The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) is targeting a ramp up of the country’s crude oil output through its routine, technical process engagement with oil producing companies.
Shut in wells are interrogated, reservoir surveillance is scrutinized and enhanced recovery methods are vigorously embraced, the agency says.
“The Commission recognizes that the formulation of all-inclusive strategies to increase crude oil and gas reserves requires thorough consideration of all factors militating against efficient and effective exploration and production operations”, says Gbenga Komolafe, CEO of the NUPRC.
In the six months since he took charge of the new regulatory commission, a creation of the Petroleum Industry Act, “we have become more deliberate and swifter in implementing strategic actions and initiatives aimed at increasing our crude oil and gas reserves and production”, Komolafe explains, adding:
“The Commission has initiated a massive campaign dedicated to the identification of oil and gas wells producing below capacity, through:
Inventorisation of shut-in wells and analysis of the inventory to map the reasons for shut-in and devise measures for quick reopening;
Using well and reservoir surveillance activities in identifying poorly performing wells and workover candidates for quick intervention;
Embracing and adopting new technologies and advanced recovery techniques for unlocking some identified stranded oil and gas resources”.
Chevron Corporation has announced a simplified organizational structure and senior leadership changes intended to strengthen execution and pace to deliver on the company’s objectives of higher returns and lower carbon.
“Effective October 1, 2022, the company will consolidate its Upstream, Midstream and Downstream business segments under a new executive vice president, Oil, Products & Gas, who will oversee the full value chain. As part of this change, the company is consolidating into two Upstream regions – Americas Exploration & Production and International Exploration & Production”, the oil major says in a release.
The company is also organizing its Strategy & Sustainability, Corporate Affairs and Business Development functions under a new executive vice president, Strategy, Policy & Development.
“The changes build on the company’s enterprise-wide transformation in 2020, which has produced improved operational and financial results. The new leadership structure is expected to enable a more integrated approach to capital allocation, asset class excellence and value chain optimization, and facilitate more effective external engagement and business development impact”, the release states.
“We’ve made significant progress over the last two years, and these changes position us to further enhance execution across all aspects of our business as the energy system evolves,” declares Mike Wirth, Chevron’s chairman and chief executive officer. “It will also bring strategy, policy and business development into tighter alignment as we focus on leveraging our strengths to deliver lower carbon energy to a growing world.”
The company made the following personnel appointments, effective October 1, 2022:
Mark Nelson was named executive vice president, Strategy, Policy & Development
Nigel Hearne was named executive vice president, Oil, Products & Gas
Clay Neff was named president, International Exploration & Production
Bruce Niemeyer was named president, Americas Exploration & Production
Balaji Krishnamurthy was named vice president, Chevron Strategy & Sustainability
In addition, the company made the following personnel announcements:
Jay Johnson, executive vice president, Upstream, was named executive vice president, senior advisor, effective October 1, 2022, and will support the transition until January 31, 2023. Mr. Johnson has more than 41 years of service to the company.
Jay Pryor, vice president, Chevron Business Development, will retire after more than 43 years of service to the company, effective July 29, 2022.
Steve Green, president, Chevron North America Exploration & Production, will retire after more than 24 years of service to the company and its predecessors, effective September 30, 2022.
“I’m confident that our new team will continue to effectively lead the company in delivering the affordable, reliable and ever-cleaner energy that enables human progress,” said Wirth. “Their contributions will be essential in enabling us to advance our objectives of higher returns, lower carbon.”
Reflections on My 20 Years of Building Oil Companies
The military juntas who ruled Nigeria between 1966 and 1999, combined the worst of the world’s two main ideological persuasions; communism and capitalism, which sharply opposed each other until the collapse of the Berlin Wall in 1989.
Nigeria’s dictators ruled by enforcing state control of the levers of economic activities; they encouraged poor taxation practices and neglected “the big four”. Their dysfunctional reign led, inexorably, to a predictable collapse of the economy.
Western economies, where free enterprise have taken root, have enjoyed the benefit of building a culture of tested governance and regulatory structures over a long period of time; a culture that has supported entrepreneurship and wealth creation in those countries. So, a twenty-year-old Mark Zuckerberg could create Facebook and build it along “traditional” governance structures that supported its growth into the behemoth it is today. Conversely most businesses in Nigeria struggle to survive their founders.
