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Law Makers, Regulators, Operators and NOC –Struggle Over Gross Production and Sales

By Sunny Oputa


When a nation’s wealth basket is mainly revenue from oil and gas, it is reasonable that all eyes will be prying into that basket, sometimes with suspicion in the monitoring of the revenues that accrues from that sector. Such is the case of major oil and gas producing countries in Sub-Saharan Africa - Nigeria, Angola, Equatorial Guinea, Gabon, etc.  Nigeria, for example, the issue of quantifying gross production and gross sales in tandem with royalties, or total revenue that should accrue to the nation has continued to be a dog fight between regulators, law makers, operators , national oil company and even the nation’s highest banking system.

Few days ago, the National Assembly of Nigeria exonerated Nigerian Liquefied Natural Gas of a long accusation involving misappropriation of certain revenue that accrued from the LNG business. According to the Senate Committee on Gas after due investigation it was found that no money was lost or misappropriated.

According to the Chairman of the Senate Committee on Gas, Senator Bassey Albert, who clarified that the ongoing investigation of the application of $1.05billion Nigeria Liquefied Natural Gas (NLNG) dividend to support the importation of petroleum products into the country has nothing to do with any missing funds since no such money was missing in the first place. Senator Bassey stated that the clarification was necessary in order to douse the flaming sensational and misleading reports in some sections of the media.

 NNPC have always been maligned by the National Assembly or from the nation’s financial system of not reporting full revenue from oil transaction. Operators have always been at war with regulators on issue of gross production or adequate revenue due to the government. Although corruption and lack of adequate transparency as often speculated may not be fully ruled out in some quarters, one of the major problems is the full understanding of petroleum economics in terms of gross production and effects of shrinkage, and vandalism on gross sales.

Schlumberger, defined gross production as the total production of oil, gas or water from a well or field over a period of time, it could also be looked at as the projection of the volume of oil and gas to be produced during the particular month or year.

Gross production is normally one of the most important numbers entering the cash flow calculation and it is difficult to calculate. Difficult in the sense that operators would want to apply the effects of shrinkage and BS & W at terminals before determining gross production, while regulators and government looks at gross production as what comes out from the well.

This discrepancy also affects the reporting of gross sales from the purview of regulators, operators, and national oil company and law makers.

In the same vein while regulators and law makers might be looking at the global price of crude oil to determine revenue derived, national oil company could base their figures on original selling price which takes into account the quality and quantity of crude sold whether it was the light or heavy crude and also prevailing market conditions.

To avert this misunderstanding, it could be proper as the next government sits up in 2019 for regulators, operators, law makers and national oil company to have a proper workshop on practical petroleum economics and global standards. This will help to reduce the deep accusations and often false information that tend to tear the nation apart.

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