Malfeasance In NNPC: NAPIMS As Upstream Cesspool

To say this country has remained a theatre of absurdities is an understatement of the fact, if not how can you explain that the two topmost government officials managing our oil sector could not get themselves to agree exactly on what it costs the country to produce one barrel of crude oil.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Maikanta Baru, on Wednesday August 16, 2017 claimed his corporation has crashed crude oil production cost in the country to $23 per barrel.

Then barely 24 hours from the NNPC declaration being (Thursday August 17, 2017), the Minister of State for Petroleum, Ibe Kachikwu, told a gathering of major stakeholders in the country’s oil industry during the annual conference organised by the National Association of Energy Correspondents (NAEC) that the country’s “production of oil remains at about $32 per barrel.”

Does it mean that the Petroleum Ministry and the NNPC work with different cost templates or that the NNPC outrightly set out to deceive Nigerians by flaunting a figure that is way below what it actually spends to produce one barrel of oil in the country?

Obviously the gulf between the Ministry of Petroleum Resources and NNPC seems to have widened as manifested by the issue of the actual cost of producing one barrel of crude oil in Nigeria. If the two topmost government officials in the sector could publicly disagree, then without doubt, it is either there is a communication gap or supremacy tussle between Kachikwu and the NNPC GMD. Let just leave it there!

Whether we take the figure from the Petroleum Minister or the damage control figure from the NNPC,  there are serious issues that border on incompetence and malfeasance at the NNPC particularly in one of its strategic business units- National Petroleum Investment Services (NAPIMS) in arriving at this high production cost.

How could anyone rationalise that Nigeria is the third most expensive country to produce oil in the world with a production cost per barrel of crude oil put at about $32 when it is so easy to produce the commodity from all our currently producing basins?

Majorly, this high cost of production is tied to fraudulent execution of oil projects – a corruption supported by incompetence or rather insincerity of the NNPC/NAPIMS in negotiating agreements with International Oil Companies (IOCs). Although huge security cost due to community unrest and pipeline vandalism may be part of the contributory factors, even these also are tied to corruption and fraud in the NNPC system.

Production cost is the real beef of our oil revenue. While there is little or nothing Nigeria can do about the market price of a barrel of oil, a lot can however be achieved by addressing the cost of producing a barrel. The less NNPC spend per barrel the higher the margin for Nigeria for any given price of oil in the world market.

Let’s even look at the breakdown details from the cost template. As disclosed, oil producers in Nigeria pay $4.11 as taxes on a barrel of oil they produce, while $14.10; $9.81 and $3.97 go into capital spending, production costs, as well as administration or transportation cost.

Compare this to the US shale production with all its complicated fracking techniques and environmental issues, where $6.42 goes into taxes, while $7.56; $5.85; and $3.52 are used as capital spending; production costs; and administration and transportation.

Why should it be more expensive to produce oil in Nigeria than it is in the United States despite US use of expensive technology which combines horizontal drilling and a technique known as hydraulic fracturing to mine its Shale oil? There is no reason why Nigeria can’t produce one barrel of oil for $10- $15 if not for corruption.

Unfortunately incompetent and corrupt NNPC officials have continued to connive with oil multinational Joint Ventures (JV)/Production Sharing Contract (PSC) partners to swindle e the country by padding  exploration and production (E&P) budgets  the result of which is the abnormal high cost of production. This is an evil predisposition that has permeated the top hierarchy of NNPC especially NAPIMS- the the subsidiary vested with the power over the management of our nation’s investments and joint ventures in the oil and gas sector.

It has severally been said that NAPIMS and Executive Management of NNPC have been neck- deep in the terrible fraud depriving Nigeria of badly required revenue. Indeed, going forward, we should actually not only seek to bring down production cost, government must do all it can to stop the malfeasance in NNPC/NAPIMS by making some of the leadership of NNPC/NAPIMS (both serving and retired) tell us how they arrived at some of the dubious calculations because what is going on there is a pure scam and a huge one for that matter.

The entire idea of NAPIMS launching in-house anti-corruption campaign is a sheer waste of time and outright deceit. Without mincing words, NAPIMS cannot reform itself because the corruption problem in the organisation is not only endemic but systemic. Effective NAPIMS reform can only come from outside the organisation. The EFCC must go after all the former General Managers and Directors of NAPIMS. Conservatively, over $100bn must have been lost just in the last 10 years alone in dubious contracts negotiations.