FG’s Disclosure: 23 Oil Blocks Remain Non-Productive In 2021

Date:

The Federal Government has made a revelation regarding the oil industry. In its latest report for the year 2021, the Nigeria Extractive Industries Transparency Initiative, NEITI, a government agency, has unveiled that a total of 23 oil blocks, managed jointly by international and local oil companies under Crude Oil Production Sharing Contracts, PSCs, with the Nigerian National Petroleum Company Limited, NNPCL, have failed to yield any crude oil throughout the year.

PSCs are contractual arrangements which oil companies undertake the financial responsibility for exploration, development, and petroleum production within specific concession areas; all within a predetermined time frame. In the event of success, these companies are obliged to pay Petroleum Profit Tax, royalties, and other government-related bonuses and levies. The companies also have the privilege of recovering their operational costs through a mechanism known as ‘Cost Oil.’

Additionally, these companies pay Petroleum Profit Tax and royalties in-kind, using NNPC’s system for the lifting of crude oil and gas to cover taxes, royalties, and profit oil, shared according to predetermined ratios before being sold and remitted to designated accounts. These accounts may include the Federal Inland Revenue Service (for taxes) or DPR (now NUPRC) accounts (for royalties). Profits from oil sales are directly sent to the Federation Account.

PSCs play a pivotal role in alleviating the government’s financial burden since the oil companies assume the costs of exploration and production. The NEITI Report for 2021 disclosed that only 12 of the PSC oil blocks were productive; while 17 failed to produce, and an additional six were categorized as inactive. The combined total of inactive and non-producing oil blocks during the review period amount to 26.

Prominent PSC contractors who did not extract crude from selected blocks include Esso E&P, Nigerian Agip Exploration, Shell Nigeria Exploration and Production Company, Texaco Nigeria Outer Shelf Limited, Star Deep Water Petroleum Limited, Statoil Nigeria Limited, and others. Meanwhile, contractors overseeing the six inactive PSC blocks included GEC Petroleum Development Company Limited, Nigerian Agip Oil Company, Monipulo Limited, and Esso Exploration and Production Limited.

The NEITI report emphasised that “Only 12 (34 percent) of the PSC blocks recorded production, while 23 other blocks, representing 66 percent of the total number of PSC blocks, did not produce.” In terms of production volumes, the PSC arrangements contributed 42.92 percent to the total production of 566.13 million barrels in 2021, despite only operating 34 percent of the allocated blocks.

To address this issue, NEITI recommended that the Nigeria Upstream Petroleum Regulatory Commission and NNPC Ltd expedite a review of the technical, operational, and other constraints hindering production from these idle PSC blocks; with the aim of optimising production from the PSC agreements. If these issues cannot be resolved, the report suggests considering the revocation of licenses and allocation to other interested parties.

NNPCL responded to the situation, explaining that PSC blocks transition from exploration or appraisal phase to production over time. They also noted that some of the blocks are still at award status, as some contractors may not have come forward for budget or work programs due to various reasons, from regulatory to business operations considerations. The NNPCL expressed optimism that two to three blocks would soon achieve production status.

The Federal Government collaborates with both indigenous and foreign oil companies to explore and produce Nigeria’s crude oil; leveraging the high technology demands of the industry, with PSCs representing a significant aspect of this partnership.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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