Nigerian Oil Industry Bemoans Power of Workers to Shut Down Production
24 May 2015
ThisDay, Nigeria
In a move seen by oil industry stakeholders as similar to the protest used to blackmail the federal government to reverse the sale of the refineries, thus plunging the downstream sector into a perennial crisis, the workers of the Nigerian National Petroleum Corporation (NNPC) and its wholly-owned subsidiary, the Nigerian Petroleum Development Company (NPDC), recently shut down oil production over the transfer of operatorship of some divested oil blocks to the new buyers, an action that could erode the gains recorded in the upstream sector in recent years. Ejiofor Alike reports
The Decree No. 33 of 1977, which established the Nigerian National Petroleum Corporation (NNPC), empowers the corporation to engage in “exploitation, production, transportation, processing of oil, refining, and marketing of crude oil and its refined derivatives.”
By this provision, the National Oil Company (NOC) is supposed to operate like other National Oil Companies (NOCs) such as Saudi Arabia’s Aramco; Malaysia’s Petronas and Brazil’s Petrobras, which compete with Shell and other International Oil Companies (IOCs) for operatorship of oil blocks.
But the NNPC has over the years abandoned its core mandate in the upstream sector and in the words of the late President Umaru Yar’Adua, “the corporation is believed to have lost focus over the years as it assumed multiple and sometimes conflicting roles,” without making progress in crude oil exploration and production.
Before President Goodluck Jonathan assumed office, the Nigerian Petroleum Development Company (NPDC), which is the producing arm of the NNPC, was still producing less than 100,000 barrels of oil per day, after over 50 years of crude oil production in Nigeria.
With Nigeria’s over 50 years experience as an exporter of crude oil, the NNPC, which has a majority stake of 55-60 per cent in the joint ventures cannot operate any of the joint ventures with the IOCs as the JVs with Shell, Mobil, Chevron, Total and Agip are still being operated by these multinational partners.
NNPC established the NPDC as its crude oil production arm to implement its core mandate in the upstream sector but out of Nigeria’s daily output of 2.4 million barrels of crude oil, actual production by this company was about 80,000 barrels per day before this present administration came on board.
Divestment of Oil Blocks by IOCs
When Shell Petroleum Development Company (SPDC), Total and Nigerian Agip Oil Company (NAOC) unveiled plans to divest their 45 per cent stakes in some oil blocks in 2009, their objective was to boost indigenous production capacity, which was below 10 per cent of Nigeria’s daily production.
In other words, both the NNPC and all the Nigerian independent companies, including marginal field operators were producing less than 10 per cent of Nigeria’s daily output before the IOCs started selling oil blocks to indigenous operators.
Shell and its JV partners – Total and Agip to date have divested a total of about 12 oil blocks, out of which only three- Oil Mining Leases (OMLs) 4, 38 and 41 are operated by the farmee, Seplat Petroleum Development Company Plc, while the rest are operated by NPDC.
Before it recently concluded the sale of their 45 per cent stakes in OMLs 18, 24, 25 and 29, the Anglo Dutch major and its partners had earlier sold OMLs 4, 38, 41, 26, 30, 34, 40 and 42 to local investors and their international partners.
Several other divestments are in the offing, including five from Chevron, out of which three have been subject of litigation between Brittania-U Nigeria Limited and Chevron/Seplat Petroleum Development Company Plc.
Controversy over Operatorship
The first divestment came in January 2010, when SPDC said it had sealed a deal to transfer, within six months, its interest in the three production licences – OMLs 4, 38 and 41 and other related equipment in the Niger Delta to a consortium led by two Nigerian companies and a French firm.
The Anglo Dutch company was then the operator of the licenses under a joint venture between the NNPC, 55 per cent; Royal Dutch Shell, 30 per cent; Total Exploration & Production Nigeria Limited, 10 per cent; and NAOC, five per cent.
SPDC had identified the buyer as Seplat Petroleum Company Limited, an indigenous consortium jointly formed by two Nigerian firms – Platform Petroleum Limited and Shebah Petroleum Development Company Ltd – along with Maurel & Prom of France.
However, controversy had initially trailed the transaction following the decision of the NNPC to exercise its rights by taking over the operatorship of the blocks, in accordance with the provisions of the joint operating agreement (JOA) between Shell, NNPC, Total and NAOC.
NNPC, which clearly has no technical and financial capacity to operate the acreages relinquished by Shell had initially capitalised on the JOA, which provides that SPDC, as the operator of SPDC/NNPC Joint Venture, has no powers to transfer its operatorship to a third party without the written consent of the NNPC.
