By Ismaila Umaru Lere
Since the announcement on Sunday, March 12, that Saudi Arabia’s national oil company, Saudi Aramco has posted a net profit of $161.1 billion for 2022, which is the highest profit ever declared by a national oil company anywhere in the world, there have been growing concerns about why NNPC Limited is not churning out better profits.
Are Aramco and NNPC Limited on the same pedestal? Nigeria and Saudi Arabia have contrasting numbers. Nigeria’s current oil reserve of over 36 billion barrels pales into insignificance when compared to Saudi Arabia’s 267 billion barrels reserves, which makes it one of the world’s wealthiest nations.
Nigeria with a population of over 200 million people has a land mass of 923,768km², while Saudi Arabia with a population of about 35 million has a land mass of 2.15mkm². While Nigeria is just 42.97% the size of Saudi Arabia in terms of land size, it is also interesting to mention that same Nigeria is 6 times the population of Saudi Arabia. Since the revenue source of both countries is similar, these numbers also have an impact on both countries.
Aramco currently owns five refineries with total combined capacity of about 3.3m b/d. The petrol is used domestically and also exported to different parts of the world. On the other hand, NNPC currently owns four refineries with a combined installed capacity of 445,000 b/d, but they are moribund and do not refine a single liter of fuel
When the NNPC completed its transmutation from a Corporation to a Limited Company, as stipulated by the Petroleum Industry Act (PIA) in December last year there was high expectations that the new oil company will be joining the ranks of Aramco, Brazil’s Petrobras and Russia’s Gazprom as a profit-driven, commercially viable entity. Many view this development as a turning point in the history of Nigeria’s oil industry.
The new NNPC Limited is remodelled along the Saudi Aramco’s philosophy but Valuechain observed that the transformation envisaged for the NNPC Limited in areas of transparency, corporate governance, investments and profitability will take much longer time to attain.
Though there is wide margin for comparisons between Saudi Aramco and NNPC Limited, it should be noted that there are equally lessons to be learned from the world’s second most valuable company. What makes the difference between both countries is the way and manner they run their oil companies. Although the two countries’ oil firms are majorly state-owned, the Saudis have a better handle on Aramco than Nigerians have on NNPC Limited.
Opacity, lack of transparency, hefty crude theft, pipeline vandalism, all of these and more impact NNPC Limited’s productivity and, ultimately, revenue.
To put things in broader perspective, Saudi Aramco is the largest oil company in the world. As of 2022, its crude production was 11.5 million barrels a day and the company plans to reach 13 million barrels per day by 2027. Meanwhile, Nigeria’s crude production (aside from condensates) was 1.3 million barrels per day as of February 2023.
The Arabian country could easily meet its Organisation of Petroleum Exporting Countries (OPEC) quota, In effect therefore, it is natural that other things being equal, the two countries cannot be equally blessed.
From available records, Saudi Aramco has planned to increase its crude production by spending up to $55 billion in 2023 on capital projects. Meanwhile, NNPC Limited has not revealed any definite plans as to how much will be spent on capital projects in 2023.
Nigerians have however been told that the company is working to increase production by attracting investments.
At a sensitization workshop organized for the umbrella body of Nigerian students, (NANS) in Abuja on March 23, the General Manager Corporate Communications of NNPC Limited, Garba-Deen Mohammad, said the company has projected that its profit for the 2022 financial year would be higher than N674bn, because efforts were intensified to actualise this during the financial period.
Mohammad said that in 2020, the company succeeded in breaking its 44-year financial loss records, as it posted a profit of N287bn that year.
His words, “NNPC has declared profits consecutively for two years, in 2020 and 2021. In 2020, it was N287bn, up from a loss of N800bn. The N287bn profit moved up to N674bn in 2021 and by the time the figures are out for 2022, this profit margin stands a chance of going up…”
In October 2022, NNPC Limited announced that it grew its profit after tax and assets from N287bn and N15.86tn in 2020, to N674bn and N16.3tn in 2021, respectively.
The company made this public in its Group Audited Financial Statement for the year ended December 31, 2021.
NNPC Limited’s Chief Executive Officer, Mallam Mele Kyari reportedly said in October last year that NNPCL progressed to a new performance level, from N287bn profit in 2020 to N674bn profit after tax in 2021, climbing higher by 134.8 per cent year-on-year profit growth.
On the essence of the workshop, Mohammad explained that it was organised in collaboration with the civil society to sensitise Nigerian students on the operations of NNPC Limited which suggested that the oil firm is already thinking about the future.
“This sensitisation programme with students of Nigerian tertiary institutions is one of the steps that NNPC is taking in order to establish a connection with the leaders of tomorrow.
“People often ask about the owners of NNPC Limited. As it is, NNPC still belongs to Nigerians. The Federal Ministry of Finance and the Federal Ministry of Petroleum Resources are jointly holding the shares of NNPC Limited in trust for Nigerians.
At some point in the future, NNPC Limited will go to the stock market via IPO (Initial Public Offer), and at that point, everyone is free to buy shares in it. There will be equal opportunity for everybody,” he stated.
Mohammad said the public offer would be supervised by the Corporate Affairs Commission and other independent observers.
Interestingly, while commenting on the sensitisation programme, NANS President, Usman Barambu, told the NNPCL team that Nigerian students were open to knowing more about the operations of the oil firm.
Knowing more about the operations of NNPC Limited requires it being more open and transparent. A major lesson to learn from Aramco lies in its transparency and good corporate governance.
Oil analyst, Kayode Oluwadare recently said that although Aramco has more oil assets than Nigeria, the issue of transparency has made Aramco so successful while the lack of it has worked against Nigeria as the oil business is shrouded in secrecy. The question of bad corporate governance also arises especially for the fact that salaries are being paid to the staff of refineries that are currently not in use. Currently, the NNPC Limited is spending a lot on overhead and personnel costs.
Historically, the NNPC, founded in 1977 as a state-owned corporation controlled by the Federal Government of Nigeria – is the entity through which the government controls and partakes in oil activities such as exploration, production and refining in the country. Opacity, lack of transparency and waste has characterized the national oil company’s 44 years of existence. In the last 10 to 12 years, NNPC has been run as the biggest clerical bureaucratic body in Nigeria in charge of managing oil and gas resources in the country. Since August 2022 when NNPC Limited was created, the structure has remained the same despite changes in names of its Autonomous Business Units and Strategic Business Units. Admittedly, the nomenclature of the company’s over-sized top management staff has been tweaked to reflect what is obtained in modern business organisations. In this regard, it’s widely believed that for NNPC Limited to rid itself off the “Old Wine in New Bottle” toga, a massive shakeup beyond cosmetic changes must be done.
According to Oluwadare, the issue of crude oil theft as well as pipeline destruction is yet another factor hampering crude oil production in Nigeria. He said that Saudi Arabia has been able to take advantage of the high oil prices resulting from the Russia-Ukraine war-linked market disruptions by maximizing production.
He said, “For perspective, a single field in Saudi Arabia (though its largest), the Ghawar field produces 3.8 million bpd compared to Nigeria’s total production that even dropped below 1 million bpd at some point in 2022.
“Also, Saudi’s large proven reserves enables the country to bring new oil production to the market compared to Nigeria that is struggling to increase its proven reserves due to falling investment in prospecting and exploration activities amidst other factors. It’s simply a game of numbers. The more oil you produce, the larger your revenue.”
Now for NNPC Limited to emulate Saudi Arabia’s Aramco in posting record-high earnings, it must overcome its shortcomings. It must be willing to cut costs and conduct its operations properly.