By Gideon Osaka
The emergence of the new upstream regulator, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) from the defunct Department of Petroleum Resources (DPR), was one of the biggest and profound upstream changes introduced by the Petroleum Industry Act (PIA) signed into law in August 2021. Conceived as the upstream business enabler in the Nigerian oil and gas industry, the success or failure of the PIA was hinged on what the agency does or fails to do.
With Nigeria being an oil economy, it is expected that when the upstream subsector of the industry is sick, the ailment apparently will affect the wellbeing and the health of the entire country. This presupposes why there’s needed to be a vibrant and responsive upstream regulator.
No doubt, the Commission was birthed at a critical and important time in the life of the industry when heightened debate about fossil fuels and cleaner energy vis-à-vis the need for Nigeria to raise the bar on crude oil production and gas from the current levels, dominated local and international energy discussions.
Before the inception of the commission, the challenges that bedeviled the country’s oil and gas industry were complex and multi-pronged, ranging from waning investments, dilapidating infrastructure, dipping oil production, inadequate technical know-how, opacity, insecurity of physical assets, community issues, among others. Reserves hovered around 37 billion barrels comprising oil and condensate and 200 trillion cubic feet (tcf) of natural gas. Oil production declined to an average of 1.6 million barrels per day (bpd).
As a business enabler, it was eagerly anticipated what adaptive actions and regulatory directions the NUPRC would contemplate to solve these teething challenges. All eyes were on how the Commission would lay a solid regulatory foundation and build a 21st century regulator anchored on the principles of efficient and effective services, transparency and professionalism.
Upon inauguration, the Commission immediately identified priority initiatives it was going to executive to raise the country’s crude reserves from 40 billion barrels and crude oil production from 1.6 million bpd to about 2.4 million bpd in months for optimized federation revenue. Part of the measures it planned to undertake was the initiation of Public, Private, Partnership (PPP) involving security agencies, private operators and other stakeholders. In acknowledgement of the current energy transition, the NUPRC also listed some initiatives aimed at driving Nigeria’s compliance to the global clean energy objective. Among the measures were to aggressively implement the Nigerian Gas Flare Commercialization Programme (NGFCP), and ensure that all approved Field Development Plans (FDPs) incorporate full gas utilisation and monetisation programmes. Others are the introduction of regulations that would ensure new exploitation and production projects include decarbonisation elements to further attract foreign investments. The Commission also planned it would collaborate with sister regulatory agency, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDRA), and the government owned industry player NNPC Limited to encourage investment in refining and gas-based industries.
On track to fulfilling mandate
Six months down the line after the creation of the upstream regulator, how has the Commission fared. Is the NUPRC on the path to fulfilling the objective of its creation by the PIA as the upstream business enabler and a driving force that will oversee the technical implementation of the PIA?
In the light of the above, the recent announcement of the scorecard of the Commission by its Chief Executive, Engr. Gbenga Komolafe may have put to rest the doubts and concerns of industry operators about the capacity of the Commission to accomplish the mandates the PIA has placed on her.
First is that the proactive initiatives undertaken by the Commission since assumption of duty six (6) months ago has witnessed the enhancement of country’s crude oil and gas production, taking advantage of current market realities such as the upsurge of crude oil prices to the average of $106.25 per barrel and disruptions in the supply of gas due to the war in Ukraine.
According to the NUPRC boss during the scorecard presentation of the Commission in Abuja, Nigeria’s oil reserve grew by 0.37 per cent in the past one year to hit 37.046 billion barrels from 36.910 billion barrels. The Commission said that natural gas reserves also grew by 1.01 per cent to 208.62 trillion cubic feet from 206.53tcf reported a year ago. Engr. Komolafe explained that the latest reserve figures were based on reports filed by 61 operating companies as at January 1, 2022.
Shedding light on the initiatives to further enhance crude oil production (from 37 billion barrels and 208.62 TCF), the Commission said it had become more deliberate and swifter in implementing strategic actions and initiatives aimed at increasing the country crude oil and gas reserves and production. Hence, a massive campaign dedicated to the identification of oil and gas wells producing below capacity as well as identifying poorly performing wells for quick intervention has commenced. On initiatives to enhance gas production, the Commission noted that the conflict between Russia and Ukraine and its attendant disruption to the global gas demand-supply chain has provided Nigeria with a unique opportunity to fill this gap through the implementation of several natural gas developmental initiatives. As the Federal Government has declared the years 2021 – 2030 as the Decade of Gas, the Commission said it was taking steps to expand and develop the nation’s huge gas resources through enhanced gas exploration, development and utilization schemes, which will lead to gas reserves growth, increased gas production, maturation of domestic and export gas market, as well as gas flare elimination. The Commission is currently engaging all lessees on their Natural Gas Flare Elimination and Monetization Plan to ensure compliance with Section 108 of the PIA and to boost supply to the rapidly growing gas market.
