SWITZERLAND, OCTOBER 31 – Indigenous Oil Exploration Companies are currently experiencing unprecedented hardship due to a combination of factors including incessant infractions on their facilities, undue pressure from the government, and financial demands from their banks.
It is challenging to operate in the Niger Delta, after the region’s several years of abuse and marginalisation. But it is even more difficult for these indigenous oil companies as they lack the resources and economies of scale deployed by International Oil Companies (IOCs) to cushion the effects of instability in the region.
It is common in the Niger Delta for criminals to attack various assets such as pipelines consecutively, with the poor victims are faced with unending discoveries of pipeline breaches and subjected to constant repairs. Unfortunately, the main causalities of these nefarious acts are indigenous oil companies. Indigenous Oil Exploration companies 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.
According to an expert in the Nigerian upstream sector, who asked not to be named, most of the indigenous companies are currently under considerable strain because they have been unable to produce for a while now.
“Because of the issue of vandalism and oil theft, many Nigerian oil companies are not currently producing. But they cannot declare a force majeure because the government tells them it will make Nigeria look bad. Many of them will dance to the government’s tune because they don’t want to lose their licences,” the source said.
The oil expert added that banks have been putting enormous pressure on the NOCs to pay back their debt, without considering the fact that they are not making money at the moment.
“Many of these companies raised money from the banks to acquire oil assets which they have maximised. The banks need to be patient with them as they are dealing with a lot of issues presently,” he told Today’s Echo.
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.
A report put Nigeria’s yearly loss at N995.2 billion to the nefarious activities of oil thieves. Edo state governor, Godwin Obaseki, who heads a panel investigating loss from oil theft, 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 to 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.
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.
According to an expert, who spoke to Today’s Echo, 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.