According to the JOA, Shell can only transfer operatorship to its affiliate or affiliated company and Article 1.1.2 (i) of the JOA defines Shell’s affiliates as: Shell in the Netherlands; Shell Transport and Trading Company Plc in the United Kingdom or any other company that is being controlled directly or indirectly by any of these two companies.
Unfortunately, Seplat Petroleum, the new buyers of the asset is not either Shell’s affiliate or an affiliate company of Shell, hence the agitation by the NNPC to take over the operatorship of the three assets.
THISDAY gathered that it was the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, who resolved the dispute in favour of Seplat, thus the company became the only buyer of the oil blocks sold by the IOCs that also assumed the operatorship.
Seplat inherited Shell staff in the assets and raised the production from the three acreages to about 74,000 barrels of oil equivalent per day, surpassing 30 years performance of NNPC in operatorship.
Unfortunately, other indigenous investors that bought OMLs 18, 24, 25, 29, 26, 30, 34, 40 and 42 in subsequent divestments were not allowed to operate the assets as the NNPC had transferred the operatorship to NPDC citing its powers under the JOA, despite its obvious lack of financial and technical capacity.
To boost NPDC’s production capacity, the company had in 2010 entered into Strategic Alliance Agreement (SAA) with Septa Energy Nigeria Limited, a wholly owned subsidiary of Seven Energy International Limited, an indigenous Nigerian oil and gas development company.
The initial SAA was in respect of NPDC’s interests in OMLs 4, 38 and 41 onshore in the Niger Delta.
The SAA, which became a subject of several probes by the National Assembly, provides the framework under which Septa will provide funding and technical services to NPDC for the development of both oil and gas reserves.
Under the SAA, Septa funds capital and operational expenditure of the fields, as well as support the technical resources of NPDC, with an ambitious target of increasing the company’s production capacity from 80,000 barrels of oil per day to 250,000 bpd by this year, a target that has not been achieved.
The NPDC later signed another SAA with Atlantic Energy to provide funding and technical assistance for its operatorship of the other oil blocks relinquished by Shell and its JV partners.
NPDC’s Poor Performance
Despite the funding and technical assistance provided by a third party to assist the NPDC to effectively operate the blocks, the company could not achieve its 250,000 bpd target by this year and has recorded a very poor performance in the operatorship of the assets sold by Shell and its partners.
For instance, THISDAY gathered that OML 30, which was acquired by Shoreline Natural Resources, has nine flow stations with combined production capacity of 395,000 barrels of oil equivalent per day (Bopd).
The flow stations include Afiesere, 60,000bpd; Eriemu, 30,000bpd; Evwreni, 30,000bpd; Kokori, 90,000 bpd; Olomoro-Oleh, 60,000bpd; Oroni, 30,000 bpd; Osioka, 15,000bpd; Oweh, 30,000bpd and Uzere West, 60,000bpd.
THISDAY however, gathered that the current output under NPDC operatorship is only around 53,000bpd, leaving 342,000bpd unproduced.
Worried over the impact of the poor performance of NPDC on Nigeria’s target to boost her crude oil production capacity, the Department of Petroleum Resources (DPR) had recommended a Joint Operatorship Model (JOM) to the Minister of Petroleum Resources because of the unsatisfactory performance of the NPDC.
In a memorandum dated December 12, 2014, with Reference No. PI/1124/Vol.18/1, obtained by THISDAY, which was addressed to the Petroleum Minister, the Director of DPR, Mr. George Osahon, had reminded the minister that the investors that bought the divested assets were certified as capable of holding the acreages on the basis of their financial and technical capabilities, predicated on the outcome of the thorough due diligence carried out on the companies by the DPR.
“In order to develop and strengthen the execution capacity of the respective joint ventures between the assignees and the NNPC, often represented by its wholly-owned subsidiary, the NPDC, the DPR is proposing a Joint Operatorship Model (JOM). Under the proposed model, the investor may be designated as the operator and lead an Asset Management Team (AMT) that will spear all activities in the block. The AMT will comprise staff from each of the parties as would be specified in the respective revised Joint Operating Agreements (JOAs). This initiative is expected to offer training and understudy opportunities for NPDC to further develop its capacity in all areas of petroleum operation and compliance,” Osahon explained.
In proposing the JOM, Osahon informed the minister that the DPR had held discussions with the management of the NNPC as the corporation is the central player in all the joint venture relationships.
Osahon’s memorandum, which was approved personally by the minister on December 15, 2014, also recommended that in order to allow the parties to effectively benefit from the technical and financial resources of the farmees as operator in leading AMT, the JOM should be allowed to run for 10 years subject to satisfactory performance.
