Avoiding huge revenue losses in the oil sector – The Sun Nigeria

A new report from the Nigeria Extractive Industries Transparency Initiative (NEITI) has revealed that the country has lost 2.1 trillion naira in just one year due to delayed crude oil production. The huge loss was due to the permanently low crude oil production in 2020. According to NEITI Oil and Gas Report 2020, Nigeria lost around 73 million barrels due to crude oil delays. At the Brent oil price of $71 per barrel in 2020, Nigeria lost a total revenue of $5.2 billion or 2.2 trillion naira.

A similar report by the Nigerian National Petroleum Corporation (NNPC) for August 2021 estimated the loss of crude oil production in revenue for April of the same year at 248 million naira or 3.3 million/b. Production delays have been recorded by major oil companies operating in the country. They include foreign and local oil companies. According to the report, Shell Nigeria Exploration recorded the highest carryover of 25% (about 17.8m/bbl), followed by Chevron Nigeria Limited, 17% or 12.2m/bbl, while Nigerian Agip Oil lost. 11.1 million/b or 15.4. percent of estimated production, and Shell Petroleum Development Company ranked fourth with 15.1 percent (11 million/bbl). For local operators, the Nigerian Petroleum Development Company (NPDC/SEPLAT) reported 7.4 mn/b, while NNPC and Addax Petroleum reported 1.2 mn/b and 2.3 mn/b, representing 3.1 % of its oil last year.

Similarly, Aiteo, Continental Oil Limited and Watersmith lost a huge percent of their estimated production, either due to shutdowns for repairs, maintenance or power failure. Since Nigeria does not know exactly how much crude oil it produces, it will be difficult to know how much the country should earn in revenue.

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We believe this problem has persisted for years unresolved, mainly because most of the oil companies that engage in deep-sea and offshore exploration are foreign companies, not local ones. This is why local oil companies should have the possibility to drill offshore. The advantage is that they will protect the interests of the country more than those of the international oil companies. To do this, our indigenous oil firms must acquire the necessary expertise to excel in this area.

In 2019, NEITI sounded the alarm that the country was losing more than 123 billion naira ($4.1 billion at the official exchange rate of 305 naira/$) per year due to poor production counting. of crude oil. In the report he submitted to the federal government, he asserted that unless the government takes appropriate and urgent action, limitations on crude oil production metering will continue to pose a serious threat to the revenue target of the country. Already, the government could realize only 58% of its projected revenues. This further confirmed that inadequate oil production could lead to huge revenue losses. Undoubtedly, the loss of 2.2 trillion naira is a huge drain on the economy. A delay in crude production means fewer exports and less revenue for the country. Apart from the postponement, the country is losing huge revenue from oil theft at an average of 200,000 barrels of crude per day, according to NNPC figures. This translates to 73 million barrels per year or $7.3 billion per year.

We denounce the huge loss of revenue due to delays in crude oil production and urge the government to quickly address the issue. If non-enforcement of the Petroleum Industry Act (PIA) is a factor in crude production delays, efforts should be made to address it. It is unfortunate that Nigeria remains the only oil producing country without a meter to determine the exact amount of crude produced at any given time. Therefore, it became imperative to install a metering facility to track our oil production figures. It is not difficult to know exactly how much crude oil we produce in a day. Having an effective metering system in the area will curb the increase in cases of oil theft.

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In its 2012-2015 audit reports, NEITI reported that the country lost more than $9.89 billion worth of crude oil due to poor metering infrastructure. During the same period, more than 107 million barrels of oil would not have been correctly accounted for. Latest figures show that Nigeria is losing more than 250,000 barrels of crude oil a day to oil thieves. This translates to over $25 million in daily revenue. Given the huge revenue losses and the current volatility of the world crude oil price and projected revenue shortfalls, the government should not hesitate to put in place the metering infrastructure. In 2018, the government approved the automated fuel system management and censorship network to track the movement of petroleum products across the country. Although this measure was essentially aimed at eliminating the fuel subsidy scam, it is now necessary to install a metering installation in the oil fields. The installation of the meter will ensure transparency in the sector.

We also call for proper regulation of the sector so that the financial malfeasance associated with the lack of metering facilities can be curbed immediately. Nigeria can also learn from other oil-producing countries such as Saudi Arabia, Kuwait, United Arab Emirates (UAE), Russia, United States, Brazil and others, which effectively manage their oil production levels. Having such knowledge will help him manage the oil business effectively.

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