The Senate of Federal Republic of Nigeria’s Report of the Ad Hoc Committee to Investigate Oil Lifting, Theft and the Impact on Petroleum Production and Oil Revenues

INTRODUCTION

The Senate of the Federal Republic of Nigeria at Plenary sitting on Thursday, 14 April, 2022 deliberated on the matter of the Medium Term Expenditure Framework (MTEF) especially with regard to the Revenue profile of the Nigerian economy. Nigeria’s crude oil production as at January 2020 stood at 2.13 mbpd. However, due to incessant pipeline sabotage/theft, the production fell to as low as 1.38 mbpd as at July 2022. This is of great concern to every discerning Nigerian and other stakeholders in the oil industry with the consequential huge losses to revenue accruable to the Federation, as well as the devastating damages to the environment.

Another source of concern are the conflicting figures being brandished by various organisations as “crude oil theft”. These concerns, among others, necessitated the Senate to set up an Ad hoc Committee to investigate the remote and immediate causes of crude oil losses, and its impact on production and revenue, with a view to finding a solution to the menace.

 

INDUSTRY OVERVIEW 

The country’s average technically allowable rate of oil and condensate production stands at:

Oil   –                                        1,907,493 (bopd)

Condensates –                          324,624 (bopd)

TOTAL PRODUCTION:      2,232,117 (bopd)

 

The country’s OPEC quota for August/September 2022 is 1,826,000 (bopd) crude only.

 

Average daily Production for crude stands at: 

Oil                                             –   985,633 (bopd)

Condensate                             –   246,597 (bopd)

TOTAL CRUDE                     –   1,232,430 (bopd)

 

Average daily Production for Gas  stands at:

Associated Gas (AG)              – 4.352 (bscf/d) – (61.9%)

Non Associated Gas (NAG)  –  2.79 (bscf/d) – (38.1 %)

TOTAL GAS                           – 7.31(Bscf/d)

 

The production by terrain are as follows: 

Deep Offshore                         –   37%

Shallow offshore                    –    29%

Swamp                                    –    12%

Land                                        –    21%

 

As could be seen and established, only 66% of the country’s oil production can be effectively guaranteed while 33% is affected by oil theft and loss in production due to the third party easy access on land terrain.

The country attained peak production of oil between 2004 and 2005 after which it fluctuated and has been declining steadily with the major causes as follows:

• Pipeline Vandalization
• Oil Theft
• Inadequate Investments
• Host Community Issues
• OPEC Restrictions

The short fall in production (including condensates) is mainly from Onshore/Swamp fields that are affected by pipeline sabotage/theft.

 

COMPOSITION OF THE COMMITTEE

The President of the Senate named the following as Members of the Ad hoc Committee:

Senator Albert B. Akpan                           Chairman

Senator Yusuf A. Yusuf                            Member

Senator Solomon O. Adeola                     Member

Senator Kabiru I. Gaya                             Member

Senator Mohammed A. Adamu               Member

Senator George T. Sekibo                         Member

Senator Gabriel T. Suswam                      Member

Senator Kashim Shettima                         Member

Senator Aliyu S. Abdullahi                      Member

Senator Mohammed A. Ndume               Member

Senator Stella A. Oduah                           Member

Senator Mohammed S. Musa                   Member

Senator Ibrahim A. Gobir                         Member

 

 METHODOLOGY

The Committee held several meetings to determine the methodology and scope of work and resolved to carry out this mandate by first engaging the most critical of the Stakeholders, embark on a site visit of some of the major crude oil terminals, over flying the affected pipeline right of way, hold an investigative hearing, while still engaging with major stakeholders before making its final report and recommendations to the Senate at Plenary.

 

 SITE VISIT

The site visit commenced at the Shell Petroleum Development   Company Limited’s Bonny Oil & Gas Terminal in the morning of Monday, 13th September, 2022 and Agbada Flow Station in the afternoon. On 14th September, 2022 the Committee delegation visited Oriental Energy Resources Limited’s Ebok FSO Terminal and Total Energies’, Egina FPSO Terminal on Friday, 15th September 2022.

In all these facilities, the Committee reiterated that the essence of the visit was to understand the process flow from the Well Head through the Flow station and Pipelines or Trunklines to the Terminal, to have insight into the nature of crude oil losses due to oil theft and also the source of the conflicting figures attributed to the theft, so as to fully understand the enormity of the menace in preparation for a public hearing on the subject on Wednesday the 21st September 2022.

At each of the facilities visited, the representatives of the various companies made presentations on an overview of the crude oil handling facilities from well head up to the terminal together with the trunk lines Nembe Creek Trunk Line (NCTL), Trans Nigeria Pipeline (TNP) and Eastern Creek Trunk Line (ECTL) injecting to the terminal. Similarly, other processes involved in the export processes were also highlighted and associated challenges were enumerated.