Osahon also suggested that after 10 years, the NPDC could be requested to assume operatorship or the investor could continue, depending on the assessment by the parties and the DPR.
Following the approval of the DPR recommendations, the Petroleum Minister recently approved the transfer of operatorship of OML 42, to Neconde Energy Ltd, which had bought 45 per cent stake from Shell, Total and Agip.
Elcrest Exploration and Production Nigeria Limited also received confirmation from the DPR that it had fulfilled its obligations, including the payment of the requisite premium and fees of $2.3 million, in relation to its appointment as operator of OML 40 for a minimum 10 year period.
But the oil workers in the employ of the NPDC shut down oil production in all the NPDC-operated joint venture assets in protest against the transfer of operatorship to some of the buyers of the assets.
The workers under the aegis of Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) are calling for the reversal of the award of the operatorship to NPDC.
The workers in all the subsidiaries of the NNPC also joined their colleagues in the NPDC on a solidarity strike insisting that, contrary to reports, they have the capacity and competence to operate the divested oil blocks.
The current resistance by the NNPC workers against the transfer of the operatorship is seen by stakeholders as similar to the opposition they mounted against the sale of the refineries on the grounds that they have the capacity to operate them to profitability, which later turned out to be a false claim.
The Federal Government wasted over $400 million on the refineries after the oil workers forced the Yar’Adua administration to cancel the sale, which had been concluded under Obasanjo’s administration.
Today, none of the refineries is working as even the belated attempt by the NNPC to invite the Original Equipment Manufacturers (OEMs) to carry out Turn Around Maintenance (TAM) failed because the activities of Boko Haram insurgents in the north and militants in the Niger Delta scared away the foreign contractors.
Nigerians are now subjected to perennial scarcity of petrol as a result of her weak refining capacity.
Despite their lack of technical and financial capacity to rehabilitate the refineries after forcing the government to cancel the privatisation, the NNPC workers want to arm-twist the government to leave the operatorship of plum assets in the hands of NPDC, which has demonstrated lack of capacity over the years.
Both the present administration and the incoming administration should demonstrate the political will to resist this blackmail by calling off the bluff of the NNPC workers to ensure that Nigeria attains the required greatness in the exploitation of hydrocarbon resources by indigenous operators.
ThisDay, Nigeria
In a move seen by oil industry stakeholders as similar to the protest used to blackmail the federal government to reverse the sale of the refineries, thus plunging the downstream sector into a perennial crisis, the workers of the Nigerian National Petroleum Corporation (NNPC) and its wholly-owned subsidiary, the Nigerian Petroleum Development Company (NPDC), recently shut down oil production over the transfer of operatorship of some divested oil blocks to the new buyers, an action that could erode the gains recorded in the upstream sector in recent years. Ejiofor Alike reports
The Decree No. 33 of 1977, which established the Nigerian National Petroleum Corporation (NNPC), empowers the corporation to engage in “exploitation, production, transportation, processing of oil, refining, and marketing of crude oil and its refined derivatives.”
By this provision, the National Oil Company (NOC) is supposed to operate like other National Oil Companies (NOCs) such as Saudi Arabia’s Aramco; Malaysia’s Petronas and Brazil’s Petrobras, which compete with Shell and other International Oil Companies (IOCs) for operatorship of oil blocks.
But the NNPC has over the years abandoned its core mandate in the upstream sector and in the words of the late President Umaru Yar’Adua, “the corporation is believed to have lost focus over the years as it assumed multiple and sometimes conflicting roles,” without making progress in crude oil exploration and production.
Before President Goodluck Jonathan assumed office, the Nigerian Petroleum Development Company (NPDC), which is the producing arm of the NNPC, was still producing less than 100,000 barrels of oil per day, after over 50 years of crude oil production in Nigeria.
With Nigeria’s over 50 years experience as an exporter of crude oil, the NNPC, which has a majority stake of 55-60 per cent in the joint ventures cannot operate any of the joint ventures with the IOCs as the JVs with Shell, Mobil, Chevron, Total and Agip are still being operated by these multinational partners.
NNPC established the NPDC as its crude oil production arm to implement its core mandate in the upstream sector but out of Nigeria’s daily output of 2.4 million barrels of crude oil, actual production by this company was about 80,000 barrels per day before this present administration came on board.
Divestment of Oil Blocks by IOCs
When Shell Petroleum Development Company (SPDC), Total and Nigerian Agip Oil Company (NAOC) unveiled plans to divest their 45 per cent stakes in some oil blocks in 2009, their objective was to boost indigenous production capacity, which was below 10 per cent of Nigeria’s daily production.
