According to the Federal Government, at least 23 oil blocks under the management of both foreign and domestic oil corporations and covered by crude oil Production Sharing Contracts (PSC) with the Nigerian National Petroleum Company Limited, were either unable to produce crude or were inactive. This information was provided in the most recent Oil and Gas Industry Report for 2021 published by the Federal Government’s Nigeria Extractive Industries Transparency Initiative (NEITI). The report claimed that the blocks were unable to produce crude throughout the evaluated year.
A production sharing contract commits the contracted oil company to exploring, developing, and producing petroleum within a concession area under an Oil Prospecting Licence for a set period of time. The government may require the corporation to pay a Petroleum Profit Tax, royalties, and other bonuses or taxes if the project is successful. A term known as “Cost Oil” allows the corporation to recoup its expenses in kind. Through the NNPC arrangement of lifting crude oil and gas for tax, royalty, and share of profit oil (often shared in a predetermined ratio), the firm also pays PPT and royalty in-kind, which is then sold and deposited into designated accounts.
Another 6 inactive blocks were identified by the report.
Moreover, the account could be a Federal Inland Revenue Service (tax) account or DPR (now NUPRC) account (royalty) and proceeds from the sale of profit oil are deposited directly into the Federation Account. With PSC, the firm pays for exploration and production, relieving the government of the associated costs. In 2021, 12 of the production sharing contracts oil blocks produced, while 17 did not, according to data analyzed from the most recent NEITI report. The report identified another 6 inactive blocks, making the total number of the inactive blocks during the assessment period to 26.
Some of the contractors that did not produce crude from selected blocks included 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. Others included are Newcross Petroleum Limited, Sahara Energy Exploration and Production Limited, Conoil Producing Limited, Continental Oil and Gas Limited, Enageed Resources Limited, Nig-Del United OIl Company Limited, Sterling Oil Exploration and Energy Production Company Limited, among others.
Total production from the PSCs amount to 242.96 million barrels.
For the six inactive production sharing contracts blocks, GEC Petroleum Development Company Limited, Nigerian Agip Oil Company, Monipulo Limited, and Esso Exploration and Production Limited served as contractors. Adding to the discussion, NEITI issued observations on output from PSC blocks. In 2021, there were only 12 producing PSC blocks (or 34% of all PSC blocks), while 23 blocks (or 66% of all blocks) did not. The total production from the production sharing contracts amounting to 242.96 million barrels, equates to a 42.92 percent of the overall production encompassing 566.13 million barrels.
In this regard, the agency opined that only 34% of all assigned blocks are actually being used for production, despite the fact that PSC arrangements account for the largest share of total production volumes. In order to maximize output under the arrangements, it was suggested that the Nigeria Upstream Petroleum Regulatory Commission and NNPC Ltd conduct a rapid assessment of the technical, operational, and other restrictions hindering production from the inactive blocks. The agency recommended that, if these problems cannot be fixed, licenses should be revoked and given to other parties.
2 or 3 blocks anticipated to enter production in the next few years.
However, NEITI said NNPCL responded saying that PSC blocks shift from exploration/appraisal phase to production. It reportedly also noted that some blocks are still in the award stage since not all contractors could show up for budgets or work schedules for reasons ranging from compliance with regulations to concerns about the viability of their businesses. NNPCL anticipates that two or three blocks will enter production within the next few years. Government forms partnerships with both domestic and international companies like PSC due to the advanced technology involved in the oil industry, in order to discover and produce Nigeria crude.