Currently, Nigeria produces about 8 billion standard cubic feet per day (scf/d) of gas, out of which circa 20% is delivered to the domestic market, approximately 40% is exported to international markets, and 30% is utilized for producer’s internal consumption.
Other initiatives being implemented by the Commission to increase gas production and utilization include: Commencement of mandatory conduct of gas well deliverability tests for all gas producers to establish operating limits; Constant engagement with operators on the need to drill below the conventional oil window to target gas rich zones for production and increase the nation’s gas reserves and implementation of the provisions of the PIA 2021 on Gas Flare Elimination and Monetization, as a means of unlocking more gas availability to the market.
On initiatives to curb crude oil theft which recently has become a huge drain on the operations of local and international producers in the country, the Commission has evolved additional initiatives and collaboration with oil and gas operating companies (including NNPC) and the top echelon of Nigerian Security Forces to put an end to the menace of crude oil theft: One of the initiatives is the commencement of full-scale audit of crude oil theft to establish actual theft figures in the upstream sector. This is very important as the nation derives its royalty from net crude oil receipts. The Commission has also obtained necessary approvals to Implement Advance Cargo Declaration regime to curtail export of stolen crude oil, ensuring that Crude Oil and Gas cargoes exported from Nigeria will have a unique identifier that confirms all documentation as regards the exported consignment. Lastly, the Commission has obtained necessary approvals to ensure installation of metering equipment (LACT Units) in the upstream petroleum industry using Original Equipment Manufacturers (OEMs) to avert potential manipulation of figures that could result in shortchanging the Federation of oil and gas revenue.
On the status of the 2020 marginal field bid round, the Commission said it has prepared Model Licences and Leases, and delineated 57 areas of Marginal Fields awarded following the 2020 Marginal Field Bid Round. These initiatives will facilitate issuance of Petroleum Prospecting Licences to the Marginal Field Awardees that formed Special Purpose Vehicles (SPVs) as required in the 2020 bid round guidelines, leading to early Field Development Plans (FDPs). So far, the NUPRC on behalf of the Federal Government has realized N174 billion via signature bonus from the bid round. However, the bid round is far from being concluded as the Commission had, in a recent public notice, indicated that some of the winners of the assets (31 companies) could not pay the signature bonus fee, prompting the withdrawal of the award letters.
Existential threats
The achievements recorded by the regulator in the last six months of its existence seem to be overshadowed by strings of challenges that still weigh the upstream petroleum industry down. The NURPC needs to quickly do all it can to ensure that operators ramp up production and boost federation revenues at this time of high international oil prices. The federal government is targeting to add 800,000 barrels to Nigeria’s daily oil production from some important upstream projects being executed by Shell, TotalEnergies, and other oil companies. Some of these projects include the Preowei project, the Bonga South West Aparo project, the Bonga North project, and a host of others. Some of these projects had stalled due to funding and other reasons and there seems to be uncertainty if the projects would sail through in the current regime.
Nigeria has been grossly underperforming in oil production, with Africa’s largest oil producer failing to meet its production quota by the Organisation of Petroleum Exporting Countries (OPEC) for many months running. Despite the country’s 37 billion oil reserve, its production hovered abysmally low at 1.5 million per day, against the country’s normal 2.2 million bpd capacity. The poor production performance had been blamed on multiplicity of factors, including massive oil theft, non-starting of oil platforms, underinvestment, and divestment by the international oil companies (IOCs).
Some other lingering issues include oil theft, which has become a very worrisome one to the government, investors and regulators. More worrisome, is that in recent times, there have been conflicting positions as to what is really happening in the upstream. As a responsible regulator, there’s need to agree on the way forward. The Commission must be determined to end the menace so that the country can benefit from the rising price of oil and also be able to protect the environment from oil spills.
The current divestment program by Shell and Exxon Mobil from onshore and shallow water assets in Nigeria gained significant traction in the first quarter of 2022 and may be concluded by the end of this year. Although divestment is an opportunity for local oil companies to acquire and strengthen production output, stakeholders are concerned about the negative impact of the exits by the IOCs. How well the upstream Commission, which has a critical role to play in managing the divestment from onshore and shallow waters of a number of the International Oil Companies (IOCs) this year, will also be very important.
Other matters which the operators have listed as concerning are the need for government to quickly activate and meet the timelines in certain areas of the PIA and uncertainty over issues like the Production Sharing Contracts (PSCs) that are being renegotiated and how the PIA affects them.
In addition, stakeholders have always complained that getting information from the defunct DPR was almost an impossible task as well as publishing the results of its environmental assessment in a transparent manner. Under the new leadership, openness must be the watchword.