In other words, both the NNPC and all the Nigerian independent companies, including marginal field operators were producing less than 10 per cent of Nigeria’s daily output before the IOCs started selling oil blocks to indigenous operators.
Shell and its JV partners – Total and Agip to date have divested a total of about 12 oil blocks, out of which only three- Oil Mining Leases (OMLs) 4, 38 and 41 are operated by the farmee, Seplat Petroleum Development Company Plc, while the rest are operated by NPDC.
Before it recently concluded the sale of their 45 per cent stakes in OMLs 18, 24, 25 and 29, the Anglo Dutch major and its partners had earlier sold OMLs 4, 38, 41, 26, 30, 34, 40 and 42 to local investors and their international partners.
Several other divestments are in the offing, including five from Chevron, out of which three have been subject of litigation between Brittania-U Nigeria Limited and Chevron/Seplat Petroleum Development Company Plc.
Controversy over Operatorship
The first divestment came in January 2010, when SPDC said it had sealed a deal to transfer, within six months, its interest in the three production licences – OMLs 4, 38 and 41 and other related equipment in the Niger Delta to a consortium led by two Nigerian companies and a French firm.
The Anglo Dutch company was then the operator of the licenses under a joint venture between the NNPC, 55 per cent; Royal Dutch Shell, 30 per cent; Total Exploration & Production Nigeria Limited, 10 per cent; and NAOC, five per cent.
SPDC had identified the buyer as Seplat Petroleum Company Limited, an indigenous consortium jointly formed by two Nigerian firms – Platform Petroleum Limited and Shebah Petroleum Development Company Ltd – along with Maurel & Prom of France.
However, controversy had initially trailed the transaction following the decision of the NNPC to exercise its rights by taking over the operatorship of the blocks, in accordance with the provisions of the joint operating agreement (JOA) between Shell, NNPC, Total and NAOC.
NNPC, which clearly has no technical and financial capacity to operate the acreages relinquished by Shell had initially capitalised on the JOA, which provides that SPDC, as the operator of SPDC/NNPC Joint Venture, has no powers to transfer its operatorship to a third party without the written consent of the NNPC.
According to the JOA, Shell can only transfer operatorship to its affiliate or affiliated company and Article 1.1.2 (i) of the JOA defines Shell’s affiliates as: Shell in the Netherlands; Shell Transport and Trading Company Plc in the United Kingdom or any other company that is being controlled directly or indirectly by any of these two companies.
Unfortunately, Seplat Petroleum, the new buyers of the asset is not either Shell’s affiliate or an affiliate company of Shell, hence the agitation by the NNPC to take over the operatorship of the three assets.
THISDAY gathered that it was the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, who resolved the dispute in favour of Seplat, thus the company became the only buyer of the oil blocks sold by the IOCs that also assumed the operatorship.
Seplat inherited Shell staff in the assets and raised the production from the three acreages to about 74,000 barrels of oil equivalent per day, surpassing 30 years performance of NNPC in operatorship.
Unfortunately, other indigenous investors that bought OMLs 18, 24, 25, 29, 26, 30, 34, 40 and 42 in subsequent divestments were not allowed to operate the assets as the NNPC had transferred the operatorship to NPDC citing its powers under the JOA, despite its obvious lack of financial and technical capacity.
To boost NPDC’s production capacity, the company had in 2010 entered into Strategic Alliance Agreement (SAA) with Septa Energy Nigeria Limited, a wholly owned subsidiary of Seven Energy International Limited, an indigenous Nigerian oil and gas development company.
The initial SAA was in respect of NPDC’s interests in OMLs 4, 38 and 41 onshore in the Niger Delta.
The SAA, which became a subject of several probes by the National Assembly, provides the framework under which Septa will provide funding and technical services to NPDC for the development of both oil and gas reserves.
Under the SAA, Septa funds capital and operational expenditure of the fields, as well as support the technical resources of NPDC, with an ambitious target of increasing the company’s production capacity from 80,000 barrels of oil per day to 250,000 bpd by this year, a target that has not been achieved.
The NPDC later signed another SAA with Atlantic Energy to provide funding and technical assistance for its operatorship of the other oil blocks relinquished by Shell and its JV partners.
NPDC’s Poor Performance
Despite the funding and technical assistance provided by a third party to assist the NPDC to effectively operate the blocks, the company could not achieve its 250,000 bpd target by this year and has recorded a very poor performance in the operatorship of the assets sold by Shell and its partners.
