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OML 24: Reps ask NNPCL GCEO, Kyari to explain  $278.185m unremitted revenue

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.Nigeria a war-risk country – Kyari

.Destroys over 6,000 illegal refineries

Jonas Ezieke, Abuja

 

The House of Representatives Committee on Finance on Tuesday asked the  Group Managing Director of Nigerian National Petroleum Corporation Limited (NNPCL)  to explain  non-remittance of outstanding sum of $278,184,937.72 from the transfer of OML 24 to
NNPCL/NEPC in 2019.

 

According to Nigerian Upstream Petroleum Regulatory Commission (NUPRC) records, OML 24 was transferred to
NNPCL/NEPC in 2019 for a Signature Bonus of $309,094,374.72 of which only $30,909,437 has been paid, thereby leaving an outstanding of $278,184,937.72 due to Government from the NNPC/NEPL.

 

Chairman of the Committee, Hon. James Faleke who expressed the concern during an investigative hearing into the cost of crude oil

production and its impact on government revenue, alleged that the transfer of the asset reduces the amount of oil accruable to the federation.

 

Hon.Faleke who frowned at the secrecy in the management of the industry, observed that: “from 2014 to 2024 our costs have increased by about $18 million per day or $6.6 billion per annum over 10 years; and this has not led to an increase in either reserves or production. This further implies that for a production of 1 million barrels per day we are incurring costs of $48 million per day or $17.5 billion per annum.”

 

While demanding for details of the production costs of Production Sharing Contracts PSCs and other partnership arrangements or do they form part of the $48.71 given by the FIRS, historical cost of production computations from 2014 till date, Hon. Faleke stressed the need for information bothering on the “status of the $3.3 billion forward contract executed by
NNPCL?

 

“Has lifting repayments started? Has the whole funds been received? Have the funds been released to the Federal Government as advance payments for taxes, royalties, etc as explained during the justification of the loan?

 

“We need a list and status of all forward contracts executed by the
NNPC/NNPCL from 2014 till date. What assets were used to secure all these contracts?

 

“We have noticed that NNPCL has been transferring Federation crude from the Federation to NPDC/NEPL, thereby shifting FG income from a daily profit oil to an annual dividends payment. Tell us the revenue implications to the Government. Has it benefitted us or has it benefitted only the NNPC?”

 

He maintained that “it is important that Nigerians understand the impact of production costs on the available revenue accruable to the Federal Government to execute its programs in the National budget. The higher the cost of extracting a barrel of crude oil from the ground, the less funds available to the Government and Nigerians.

 

The committee has been given a total costs figure of $48.71 per barrel by the FIRS for calculation of Petroleum Profits Tax and Hydrocarbon Tax and this will also be used by the INCL for profit calculations. We need a detailed analysis of how this value was attained.

 

“Over the years Nigeria’s cost of oil production (both capital costs and overhead costs) has continued to increase reaching new unprecedented highs of over $48 per barrel. This implies that as crude oil now sells at about $80 per barrel, for us in Nigeria with a cost of extraction of about $48 only $32 is left to be shared with the oil companies. Compare that with $9 in Saudi Arabia, $21 in Norway or $24 for US shale oil and we see that Nigeria has one of the highest costs of oil production in the world.

 

“If we look further at these costs, we see they have risen steadily in Nigeria from about $30 in 2014 to $48 in 2024. To enlighten Nigerians further, if we assume our oil production is 1 million barrels per day; every additional $1 cost per barrel translates to $1 million per day.

 

“So, from 2014 to 2024 our costs have increased by about $18 million per day or $6.6 billion per annum over 10 years; and this has not led to an increase in either reserves or production. This further implies that for a production of 1 million barrels per day we are incurring costs of $48 million per day or $17.5 billion per annum.

 

“The Committee has been reviewing Oil sector figures closely since the beginning of this 10th Assembly and revenues accruing to the Federal Government and foreign exchange inflows to the country have not met previous expectations.