Using Seplat Energy as an example, in the Nigerian oil and gas industry, we shall examine a few case reviews:
Regulation and the Reward System
Regulatory effectiveness is very critical in a free-market economy as it supports fair competition, rewards efficiency, punishes bad and illegal practices and generally promotes value creation. In Nigeria, and in our industry, sometimes you get punished for doing the right thing and too often your competitors smile home with higher rewards because they are allowed to cut corners.
The assets that Nigerian independents bought from Shell between 2010 and 2013 (about thirteen leases in total) were all due for license renewal in 2019. Historically, the fee is a discretionary nominal sum imposed by the Minister of Petroleum Resources. This time, the regulator decided to calculate the fee based on reserves.
When Seplat Energy bought our asset in 2010, the working interest 2P reserves was 71MMBO. By 2018, after spending some $3Billion, we had increased operated production from 14,000BOPD to 65,000BOPD and quadrupled reserves to 283MMBO. Our competitors who acquired assets with three times our reserves size, but who had done nothing to increase production or add to their reserves ended up paying the same renewal fee as us! We were punished for our exemplary investment drive and efficient operation of our asset, leading to substantial value addition. You would have thought that as reward for our efforts, and as incentive to motivate others, our renewal would have been practically free.
Under our strict governance rules at Seplat Energy, we pay all our statutory dues promptly (royalty, taxes, lease rentals, flare penalty and even debt service obligations). Sometimes you wonder what benefit you derive from being this prudent when your competitors get away with failure to make these payments, sometimes for years. While you are struggling to balance your books, your less efficient competitors are awash with cash.
We have very stringent governance rules about related party transactions (RPT’s). They must be fully disclosed and contracting with related parties must be at arm’s length. In fact, effective the end of this year, RPT’s have been banned entirely. However, the reverse is the case with most of our peers. Subsidiary companies of the operator, or companies owned by the Operator’s principals execute all the contracts, ostensibly at outrageous costs. Of course, due to extremely high operating and capital costs, the operating company is perpetually in the red and liable to only minimum taxes. All the financial rewards are taken up-front at the level of rendering services and executing contracts. The efficient company like us becomes the ultimate loser.
When an institution is faced with a major crisis or where its survival is at risk, the INEDs are the first to jump ship, or blow the whistle on the company. The company collapses, they save their “reputation” and move on to take even bigger board seats on account of the reputation reinforced by their role in pushing the company over the cliff.
All of these anomalies happen, are in fact prevalent, because of a business and regulatory environment that is steeped in corruption, nepotism and sometimes just sheer incompetence. In almost all cases, those who cut corners find it easier to obtain regulatory approvals.
Even in cases of asset divestments by IOCs, they are acutely aware that a critical element of the sale process is obtaining government approval. A lot of times they are forced to bend their own rules to accommodate a bidder that is perceived to have the backing of those who will give the approvals. We have been involved in transactions where we ticked all the boxes (particularly in demonstrating ability and readiness to pay) and another party is chosen who is unable to pay.
Between 2014 and 2016, we had over $750Million tied down on two assets that we paid for but could not secure regulatory approval for. Eventually we had portions of these monies refunded to us, but over $200Million remains unrecovered till date.
But, perhaps the most injurious government segment to productive entrepreneurship and the entrenchment of good corporate governance in Nigeria is the judiciary. Too often, the judiciary has become a valuable tool in the hands of those who cut corners to hunt, harass, or simply torpedo the activities of genuine entrepreneurs working to create lasting value.
After we won Oil Mining Leases (OMLs) 53 in a bid conducted by Chevron in 2013, a bidder who did not win sued the sellers and held all of us to ransom for two years through an injunction they obtained. We fought all the way to the Supreme Court just to vacate the injunction! It took another three years to finally extinguish the case. Usually, the suing party has very little to lose, other than legal costs, while you have hundreds of millions of dollars tied down in an asset you cannot take possession of because of the court’s injunctive orders. Even a simple trade dispute could result in a court shutting down your offices or blocking all your bank accounts. The sheer knowledge that your investments can be totally destroyed by some treacherous judicial pronouncements, corruptly procured, can make even some brave investors avoid environments like ours.
So, if it is much more rewarding to do the wrong thing, why have some of us continued to insist that there is no alternative to sound corporate governance in any entrepreneurial journey? This is because of my firm belief in “the thirty-year rule”. Any business enterprise that is not built on firm and tested governance structures will ultimately fail within thirty years. In geographies where regulations are firm and effective, it would take no more than five years for such businesses to unravel. In Nigeria, it takes as long as thirty years because of the weaknesses I highlighted earlier, but happen it must eventually.
