Nigeria’s oil block ownership: A dubious national oil industry management

By Ben Eguzozie, in Port Harcourt; Dikachi Franklin, in Owerri & Onome Amuge, in Lagos

• Stakeholders want its immediate‭, ‬outright scrapping
• But financial experts say monetization of fields more critical than winning bid
• DPR says oil blocks awarded based‭ ‬on applicants’‭ ‬qualification

Controversy seems to be the second name of Nigeria’s oil sector. From contracts awards to joint venture operations. Over the years, managing the nation’s oil assets by the Nigerian National Petroleum Corporation (NNPC) had trailed off huge worries for the citizenry – to the point that many have labelled the natural resource blessing by providence a ‘resource curse.’ Insincere governance is the natural sobriquet of the exercise. Only in the last one month, the passage by a split decision of the two chambers of the National Assembly of a Petroleum Industry Bill (PIB) has generated strong recriminations, especially from the oil-host communities in the Niger Delta, who have suffered more than half-a-century of environmental degradation. Till date, accusations and counter accusations over the yet-to-be-assented bill have continued to simmer.

Now attention is shifting to ownership of oil wells, oil blocks or oil fields by a few influential Nigerians to the detriment of a majority of the estimated 211 million people of the country. Little is known about this opaque business. Since the 1980s, the oil blocks have been awarded to this set of Nigerians in a most uncharacteristic manner that leaves the entire process extremely cloudy. These influential individuals, most of the time, choose to operate the oil wells rather furtively. There are certain financial, technical and business management frameworks that are supposed to be met before an entity can be awarded an oil well or oil block. But it turned out that over the decades privileged persons have been known to have been awarded their blocks, after all, simply by way of their links to those in the corridors of power or being in those corridors themselves. 

An oil block or oil field is a place with an abundance of oil pockets called oil wells that contain crude oil or petroleum below the earth’s surface that is significant enough to be extracted or drilled. It could be on land or a little below water level and could be as deep, with hundreds of kilometres into the earth’s crust. The three types of oil wells are: crude oil producing oil wells; natural gas-producing oil well; and natural gas and crude oil-producing oil wells.

Oil blocks and bids

According to data from the Department of Petroleum Resources (DPR), the government agency responsible for managing oil blocks award bidding process, Nigeria has a total of 390 oil blocks in the country, only 173 of them have been awarded to individuals and corporations, while 215 blocks are yet to be awarded. Broken further, of the 173 so far awarded, Nigerians owned 90 blocks while foreigners owned 83 blocks. However, all the 90 blocks awarded to indigenous players account for only six percent of the country’s total crude oil production, while the 83 received by foreign oil companies account for 94 percent of the total production output. It also showed that over 80 percent of the allocated blocks are owned by individuals who obtained them to satisfy desires from ethnic, regional, political party affiliation, and ethnic colouration, rather than monetize the acreages thereby boosting the country’s economic growth.

Chijioke Nwaozuzu, director of Emerald Energy Institute at the University of Port Harcourt and professor of petroleum downstream economics told Business A.M. that oil blocks awards by Nigeria started in the 1980s with Jubril Aminu, former petroleum minister, when he launched a programme called, ‘indigenous participation in Nigeria oil and gas industry’. The then military head of state, Ibrahim Babangida, also, exhibited ‘discretionary statutory powers to allocate oil blocks’. “A combination of both factors resulted in the individual oil blocks or acreage that we’re talking about. Sometimes these are bid rounds for oil blocks, and sometimes there are bid rounds for marginal oil fields. That’s in a nutshell the situation regarding individuals owning oil blocks in our country,” he said in Port Harcourt.

Mixed reactions

Many stakeholders and oil industry watchers have condemned the oil blocks individual ownership in the country. Worse still, many yet are piqued by a perceived regionalization of the ownership. In 2013, Ita Enang, chairman, the then Senate committee on business and rules, blew open the lid, when he alleged that 83 percent of Nigeria’s oil blocks were in the control of the northern region. This led to a series of claims and counterclaims by various groups in the different geographical regions in the country, including activists and non-governmental organisations (NGOs). Many even called for a review of oil block awards.

