Deferred crude oil production by oil companies in Nigeria cost the country N6.4 trillion in 5 years, a review of the Nigeria Extractive Industries Transparency Initiative (NEITI) annual Oil and Gas Industry Report for 2016 through 2020 has shown.
According to NEITI, deferment refers to a stoppage in production due to scheduled and unscheduled repairs and maintenances or pipeline breaks/leaks, poor equipment performance, etc.
Almost every year, Nigeria loses millions of barrels of crude oil to theft and sabotage. Between 2016-2020, the barrels of crude oil that were lost to theft and sabotage was worth 272 million.
Apart from these, another 406.38 million barrels of crude oil were lost due to oil production deferment within the same period costing the country a total of N6.4 trillion.
NEITI explained that the deferments due to scheduled maintenance are not necessarily considered a loss, as they could be produced in the future. However, deferments due to unscheduled maintenance — such as pipeline breaks/leaks and sabotage may not be fully recovered. Thus, considered a loss.
Given this, this report only considers the figures for unscheduled deferments.
For 2016, Dataphyte’s review of the 2016 Oil and Gas Industry Audit Report shows that a total of 144.4 million barrels of crude oil were lost as a result of unscheduled deferment, which cost the country the sum of N1.64 trillion.
According to NEITI, the average price of crude oil then was $43.73 per barrel, which amounted to $6.31 billion or N1.64 trillion using the official exchange rate of N259.66 to $1. The volume of crude oil lost in 2016 and its money value were the highest in the 5-year period under review.
In 2017, the barrels of crude oil lost due to production deferment dropped by 52.07% to 69.21 barrels. The price of crude oil was $54.27 per barrel. Thus, the total money lost was $3.76 billion or N1.15 trillion.
The following year, the barrels of crude lost due to deferments dropped still to 64.86 barrels, but because of the increase in the average price of crude oil to $72.01, the money value of the loss rose to $4.67 billion or N1.43 trillion.
In 2019, the volume of crude oil lost was 55.21 million barrels, a 14.89% decrease from the previous year’s 64.86 barrels. According to NEITI, the average price of crude oil per barrel was $65.61 then. When this is multiplied by the 55.21 million barrels of crude, it means the sum of $3.62 billion or N1.11 trillion was lost due to production deferments.
In 2020, the review of NEITI’s 2020 report shows that 72.7 million barrels of crude were lost due to crude oil production deferment, an increase of 31.69% over the volume of oil lost in the previous year, 2019. This was the second-highest volume of crude lost due to production deferments in the 5-year period under review.
For the 2020 deferments, a breakdown of the oil companies involved shows that 17 crude oil companies accounted for the 72.7 million barrels of crude oil lost in that year. The Shell Nigeria Exploration and Production Company (SNEPCO) accounted for the highest share of deferment — 24.55%. Chevron Nigeria Limited (CNL) followed with a 16.76% deferment.
On the other hand, Chorus Energy Limited (CHORUS) and Waltersmith (WALTERSMT) contributed the least deferments — 0.01% and 0.03%, respectively.
The total deferment for the year resulted in a revenue loss of $3.03 billion at an average price of $41.65 per barrel of crude oil as stated in the 2020 NEITI report. This translates to N1.08 trillion using the exchange rate of N356.43 to $1 per NEITI’s report.
When the barrels of crude oil lost as a result of deferments in these five years are summed together, it brings the total volume to 406.38 million barrels, and brings the total revenue lost by Nigeria to $21.39 billion or N6.4 trillion in 5 years.
This trend of revenue losses calls for urgent government attention, especially as the 2020 figures show an increase in the volume of untapped crude lost to unscheduled deferments of production, after a consistent drop for 3 consecutive years (2017-2019).
With Nigeria’s revenue shortages and piling debts, among other economic challenges, losing N6.4 trillion to deferred oil production not previously envisaged by oil companies becomes a cause for concern.