For instance, THISDAY gathered that OML 30, which was acquired by Shoreline Natural Resources, has nine flow stations with combined production capacity of 395,000 barrels of oil equivalent per day (Bopd).
The flow stations include Afiesere, 60,000bpd; Eriemu, 30,000bpd; Evwreni, 30,000bpd; Kokori, 90,000 bpd; Olomoro-Oleh, 60,000bpd; Oroni, 30,000 bpd; Osioka, 15,000bpd; Oweh, 30,000bpd and Uzere West, 60,000bpd.
THISDAY however, gathered that the current output under NPDC operatorship is only around 53,000bpd, leaving 342,000bpd unproduced.
Worried over the impact of the poor performance of NPDC on Nigeria’s target to boost her crude oil production capacity, the Department of Petroleum Resources (DPR) had recommended a Joint Operatorship Model (JOM) to the Minister of Petroleum Resources because of the unsatisfactory performance of the NPDC.
In a memorandum dated December 12, 2014, with Reference No. PI/1124/Vol.18/1, obtained by THISDAY, which was addressed to the Petroleum Minister, the Director of DPR, Mr. George Osahon, had reminded the minister that the investors that bought the divested assets were certified as capable of holding the acreages on the basis of their financial and technical capabilities, predicated on the outcome of the thorough due diligence carried out on the companies by the DPR.
“In order to develop and strengthen the execution capacity of the respective joint ventures between the assignees and the NNPC, often represented by its wholly-owned subsidiary, the NPDC, the DPR is proposing a Joint Operatorship Model (JOM). Under the proposed model, the investor may be designated as the operator and lead an Asset Management Team (AMT) that will spear all activities in the block. The AMT will comprise staff from each of the parties as would be specified in the respective revised Joint Operating Agreements (JOAs). This initiative is expected to offer training and understudy opportunities for NPDC to further develop its capacity in all areas of petroleum operation and compliance,” Osahon explained.
In proposing the JOM, Osahon informed the minister that the DPR had held discussions with the management of the NNPC as the corporation is the central player in all the joint venture relationships.
Osahon’s memorandum, which was approved personally by the minister on December 15, 2014, also recommended that in order to allow the parties to effectively benefit from the technical and financial resources of the farmees as operator in leading AMT, the JOM should be allowed to run for 10 years subject to satisfactory performance.
Osahon also suggested that after 10 years, the NPDC could be requested to assume operatorship or the investor could continue, depending on the assessment by the parties and the DPR.
Following the approval of the DPR recommendations, the Petroleum Minister recently approved the transfer of operatorship of OML 42, to Neconde Energy Ltd, which had bought 45 per cent stake from Shell, Total and Agip.
Elcrest Exploration and Production Nigeria Limited also received confirmation from the DPR that it had fulfilled its obligations, including the payment of the requisite premium and fees of $2.3 million, in relation to its appointment as operator of OML 40 for a minimum 10 year period.
But the oil workers in the employ of the NPDC shut down oil production in all the NPDC-operated joint venture assets in protest against the transfer of operatorship to some of the buyers of the assets.
The workers under the aegis of Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) are calling for the reversal of the award of the operatorship to NPDC.
The workers in all the subsidiaries of the NNPC also joined their colleagues in the NPDC on a solidarity strike insisting that, contrary to reports, they have the capacity and competence to operate the divested oil blocks.
The current resistance by the NNPC workers against the transfer of the operatorship is seen by stakeholders as similar to the opposition they mounted against the sale of the refineries on the grounds that they have the capacity to operate them to profitability, which later turned out to be a false claim.
The Federal Government wasted over $400 million on the refineries after the oil workers forced the Yar’Adua administration to cancel the sale, which had been concluded under Obasanjo’s administration.
Today, none of the refineries is working as even the belated attempt by the NNPC to invite the Original Equipment Manufacturers (OEMs) to carry out Turn Around Maintenance (TAM) failed because the activities of Boko Haram insurgents in the north and militants in the Niger Delta scared away the foreign contractors.
Nigerians are now subjected to perennial scarcity of petrol as a result of her weak refining capacity.
Despite their lack of technical and financial capacity to rehabilitate the refineries after forcing the government to cancel the privatisation, the NNPC workers want to arm-twist the government to leave the operatorship of plum assets in the hands of NPDC, which has demonstrated lack of capacity over the years.
Both the present administration and the incoming administration should demonstrate the political will to resist this blackmail by calling off the bluff of the NNPC workers to ensure that Nigeria attains the required greatness in the exploitation of hydrocarbon resources by indigenous operators.
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