The banking sector is the most glaring example. We went from 126 banks to 24 in twenty-five years. When the smoke cleared only those that had adopted some measure of good corporate governance survived. The top five are now major African Banks. In the upstream oil and gas sector, the dominance of seven international oil companies is being replaced by a motley crowd of over twenty Nigerian independents. This transition kicked off about eleven years ago. My observations over this period of time only reinforce my thirty-year rule. I can confidently predict that, in the next ten to fifteen years, the ones that fail to build a culture of proper corporate governance will drop off the race. Their promoters might amass a lot of wealth, but the businesses themselves will collapse.
Let me now, in my final reflections, discuss two key elements of a proper governance structure which, in some cases, present some contradictions.
The first is the CEO/Chairman conundrum, which I believe is not unrelated to our culture of “the king and his subjects”. The UK Code of Corporate Governance as well as the Nigerian, revised Governance Code, require a clear separation of roles and powers between the board and management as between the Chairman and CEO for all public companies. However, very often, the Chairman turns out to be the “big man” with a large ego who perceives himself as the big boss to whom the management team, led by the CEO, reports.
The board is responsible for the strategic direction of the Company and supervises management performance using the appropriate governance structures in place. But very often the chairman assumes the clothing of the board, with the CEO reporting to him, as he takes on several executive decision-making roles. This has often led to unproductive tensions and power plays between the CEO and Chairman. And because of the level of control the Chairman usually has on the board, he is able to rally the board behind him in such power plays. Not surprisingly, where there is a loser, it is often the CEO.
In my ten years at Seplat Energy, I probably spent up to 20% of my productive time managing my relationship with the Chairman, and in some cases by extension, my relationship with the board.
The second is the role and powers of the independent non-executive directors, (INEDs). There are three broad classes of directors: Executive Directors are the most senior management staff who sit on the board. These are usually the CEO, and a couple of other top management staff like the CFO, COO, Commercial director, etc. Then there are the Non-Executive Directors who, very often, are representatives of key shareholder groups on the board. The third class are the INEDs who have no equity stake in the company, are not related to any key shareholder and have no business relationship with the Company.
For a premium listed company in the UK, only an INED is recommended by the governance code to be Chairman of the board. Even for a standard listed company, where a non-executive director may be chairman, the key board committees of Nomination, Remuneration and Finance must be chaired by INEDs. The senior INED (SINED) is generally seen as the conscience of the board and protects the interests of minority shareholders. Where the Chairman is not an INED, the regulators and minority shareholders hold the SINED in higher trust than the chairman. This is all because the whole governance code is designed to save the company from insider abuse by the key owners and the management. But herein lies the contradiction. Who is more likely to “shed his blood” to save an institution… the one with significant vested interest or the one whose only interest is to save his reputation?
Why have some of us continued to insist that there is no alternative to sound corporate governance in any entrepreneurial journey? This is because of my firm belief in “the thirty-year rule”. Any business enterprise that is not built on firm and tested governance structures will ultimately fail within thirty years.
In particular, when an institution is faced with a major crisis or where its survival is at risk, the INEDs are the first to jump ship, or blow the whistle on the company. The company collapses, they save their “reputation” and move on to take even bigger board seats on account of the reputation reinforced by their role in pushing the company over the cliff. True, their judgments at major decision-making gates are generally more balanced and unbiased, but I have never seen them to be as deeply committed to the survival and prosperity of the company as the NEDs who have a stake to worry about.
Excerpted from ‘My Entrepreneurship Journey’, a Memoir by Austin Avuru, founding CEO, Seplat Energy. The book is due to be published in August 2022 by Radi8 Publishers.
Seplat Energy is still unable to start pumping its crude through the Amukpe-Escravos Pipeline (AEP), its hoped-for alternative to the troubled Trans Forcados Pipeline.
The company says that the facility is mechanically completed and “all commercial terms have been agreed “, but the process of getting to pump the fluids through the line is “moving through counterparty approval processes for signature”.
Now, after several delays, the pipeline is “expected to be fully operational by end of Q2 2022”, according to an operational update.
Seplat Energy, bitten by lower than anticipated output as a result the suboptimal evacuation of crude along the TransForcados pipeline, is anxious to start pumping through an alternative route, or at the least, have an alternative route as a standby.
Its operations produced 47,693 barrels of oil equivalent per day (BOEPD) on a working interest basis in 2021, down from 51,183BOEPD in 2020, mainly resulting from shut-ins of the Trans Forcados Pipeline System (TFPS).