 

“In this regard we have seen that major a revenue losses to the Government are caused by various factors namely amongst others: Drop in available crude oil production (due to oil theft, shut ins, lack of new investments, reduction in output from older wells, etc)

 

“Pledged production volumes to offset loans and repayment arrangements taken by the NNPCL on their own behalf or on behalf of the Federation. Higher costs of oil production.

 

“To show the importance of this on the well-being of the economy, the latest executive orders issued by Mr. President last week touches on the issue of contracting costs and cost efficiency in the upstream oil sector. It is imperative that we, as a Nation, endeavor to increase our production volumes and at the same time reduce production costs to increase accruals to the Government.

 

“In alignment with these, new Executive Orders the Committee on Finance has resolved to closely scrutinize Federation expenses charged to crude oil production by the NPC and IOCs. It is imperative as these quasi-fiscal expenditures and commitments taken on behalf of the Federation affect both revenue accruing to Government as well as creating a debt profile not monitored by the Debt Management Office,” he noted.

 

While presenting his position on the concerns raised by Hon. Faleke, the NNPCL Group Managing Director, Mele Kyari who painted a gloomy picture of the country’s oil and gas industry, described Nigeria as a war-risk country.

 

Dr. Kyari who described the company as one of the most regulated commerical outfit anywhere you can find in the world, disclosed that there are over 5,000 illegal connections into the oil and gas production line, while over 6,000 illegal refineries have so far been destroyed.

 

He said: “We understand very clearly that our national revenue is the promise on the oil and gas industry. It’s very crucial that this industry gets all the focus that it deserves and is necessary. We also understand that every other sector of the economy are clearly tied to the functionality and performance of the oil and gas, including other taxes that are collected by government like value added tax and so on. Many of them are clearly related to the performance of our industry.

 

“It is very typical anywhere in the world, the first line of deduction from any revenue is your cost, otherwise there will not be another revenue for you to deduct from.

 

“And that means you have to continuously invest so that you’ll continue to make more money beyond the investment that you’re making. This is the only way that you can grow. I also confirm that we have a very very peculiar industry and it’s very clear that we are one of the most expensive production environment anywhere in the world.

 

“This is also very true and there can be lamentations on why this is so, but we also face the issue. First of all, today, there’s nowhere in the world where people have inserted over 5,000 illegal collections into your production line. In it doesn’t happen anywhere, it’s nobody’s experience, it doesn’t happen any part of the world.

 

Today, we have destroyed over 6,000 illegal refineries that are tapping crude oil from our production.

 

This doesn’t happen anywhere in the world and nobody can factor it into the process. Once you create this situation of uncertainty, which by the way is not new.

 

He maintained that previous incidences have t gotten to this scale in 23 years and the end effect is that it reduces your production and indeed to reduce our production, and to be very specific, in 2022 about February or April we actually came down below a million barrels per day, including condensate production as a country.

 

“This is clearly not tenable, not sustainable and that push us into the process of bringing the security intervention which is now has seen us back even at one point we have achieved up to 1.7mbpd in a particular day.

 

So, without that intervention I don’t know we are going to be today. Once you have production decline, it does two things to you, first it reduces production. And the second thing it does is nobody puts his money into your business and that is why no one is investing, no one will lend to you, anybody that will lend will lend on the basis of your current production, your assumption of what you can reasonably do bearing the security circumstances.

 

While noting that lenders lend bases on current production, there is nowhere in the world where you spend this level of monies maintaining security on your pipelines it doesn’t happen anywhere in the world.

 

He maintained that the country has huge security risk that is stopping us (NNPCL) from maximizing production and also declining investment in the industry.

 

As you create this situation, now it spirals into other sector’s activities which is your cost. Mr. Chairman, I can tell you this country is considered as the oil and gas industry as a war – risk zone.

 

There’s a premium places on war-risk on everything including personnel. Someone maybe an expert that you meet to come and work in this country, will carry a war-risk insurance on him, they’ll accept $120 to work per hour say in Saudi Arabia, you’ll do nothing less than $200 to have the same man to work for you in this country.

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