Lubricating Nigeria’s Economy through enforcement of ‘Drill Or Drop’ policy in the oil sector

By Akpandem James

Nigeria keeps hoping that its economy will improve. The Federal Government seems desirous of a vastly improved economy as it keeps tweaking the drivers and pushing the enablers to ensure that the economic fundamentals assume a sustainable upward trajectory. For some decades now the country has been hedged in a mono-cultural economy, largely managed by proceeds from hydrocarbon resources. Other sectors that could do better to fundamentally drive the country’s gross domestic product (GDP) to higher levels are distressed. Because this has been the case, whenever the petroleum sector sneezes, the country catches cold.

In terms of GDP crude oil does not contribute substantially for now (about 9%), but it remains the major working capital and lubricant for the country’s economy which is largely import-dependent. This underscores the need for drastic steps towards optimum performance in the hydrocarbon sector as the country continues to battle the challenges of reviving and broadening other revenue streams. Even in the diversification pursuit, Nigeria needs oil, the most readily available resource, to free itself from a dominantly oil-propelled economy and launch out into a more resilient and sustainable growth landscape.

Therefore under-production and under-delivery in the petroleum sector could pose major upsets in a struggling economy whose major source of foreign exchange earnings (about 90%) is proceeds from hydro-carbon exploitation. A transactional approach to the challenges of the oil and gas industry is not likely to help matters. It could send the economy into a tailspin and re-enact the 2016 scenario, with long-term implications. A transformational approach to grow oil and gas reserves, enhance security and streamline accounting processes in the sector seems a more pragmatic means of achieving better returns and a veritable route to faster and more sustainable economic growth and shared prosperity.

In 2016 Nigeria’s economy slipped into a recession. Although the slide was caused by exogenous shocks triggered by the global slump in oil prices, the major reason was the massive reduction in output caused by disruptions in oil operations by non-state actors in the country’s oil-bearing regions. In the following years, vandalism coupled with massive oil theft posed a major threat to the country’s economy. While disruptions by militants affected production levels, theft of crude by vandals greatly affected financial returns.

In spite of several efforts, both kinetic and non-kinetic, to address these challenges, the last is yet to be heard of the menace. Their persistence and scourge triggered a wave of regulations and actions to salvage the sector from the vicious grip of vandals and cabals. It compelled a trained focus toward reducing disruptions and pursuing production levels that can buoy the economy and keep it afloat until the cylinders of other economy enablers, like agriculture and manufacturing, start firing again.

As a matter of fact, the country’s economy has been structurally weak for decades; but to jettison that narrative and build a resilient economy that is globally competitive, it bears repetition that concerted efforts are mandatory to deal with the challenges in the petroleum sector while enabling the drivers of other sectors like agriculture, manufacturing, mining, services, construction and tourism. This requires diligent interrogation of the reasons for the slump and the focused implementation of strategically-reviewed prescriptions. The initial steps may bring knocks and pain, but the deliberate implementation of the remedies could trigger a chain of outcomes that may soothe the pains and bring lasting relief to the economy and the people.

The Petroleum Industry Act of 2021 was therefore a major step forward in the repositioning process in the oil and gas sector. The Act has an overriding intendment of entrenching a stable business environment with a clear regulatory framework that assures investors of profitability and guarantees sustained investment in the nation’s huge hydrocarbon resource. It aims to use the petroleum sector to jumpstart the country’s economic and industrial growth for shared prosperity. One of the creations of the Act is the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) saddled with the responsibility of ensuring compliance with laws, regulations and guidelines governing operations in the upstream oil and gas sector.

In consonance with the desire for a greater and responsible level of activities in the sector for enhanced productivity and increased revenue, the NUPRC is already pursuing its key mandate of growing oil and gas reserves, optimising production, enhancing oil and gas revenue, ensuring transparency in hydrocarbon metrics, facilitating smooth operating environment and developing frontier basins. It is not likely that these mandate areas can be effectively achieved without stringent regulations that align with global best practices and capable of arresting the menace bedevilling the sector. Without stemming the unrest and plugging leakages, efforts at growing reserves and increasing productivity would largely go down as wasted.

Just as there was a need for strong regulations, there was also an urgent need for an effective accounting system through a metering process that would indicate online real-time daily production levels, the volume being sold and where the proceeds are going. The cheering news is that the Commission has made tremendous progress in those directions and is focusing on the host community development trusts to deal with issues that often draw battle lines between host communities and operators, resulting variously in low productivity and huge revenue losses.