During the overflight of all the affected areas, the Committee could not identify the pipelines or their rights of way, since the areas were covered with marsh and wild crops which makes pipeline monitoring difficult.

One of the key observations during the site visits to the terminals was the discovery of dual and conflicting regulatory presence of both the  Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Downstream and Midstream Petroleum Regulatory Authority (NMDPRA) in one of the floating and offloading terminals in the Ebok field operated by Oriental Energy Resources, offshore Akwa Ibom State, which is outrightly against the spirit and letters of the Petroleum Industry Act, 2021 (PIA). The PIA vests the regulatory oversight over all upstream operations and activities (including crude oil terminals whether integrated or otherwise), on the NUPRC. The Committee was also made to understand that this dual regulatory oversight has become a source of conflict and crises among staff of the two affected agencies; has led to several complaints by oil and gas producers on the terminals; and has had a negative impact on the ease of doing business by the industry operators at the terminals.

Whereas the Petroleum Industry Act (PIA) distinctively created two regulatory agencies for the oil and gas industry. The NUPRC for the upstream sector and the NMDPRA for the midstream and downstream sector. The NMDPRA was conferred with the mandate to regulate future stand-alone export terminals, since the Act had envisaged the future development of stand-alone terminals for export of refined products for non-holders of Petroleum Mining Lease or Oil Mining Lease, which hitherto was not available under the Terminal Dues Act, which prescribes the legal basis for establishing crude export terminals only for holders of Oil Mining Lease or Oil Prospecting License. Thus, the Authority had no mandate whatsoever to regulate crude oil export terminals given that its mandate is strictly in respect of midstream and downstream terminals.

 

INVESTIGATIVE HEARING

Prior to the Investigative public hearing, the Committee placed an advert in the news media and sought for memoranda from relevant stakeholders, particularly government entities with responsibility over the upstream oil and gas industry operations in the country, Security Forces, the Nigeria Police and para-military forces operating at the Terminals were equally invited and presented memoranda.

On Wednesday, 21st September, 2022 the Committee held its investigative hearing and engaged with various stakeholders to interrogate submissions, discover gaps and misalignments and harmonize perspectives for deeper understanding of the issues relating to crude oil theft, actual theft volumes, revenue loss and its negative impact on the country’s revenue and environment of the affected oil producing communities.

 

COMMITTEE OBSERVATIONS AND FINDINGS 

From its site visit to major oil production points and Terminals, the Committee made the following observations and findings:

The Committee observed the state-of-the-art production processes and oil and gas accounting systems at the Egina FPSO and Ebok FSO visited offshore.

Offshore operations are not hindered or affected by theft, pipeline vandalisation and third-party interference.

 

The crude oil theft and pipeline vandalism are limited to onshore and swamp operators due to their peculiar vulnerabilities.

There is plethora of Government entities or representatives present at Export Terminals with duplication of roles and responsibilities leading to conflicting figures being churned out. The government/other agencies include: CUSTOMS, IMMIGRATION, NDLEA, INCHCAPE, PORT HEALTH, TROBEL, ARLINGTON NIG. LTD., INSPECTORATE, SIFAX etc

The configuration of the existing oil production facilities in onshore, offshore and shallow water is integrated in nature because under the Petroleum Act 1969, operations were designed to produce, process and export oil and gas, hence export terminals tend to form a contiguous part with the production and procession infrastructure process thus making activities from the well head to terminal part of  upstream operations.

Major export facilities, the Bonny and Forcados Terminals have been shut down for a very long period of time (over 7 months) due to pipeline vandalism and oil theft.

The oil companies are forced to shut-in production, since bulk of what is produced is not received at the Export Terminal due to rampant cases of third-party interferences/illegal connections on the pipelines leading to huge production losses over the years.

These shut-in wells have seriously affected the Gas supply to Nigeria Liquefied Natural Gas (NLNG) by 30% to 40% since most of the produced gas are associated with crude production.

Production shut-in at Forcados Terminal was due to leakages observed around the loading Bouy and third-party interference at its trunk lines. However, with the intervention of NNPC Ltd and its partner SPDC, this terminal commenced crude export operations in late October, 2022. This we believe is quite commendable.

Bonny Terminal which used to export nine (9) tankers of 1 million barrels/month has not witnessed any export since 10th April, 2022, which is quite unfortunate.

Oil and Gas producers using the Bonny export terminal at some point resorted to barging the products (crude) for export but was rejected by the NNPC in order to safeguard the huge investment made on the terminal and prevent the “balkanization” of Bonny light crude grade.

