Indigenous Oil and Gas Companies: The Silent Victims

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Worker at an illegal refinery in South-South Nigeria
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By Epa Stevens

Loss is an inevitable phenomenon in business and every successful business knows not to overrule its possibility. This, however, does not mean that people go into businesses hoping to incur losses.

If you own a business in the Niger Delta region of Nigeria especially the oil and gas kind of business, then you may have a better idea of how oil companies struggle with the unrest that often bedevils the area. ‘Marginalisation of host communities’ a misguided consensus from the Niger Deltans, is often their reason for vindictive activities like vandalization, illegal bunkering and “local refining” operations. The painful realisation is that these criminals attack various assets such as pipelines consecutively, hence the poor victims are faced with unending discoveries of pipeline breaches and subjected to constant repairs.

Apart from the hundreds of lives that have been lost in fatal accidents from bunkering activities in recent years in Africa’s largest oil-producing country, companies have and are still counting huge losses and so is the country.

Reports put Nigeria’s yearly loss at N995.2 billion to the nefarious activities of oil thieves and the Edo state governor, Godwin Obaseki further corroborates the report in a statement issued on Friday, 30th August, saying that between January and June 2019, the nation lost about 22 million barrels of its crude oil production to oil thieves. For a country whose gross domestic product of 2.0 percent in the first quarter of 2019 fell below market expectations of 2.1 percent, 9 billion is too much of a loss to survive yearly.

This position is in consonance with a report published mid-year by a non-government organisation, Nigeria Natural Resource Charter (NNRC). According to the study, Nigeria loses between a whopping $7bn and $12bn annually on crude oil theft. The group attributed the imprecision of the fact to a lack of effective measurement in the sector. In 2015, Vice President of Nigeria, Prof. Yemi Osinbajo alleged that Nigeria loses 400,000bpd of crude oil which amounts o N4.8bn daily. To put in proper context, the figures attributed to daily oil theft in Nigeria is greater than the production capacity of over 60 oil-producing countries.

Unfortunately, the main causalities of these nefarious acts are indigenous oil companies. Nigerian oil exploration companies (NOC) have their assets constantly sabotaged but owing to an array of reasons, are ill-disposed to announcing force majeures, unlike their foreign counterparts. These patriotic firms are endlessly hindered from fulfilling their financial obligations to investors due to these detestable acts.

In accordance with their utmost patriotism and efforts at making significant contributions to the national treasury, NOCs will rather keep up production following facility sabotage rather than halting operations. In addition, the overwhelming angst of creating a perception of incompetence amongst industry regulators and governmental stakeholders contrive to dissuade these companies from frequently ceasing production. NOCs are generally disinclined to constant cessation of production; however, they resort to when the matters deteriorate beyond their control. 

In April, two IOCs declared force majeures. Precisely, Royal Dutch Shell, Total. They were unable to export from Bonny Light Crude and Amenam respectively having experienced grave levels of vandalism.

Declaration of force majeures is almost becoming a pattern for oil companies in the Niger Delta, and this is taking a depleting toll on them especially the indigenous operators who despite extensive losses, still suffer under the hammers of stakeholders.

For no fault of theirs, oil companies continue to pay heavy prices for the security challenges to their facilities like resulting in capital flight with its attendant problems in macroeconomic activities. In addition to increased sustainability challenges in deploying response and restorative actions in areas of oil spillage, there is an increase in operational expenses arising from remediation and resuscitation of vandalized pipeline. Albeit reports and studies have shown that when host communities are not given what they want, they channel grievances to company’s facilities but knowing humans as insatiable beings, it is obviously impossible to please every member of a community.   

Bunkering activities also take a huge toll on the nation and more painful is the fact that the rising incidents of disruption of crude exports may open the window for another season of recession. It is common knowledge that Nigeria solely depends on the exportation of crude for economic sustenance but if the efforts of companies dedicated to making available the product are constantly thwarted by hoodlums, such that 60 pipelines that were vandalized in a space of five months this year, rose to a heart-wrenching number of 160 by the end of June, it begs the question of how the companies can attain their commercial obligations.

In a private discussion with an industry expert, who pled anonymity due to the sensitivity of the issue, they declared that oil theft should be given more than a cursory look by the government. The expert claims that the nation through its youths bears the brunt of the illegalities of a few. According to the said expert, the estimated $9bn lost to crude theft yearly would amount to $45 in five years, which would reduce unemployment by over 80% through direct and indirect strategies. On the whole, the aficionado advised that a declaration of a state of emergency might be the solution to the haemorrhage. 

Then, there is the question of insecurity. The incessant vandalisation of oil and gas pipelines shows that the security of critical national assets is in trouble. To further compound the problem, despite huge security cost for pipeline protection, those who are supposed to protect the oil facilities in the country are guilty of same nefarious activities as they benefit from said illegal operations. Pipeline vandalism has also exposed workers to grave dangers such that some staff deployed to the Niger Delta region often reportedly relocate to safer locations thus hindering effective performance.

As if indigenous firms are not suffering enough, Investors continuously descend on them with demands and expectations. The companies remain resilient in their bid to remain afloat and keep the nation’s economy running but conventional wisdom suggests that the pressure might drive them out of business sooner than later, with its ripple effect being thousands of job losses and unquantifiable economic impacts. There is so much loss here that seems to go unnoticed because after all, it is the ‘oil and gas’. It is high time this issue of illegal bunkering stopped. Regardless of immense losses, companies need to remain in business and continue to meet the economic expectation of the country.

Current realities indicate that security is key to ameliorating the situation, hence, it is high time the Government ‘practically’ expressed its commitment to eradicating the continuing colossal loss to the country. Resolving the myriad of issues confronting the indigenous oil and gas sector could be the critical success factor to the realisation of the nation’s growth potentials.

Stevens, a lawyer by training, is a seasoned Oil & Gas analyst.

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