The company has thus been canvassing for the Amukpe-Escravos Pipeline as an alternative since 2017, but the construction of the line, begun by the NNPC/Pan Ocean JV in 2012, has simply dragged.
Nigeria’s crude oil and natural gas reserves have grown year on year, despite the above surface challenges of vandalism of crude evacuation pipelines and lower overall investment in the upstream sector, which have crimped output.
The country’s crude oil reserves rose by 0.37% in 2021 and the natural gas reserves were topped by 1.01% in the same year.
The reserves are collated by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) from annual reports of operating companies.
Gbenga Komolafe, Chief Executive of the NUPRC announced the National oil and gas reserves position as of 1st January 2022 in line with the provisions of Sections 7 (i), (j), (k) and (r) of the Petroleum Industry Act (PIA) 2021 “which stipulates that all operating exploration and production companies are to submit their annual report of reserves to the Commission.
He said: “A total of sixty-one (61) operating companies submitted their 2021 annual report on reserves in line with the provisions of the Petroleum Industry Act (PIA, 2021)”, declares “Analysis of the report indicates that the Nation’s oil and condensate reserves status as at 1st January 2022 was 37.046 Billion barrels representing a slight increase of 0.37%, compared with 36.910 Billion barrels as at 1st January 2021. On the other hand, the National Gas reserves status as of 1st January 2022 was 208.62 (trillion cubic feet) TCF, representing an increase of 1.01% compared to 206.53 TCF as at 1st January 2021”.
Crude oil output is back up in Maurel et Prom (M&P operated Ezanga Permit onshore Gabon, after the restoration of the export capacities of the permit, restricted since the incident which occurred on April 28, 2022 at the facilities of the Cap Lopez oil terminal operated by Anglo-French independent Perenco.
The restriction had been called up after some 300,000 barrels of crude leaked from a storage tank operated by Perenco in the terminal. Perenco immediately declared a situation of force majeure and moved to contain the leak, the company said in a statement. “Instead of the oil at the Cap Lopez terminal entering the sensitive coastal ecosystem, the crude leaked into retention tanks on 28 April, Perenco noted in a statement.
M&P now reports that export capacities have reached an initial phase of around 10,000Barrels of Oil Per Day (BOPD), which has allowed it to gradually restart the wells. The end of export restrictions and the return of production to its level prior to the incident (gross production of approximately 19,000BOPD) are expected within days.
M&P had earlier had to gradually reduce its production on the permit as a result n incident that occurred on Thursday 28 April at the facilities of the Cap Lopez oil terminal operated by Perenco and the suspension of its reception and export activities, The resumption of production on Ezanga back to its normal level could take place in the coming days. Alternative export solutions are also already being reviewed, in order to accelerate the return to normal production of Ezanga if necessary
Sustained high commodity prices and increasing oil and gas supply are set to push upstream sector payments to governments to an all-time high of $2.5Trillion this year, smashing the previous record of $2.1Trillion set in 2011, Rystad Energy research shows.
Saudi Arabia is, unsurprisingly, set to top the table in terms of total cash flow to government from the sector this year, followed by the US and Iraq, with the top 10 list dominated by Middle Eastern producers. Government take varies considerably between nations, however, with Norway and Iraq seeing an average take per produced barrel of oil equivalent (boe) of around $100, while for the likes of the US and Canada the figure is below $20 per boe.
Total tax income in 2020 was just above $600Billion as low oil and gas prices and production cuts due to the outbreak of the Covid-19 pandemic early in that year sent such income to one of the lowest levels this century. Total tax income increased last year to $1.4Trillion, with higher commodity prices being the main driver behind the rise.
“The leap to a record high in revenues is being driven by a combination of high oil and gas prices and lower costs. A year ago, it looked like the era of trillion-dollar revenues might have been behind us. Today it is clear that we are heading into a super cycle that will benefit petrostates. These record revenues present an unparalleled opportunity to diversify economies,” says Espen Erlingsen, Head of Upstream Research at Rystad Energy
Saudi Arabia will be the largest beneficiary in absolute terms and is expected to receive just above $400 billion from its cornerstone industry this year, an increase of almost $250Billion from 2021. The US, when including royalties paid to private landowners, takes second spot with around $250Billion paid to government, an increase of $100Billion compared to 2021. Iraq follows with about $200Billion in total tax income, a doubling of its income compared to 2021.
Norway’s position in fourth comes despite being only the tenth-largest oil and gas producer globally and the government will receive revenues of around $150Billion in total tax income. This is due to European gas prices, low levels of cost and large government ownership driving this achievement.