Opinions are divided among the industry experts and analysts who spoke with this newspaper, on the policy correctness of the award of oil blocks to individuals. Nwaozuzu said the practice started way back in the 1980s, and has become a Nigerian rule. Sunny Nwachukwu, a management expert and Onitsha-based industrialist, said it was “bad politics.” “Friends are favoured by such gifts of material benefits at the expense of the state/economy; favouring friends that aren’t merited to get oil blocks. This is the adverse impact on this dwindling economy. The way out of such an anomaly is to strategically reallocate such oil wells and/or fields on merit to qualified and established players in the industry”.

Stanley Iwuoha, a lecturer in the school of Business Administration and Management (BAM), at Imo State University, Owerri said: “It is unfortunate that such an abnormality obtains in and only in Nigeria”. Rommy Anyanwu, immediate past chairman of the Manufacturers Association Nigeria (MAN), said, the government should not abolish award of oil blocks to individuals, but should rather assign more responsibilities to the allottees.

“Assuming, out of the 100% profits, the allottees take say 30%, pay host community 20%, pay federal government 20%, pay state government 10% and local government 10% and the remaining 10% for infrastructural development of the host community, they will not have excess money to waste,” Anyanwu told our correspondent in Owerri.

An oil and gas production engineer and industry analyst at Shell’s Bonny Terminal Production Unit, Port Harcourt, said, individual ownership of oil blocks by indigenous Nigerians is a good practice for national interests and control of the industry as it is practiced by many OPEC member countries. The problem, however, is our corruption and lack of transparency in business which has affected the industry in the following ways: reduced daily oil and gas production; lack of transparency in the oil and gas industry; building the so-called technical capacity of indigenous companies as most of the companies are really not originally created as oil and gas firms. Many are incorporated for the purpose of marginal field sales; lacks accountability and prevents the growth of well performing indigenous oil companies to build further in competing with the major IOCs; doesn’t help host communities as these resources are left undeveloped.

Lloyd Eseosa, a financial consultant, holds a different view. “To me, the problem is not individual ownership of the oil blocks, but monetization of the acreage. After all, some own the oil fields, and have gone ahead to establish a company that is mining the field. Alakija owns Famfa Oil, and pays taxes to the federal government. There are other indigenous companies like Britania-U, ConocoPhillips, etc. “The individuals owning oil blocks or acreage must have the financial muscle, technical skill to operate the blocks

“It’ll get more difficult in years ahead to run oil blocks with dwindling demand for fossil fuels,” Eseosa said. He said elsewhere in the world, individuals own oil fields. “But the difference is that these operators own companies that operate the oil blocks profitably, paying the necessary taxes to the government. He cited that some oil field owners in the country own companies – Famfa Oil, Conoil, Moni Pulo, among many others. “The oil sector regulator needs to be rejigged to look for profitability rather than political settlement,” he stressed.

However, Eseosa warned that as fossil fuel continues to lose its decades of appeal following the onset of globally approved energy transition to renewable energy, owners of the idle oil block would find themselves sitting on a useless asset.

But Sarki Auwalu, the incumbent director of DPR, said the agency generated N2 trillion in the 2020 oil bid round.

Poor indigenous output contribution

Notwithstanding the fact that Nigerians owned the larger share of the nation’s oil assets, their contributions to total production as revealed by the DPR is abysmally poor. According to data provided by the regulator, Nigerians are producing about 150,000 barrels of crude oil per day, representing just six percent of Nigeria’s total crude production; while foreign oil companies account for the bulk of 2.35 million bpd or 94 percent of total output.

Industry watchers blame the lackadaisical attitude of the Nigerian players towards the development of their blocks.

To be sure, the majority of the oil block owners have yet to commence any serious production activities on the oil blocks since they were awarded to them. “It appears that people just want to own oil blocks and put it on their complimentary cards. We are not happy with that. It is absurd that six percent of oil production is coming out of 90 leases,” decried one analyst.