Heirs Holdings Oil and Gas (operators of Agbada field) have not exported a barrel of crude since April 2022. Since its only evacuation source is through the Trans Nigeria Pipeline (TNP) to Bonny terminal.

Ebok terminal operated by Oriental Oil and Gas offshore Akwa Ibom State has been exporting without any disruption/theft. This is basically due to its offshore location which is presently difficult to access by criminals. This is a fully integrated facility with a Mobile Offshore Production Unit (MOPU).

There was no issue observed at Egina FPSO, operated by Total Energy however, their production is on the decline, and efforts are being made to increase production.

Condensates are the least affected by sabotage/theft since the highest condensate producing field (Aghami and Akpo) are located offshore.

The country’s inability to meet its OPEC quota between January and July, 2022 was due to pipeline vandalism/theft which resulted in major shut-in of well/fields due to lack of evacuation by the producers.  This was mainly along the Bonny/Brass Terminal network.

On a monthly basis, there is reconciliation between the various well heads and flow station measurement to ascertain reservoir performance management and between flow station and terminal measurement to determine actual losses which form the basis for estimating crude oil theft.

It should be stated here that losses that occur due to shrinkage and pipeline technical losses are insignificant.

In respect of LACT metering units, the Committee observed non-compliance by some operators on flow lines/terminals thereby relying on end-to-end reconciliation and out turn verification of volumes, while the NUPRC continues to impose penalties on defaulters.

The country has lost over $2 Billion to oil theft between January  and August 2022, which lost revenue ordinarily would have supported the country; fiscal deficits and budget implementation.

Between April and September 2022, security interventions has led to the seizure and arrest of 11 crude oil Vessels, 30 speed boats, 179 wooden boats, 37 trucks as well as 122 arrested suspects of crude oil theft.

Also 959 metal tanks, 737 Ovens, 452 dugout Pits, 342 Reservoirs, and 355 Cooking Pots were destroyed. Also 207 pumping machines, 12 sophisticated Welding Machines, 6 power Generators and 2 Automatic Filling Machines were recovered.

NNPC in collaboration with both industry regulators, other partners and government security agencies has deployed security architecture to help restore / guarantee production in eastern, central and western production corridors.

The Committee found and frowned at the interference of the Federal Ministry of Transport in the deployment of the Advance Crude Cargo Declaration solution which should the responsibility of the NUPRC, in alignment with its mandate as the technical and commercial upstream regulator under the PIA.

The Committee also frowned at the presence of two regulators at the crude oil export terminals when the PIA has clearly designated the limits of the two petroleum regulators’ respective oversight. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) regulates the midstream/downstream sector only and at no time did the PIA contemplate it to perform crude oil terminal activities regulation, which is an upstream regulatory function and should necessarily include hydrocarbon accounting and crude oil revenue assurance and consolidation, as these are interdependent and contingent on crude oil terminal regulation. Crude oil being a product of upstream, in line with its definition under section 318 of the PIA, its Terminals can only be under the regulation of the Upstream Commission for optimal hydrocarbon accounting, ease of doing business and transparency in royalty computation as well as revenue assurance.

On enquiry from the staff of both NUPRC and NMDPRA at the terminals as to the cause of the dual regulatory presence, the Committee was shown a letter dated 3rd February 2022 from the  Honourable Minister of State for Petroleum Resources (HMSPR)  (pursuant to  the Minister’s powers under section 3(4) of the PIA, that “The Minister shall give general policy directives to the Commission on matters concerning upstream petroleum operations and to the Authority on matters relating to midstream and downstream petroleum operations as well as matters related to cooperation among the two entities in line with the provisions of this Act and the Commission and the Authority shall comply with such directives…”) delineating the scope of regulatory authority of NUPRC and NMDPRA over terminals operations  in line with the provisions of the PIA. The Committee was also shown a second letter by the HMSPR dated  7th July 2022  which strangely somersaulted and issued a counter directive on the same delineation of the scope of regulatory authority of NUPRC and NMDPRA over terminals operations in conflict with extant provisions of the PIA, particularly sections 7(ee), 8(d), 32(ii) and 174(a) (see attached  letters).

The Committee notes that Section 7(ee) of the PIA vests the power to regulate existing terminals and issue certificates of quantity and quality on NUPRC.

Section 7(ee) of the PIA   provides that “the Commission shall issue Certificate of Quantity and Quality for crude oil, natural gas and Petroleum Products from integrated operations and crude oil export terminals established prior to the effective date and the Commission shall have the power to monitor and regulate operations of crude oil export terminals and the responsibility of weight and measures at crude oil export terminals shall cease to exist from the effective date’’.