By the barrel
One way to measure the tax pressure for the different countries is to look at the average government take per produced barrel. This measures how much money is flowing to a particular government per produced barrel, here including both oil and gas. There are several drivers for this metric, including costs levels, oil price discounts, gas prices, tax rates and the share of national oil companies (NOC) in the different countries.
On average Iraq has the highest government take per barrel – for each barrel the country produces, around $100 goes to the government, with the low level of costs and service agreements being the drivers. Norway also has a very high government take per produced barrel, at just below $100. Again, high European gas prices, low cost levels and a large government ownership are driving this achievement. In addition, a 78% profit tax also ensures the government takes most of the exceptional profit the oil and gas industry is expected to generate this year. The US is on the other side of the scale with an average government take per produced barrel of around $20. High investment rates, low domestic gas prices and low corporate tax rates account for this relatively low number.
While oil and gas revenues are at an all-time high, the amount of cash per citizen can vary greatly. A per capita measurement shows that Nigeria will receive around $300 per capita. Indonesia and China will jointly receive the lowest incomes per capita at around $100. At the other end of the scale, Qatar, Norway and Kuwait will receive a whopping $40,900, $28,000 and $23,200, respectively, per citizen.
About Rystad Energy Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, energy services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.
The Bank had been keen to be a part of the funding for the country’s basin wide oil development project
But, under pressure by activist shareholders and environmentalist groups to desist from funding fossil fuel development, the Johannesburg headquartered Bank has thrown its hands in the air, explaining that the project does not depend on its participation.
“While we are the biggest lender in Uganda, we are such a small player in the $10Billion project that if Standard Bank does not participate, the project can still be funded by more well-heeled financial firms”, the company’s management sources say.
TOTALEnergies, the project leader, declared in a release after the Final Investment Decision (FID) on the project in early February 2022, that the FID was in line with the company’s “strategy of only approving new projects if they are low-cost and low emissions”. In particular, TOTALEnergirs said, “the design of the facilities incorporates several measures to limit greenhouse gas emissions well below 20 kg CO2eq/boe, including the extraction of Liquefied Petroleum Gas for use in regional markets as a substitute for burning biomass, and the solarization of the EACOP pipeline”.
The French major’s emission numbers stand in stark contradiction to the figures thrown up by groups like Just Share, which says the pipeline would pump enough oil to generate up to 34.3Million tonnes of carbon dioxide – about seven times the emissions of Uganda and Tanzania combined. It’s not clear whose numbers are correct, but TOTALEnergies has not lamented scarcity of funding for the project and it continues to announce first oil in Uganda by 2026.
South African banks like ABSA, Nedbank and Investec have been scared away from oilfield development projects by the loud protestations of such groups.
Onshore assets are the default working areas of Nigerian indigenous companies, but there is a growing output from shallow water terrain credited to this species.
Five companies: First E&P, Oriental Resources, Amni Petroleum, and Britannia U operated close to 60,000Barrels of Oil Per Day in December 2021.
The fields included First E&P’s Anyala, which produced slightly higher than half of the entire output; Oriental Resources’ Ebok; Amni International’s Okoro and Britannia U’s Ajapa, which brought up the rear with less than 1,000BOPD.
First E&P has produced even far more than its last year’s average in the last three..
This story appeared in the January 2022 edition of the monthly Africa Oil+Gas Report, distributed to paying subscribers
The Libyan National Oil Company (NOC) has declared force majeure on the country’s largest oil field.
The 300,000 Barrels Per Day (BOPD) Al Sharara field in the Murzuq basin in the country’s southwest, was shut in amid protests that had led to closure of two ports and the outage of the El Feel oilfield.
“A group of individuals put pressure on workers in the Al-Sharara oil field, which forced them to gradually shut down production and made it impossible for the NOC to implement its contractual obligations”, the state hydrocarbon firm says in a statement.
The shutting of Al Sharara forced the suspension all Libyan oil production and exports.
The NOC declared that loadings of crude oil at two Libyan ports had been suspended amid anti-government protests that were interfering with oil industry operations. Loading from the Mellita terminal was suspended following a shut down in production at the El Feel oil field. The NOC also shut down operations at the Zueitina export terminal over protests calling for the resignation of incumbent Prime Minister Abdul Hamid Dbeibah.
Libyan production had ramped up considerably above 1.15Million BOPD for most of the second half of 2021. That has bolstered the NOC’s optimism to push the country’s output to 1.4 MillionBOPD Libya, but the political skirmishes that have led to the protests may prod Libya into another civil war.