The efforts seem to be yielding results as reserves are growing and theft levels are falling. It might take some more time to reflect in terms of massive production levels, but at least there is an observable level of stability in the sector. It is still a work in progress as both crude oil and condensate production have so far not reached the 2024 budget benchmark of 1.7 million barrels per day (mbpd). Available data show that in January, February and March the total volumes of crude oil and condensates produced were 1.643mbpd, 1.539mbpd and 1.438mbpd respectively. And, in April and May, OPEC reported 1.28mbpd and 1.25mbpd respectively. The January figure indicated the third consecutive month of steady increases which were within range of the OPEC quota of 1.5mbpd.

On the surface, it looks as if recent production levels are declining, but OPEC acknowledged in its recent monthly report that generally crude oil output increased in Nigeria, Gabon and Equatorial Guinea from what it used to be in the recent past. The same could not be said of Saudi Arabia, Kuwait, Libya and Congo. Nigeria remains Africa’s largest oil producer. A number of factors contribute to the seemingly declining levels, including realignment of some corporate governance issues and comprehensive maintenance services being carried out by some major operators.

It has been observed that within the last one year, decisive steps have been taken to boost production levels. This includes the Presidential Executive Orders issued in March this year, which aim principally at improving the efficiency and attractiveness of Nigeria’s oil and gas sector, incentivising oil and gas development and ensuring that local content bottlenecks do not hinder oil and gas development. It also includes directives on reducing contracting costs and timelines to enhance the global competitiveness of the oil and gas industry and in the process achieve a higher rate of return on oil and gas investments.

In a bid to unlock Nigeria’s vast hydrocarbon potential and attract investments that would propel Nigeria towards greater economic growth and shared property of the stakeholders, the NUPRC beginning late last year started a process for another oil bloc licensing round. At a pre-bid conference in Lagos on June 11, 2024, to explore the opportunities in the 2024 Licensing Round, the NUPRC Chief Executive (CCE), Engr. Gbenga Komolafe, told stakeholders that Nigeria has embarked on a transformative agenda that aligns with the most stringent global standards and commitments, in its bid to chart deliberate pathways to a collective energy future as the country progresses through an era of unprecedented challenges and opportunities. The commitment to these standards seems to be pitching industry players who have been used to the business-as-usual climate against the Commission’s management which is now bent on strictly implementing them.

On Tuesday, June 18, 2024 Engr. Komolafe hinted that in pursuit of the Commission’s abundant oil and gas reserves and increased production, his team has been working relentlessly with multi-client companies to undertake more exploratory activities to acquire more data to foster and encourage further investment in the Nigerian upstream sector. Additional data acquired from that exercise yielded another 17 deep offshore blocks which have been added to the 2024 licensing round.

However, growing reserves in terms of fields’ allocation is just one move towards increased productivity, but the major issue is driving the productive capacity of the fields. Unfortunately, some operators who had been allocated mining leases in the past are still sitting on them years after without getting them into production. This is pure sabotage, especially for a country facing severe revenue challenges. It has been going on over time and it is that indulgence that the ‘Drill or Drop’ provision in the PIA is meant to cure. Either a licensee puts allocated fields into productive use or forfeits them. The industry regulator now has the backing of the law to enforce it. Diligent implementation is sure to meet with some resistance but the regulator has a responsibility to revoke some of the dormant oil field licenses and release the detained wells to those with the required capacities to drill them.

It is unfortunate, that some privileged persons act as speculators. They get oil licences and win bids only to either lock the fields down for self-serving reasons or sell them off to entities that lack the capabilities to develop them. The fields then lie fallow with the consequent declining barrel yields and low returns from crude, compounding the country’s revenue situation in the process. But the country needs revenue. Such entitled persons should not be allowed to continue to sit on covered wells while the country’s revenue streams run dry. Nothing should be spared in harvesting revenue wherever there is potential, damning every resistance from economic saboteurs of whatever hue.

It must be made clear that the Drill or Drop policy is a provision of the law and not a unilateral move by any individual. The industry regulator is duty-bound to ensure compliance in the overall interest of the country, even if it means revocation of any idle license. It should expect some push-back, including blackmail, from the cabals and their cronies, but it must stand its ground, with the law as its armour.

James is a Fellow of the Nigerian Guild of Editors