Section 8(d) of the PIA Provides that “Where in situ facilities or fixed or floating platforms provide for fully integrated upstream and midstream petroleum operations, the Commission shall be in charge of such integrated operations and petroleum operations shall be considered integrated where there is joint use of utilities used exclusively for the Upstream and midstream operations’’.

Conversely, sections 174(a) and 32(ii) gave the Authority the power to regulate future new stand-alone export terminals and issue certificates of quantity and quality in that regard as replicated below:

Section 174(a).  “Except in accordance with an appropriate license issued by the Authority, a person shall not undertake the following activities with respect to midstream petroleum liquids operations—

establish, construct or operate a terminal or other facility for the export or importation of crude oil or petroleum products;….’’

In order to support implementation of section 174(a) of the PIA cited above for the stand-alone terminals to be established after the effective date of the commencement of the PIA, Section 32 (ii) states that

“The functions of the Authority shall be to – …

(ii) issue certificates of quality and quantity to exporters of crude oil, LNG and petroleum products’’

The letter of 7 July 2022 should  therefore be jettisoned as the PIA takes precedence over administrative directives, especially since there exists no ambiguity regarding the oversight responsibilities of the two regulators of the oil and gas sector regarding terminal operations regulatory oversight.

 

COMMITTEE RECOMMENDATIONS

Mr. President and Distinguished colleagues, against the backdrop  of the above observations, and pursuant to the desire of the Senate to clarify some of the aforementioned issues that may be causing a conflict, creating a crises, or adversely affecting the ease of doing business for oil and gas producers, with the consequential negative effect on revenue assurance, pending any legislative amendment to the PIA, as may be required, to facilitate value creation and shared prosperity, the Committee recommends as follows:

 

1. The Hon. Minister’s letter dated 7th July, 2022 (as attached) and the directives therein are in conflict with the extant provisions of the PIA, particularly sections 7(ee), 8(d), 32(ii) and 174(a) and should therefore be jettisoned as the law (PIA) takes precedence over administrative directives which are inconsistent with its provisions;
2. The NUPRC should resume full regulatory oversight of all existing crude oil terminals in Nigeria including integrated terminals, crude oil pipelines, issuance of loading clearance and processing of export permit in line with section 8(d) of the PIA, as regulatory activities at crude oil terminals are interdependent and contingent;

• As intended in the PIA, the NMDPRA statutorily should concentrate fully on regulating the midstream and downstream activities i.e. from refineries, mid and downstream gas infrastructure, supply, storage and distribution of refined petroleum products, petrochemicals, virtual pipelines and retailing facilities,  in line with the provisions of the PIA, including future stand-alone crude oil and natural gas export terminals;

1. There should be an immediate streamlining of the  agencies present at the terminals in line with the relevance of their PIA delineated upstream and midstream/downstream statutory functions while NUPRC should strengthen deployment of digital accounting procedures (such as advance cargo declaration, digital integration of LACT units) at all crude oil terminals for transparent hydrocarbon accounting.
2. NUPRC should fast track the upgrade of the National Production Monitoring Systems (NPMS) to enable Real Time monitoring of Flow station and Terminal activities.
3. NUPRC should expedite the deployment and strict enforcement of the Advance Crude Oil Cargo Declaration solution for detection and mitigation of illegal movement of  vessels , to ensure adequate revenue generation and optimal crude oil accounting, thus  enhancing  revenue generation for the federation.

• NUPRC must ensure that all vessels coming into the Nigerian waters for the purpose of crude oil liftings adhere strictly with  Advance Cargo Declaration (ACD) in line with international best practices in collaboration with the Nigerian Navy and other relevant statutory agencies in line with presidential approval.
• The Ministry of transport should immediately withdraw its interference with Advance Cargo Declaration on wet petroleum cargoes in alignment with  the statutory mandates of the NUPRC under the PIA.

1. NUPRC should summarily conclude engineering audits of existing LACT Units and Flow meters for efficient regulation and monitoring for integrity assurance and standardization of crude oil measurement systems in the Nigerian upstream oil and gas operations.
2. The Bureau of Public Procurement should expedite all processes of procurement for the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) to ensure immediate deployment of an online realtime monitoring system by the Commission across all upstream oil and gas production platforms to ensure accurate measure of production volume by the producers.
3. Curtailing crude oil theft should be a collective responsibility thereby well-meaning members of the public must be encouraged to report illegal activities and transactions in stolen crude oil that may come to their knowledge from any part of the world.

• Nigeria should seek international financial collaboration to check illegal Letters of Credit used to fund the sale and purchase of Nigeria stolen crude,  as such illegal crude sales can only be transacted  through the world financial system.
• The Senate Committee on Petroleum Resources (Upstream) must ensure effective and periodic oversights of the upstream petroleum sector.