, Ghana not to talk of other OPEC nations.

Why have we lost such staggering investments while other nations are recording net gain in terms of investment? This is a critical issue that the commission will focus its mind because we really need to do a root-cause analysis to know how we suddenly got here.
And we will be engaging the government with our findings, believing addressing the root-cause analysis will be able to change the narrative for the better.