21 January 2019

Nigeria: Report Reveals How IOCs Steal Nigeria's Crude Oil

Country loses estimated N995.2bn annually

A new report on the age-long crude oil theft in Nigeria has revealed how International Oil Companies (IOCs) in the Niger Delta region steal and siphon large volumes of crude oil from the country undetected by her authorities.

The report revealed the revenue losses over the last few years, and estimated that the country lost N995.2 billion annually to oil theft.

According to the report, various strategies used include small-scale pipeline tapping, bunkering and over lifting.

While all three types of theft are not mutually exclusive, they each have different sources, actors, markets, and revenue streams.

Although the report carried out by Nigeria Natural Resources Charter (NNRC) did not quantify how much oil IOCs often steal from the country, it, however, explained that when they do, they always resort to a high-wired network of onshore and offshore operators, sellers, financiers, as well as logistics and security firms to pull it through.

The report, which was obtained by THISDAY, explored the political economy of oil theft in Nigeria, its causes, dimensions and efforts to curb the practice, which have largely been unsuccessful.

It reviewed previous discussions on oil theft and some of the key recommendations that have been made on addressing the issue, and contextualised the problem, and types of oil theft that occurs in Nigeria.

The report said, "There are several categories of oil theft in existence; small-scale pipeline tapping, bunkering and over lifting. While all three types of theft are not mutually exclusive, they each have different sources, actors, markets, and revenue streams.

"They have seen increased cooperation on ground as profits soared with little deterrence from enforcement agencies. Several investigations have highlighted the complicity between state actors, oil companies and militant elements in all categories of theft."

The report stated that over lifting is another form of oil theft in Nigeria.

"It refers to the underestimating of the total number of barrels received at any point of the extraction process (but typically after it has been refined) in order to sell the remaining on the black market.

"Underestimation can happen because when oil is drilled and transported via pipelines it also contains sand and water. The sand and water inflate the volume being transported so the refined volume is never equal to the volume received at the refinery," it stated.

Giving further insight, it said: "Over lifting occurs at tank farms, refineries and distribution centres. Most of these are owned and operated by national and international oil companies.

"These sharp practices have been reportedly going on for a long time and a reason why many assume oil companies are complicit in oil theft.

"The complexity and secrecy behind over lifting makes it hard to track and measure, as the figures for the amount of crude drilled in reserves vary widely."

Nigeria Loses N995.2bn Yearly to Oil Theft

The report designed to help governments and societies effectively harness the opportunities created by natural resources, stated that it provided an updated assessment of oil theft in the country as well as the consequential revenue losses over the last few years, and estimated that the country lost N995.2 billion annually to oil theft.

"Oil theft involves a number of participants working in a complex web of illicit transactions. The value chain is made up of on the ground and overseas operations, sales, financiers, logistics, and security," it added.

According to it, unconfirmed reports have equally stated that every fifth ship of loaded crude oil from Nigeria was not recorded but given falsified documents.

IOCs, it said, also allegedly take advantage of the 10 per cent margin of error allowed on every tanker to gain extra revenue by overestimating how much is lost.

"Underestimation can take place at each stage of the value chain from drilling, transportation, loading, and shipping; potentially creating a wide gap between records and reality.

"Companies also reported to use over lifting to avoid Petroleum Profits Tax by declaring less than actually produced. The NNPC often reports figures they are given by companies and does not independently verify the numbers to ensure compliance," the NNRC report added.

In retrospect, it said the federal government in 2016 sued Shell Petroleum Development Company of Nigeria Limited (SPDC) and its allied Shell Western Supply and Trading Limited for about $407 million as part of its battle to recover all monies gotten through undeclared and under-declared lifting for oil between 2013 and 2014.

"Data from Nigerian export records were reconciled with shipments of oil into the US including its bills of lading, oil vessels name used for the shipment, date of arrival at the destination ports and ports of origin.

Explaining government's 2016 lawsuit against SPDC, the report said: "The comparison showed that the crude oil shipments declared to have been exported from Nigeria was less than what was declared to have been imported into the US, using the same shipment by the same vessel on the same bill of lading.

It said on the other hand, some other shipments were not declared by the defendants to the requisite authorities, particularly the pre-shipment inspection agents. In some instances, the crude oil shipments were completely undeclared."

Further on potential volumes of oil stolen from Nigeria, it said, "Assessments on the volume of oil theft vary vastly and most available figures are estimates. Several reports estimate that one barrel out of every ten produced is stolen, while anecdotal evidence suggests that up to 50 per cent of product flowing through pipelines could be lost.

"Since 2007, Nigeria's largest oil producer, Shell has only had sabotage and theft related spills across all of its global operations occurring in Nigeria. Stolen crude is typically exported overseas or refined in artisanal refineries for local consumption.

"Losses due to oil theft and pipeline infractions average at up to 300,000 barrels per day for the first quarter of 2018, with up to 200,000 of this potentially stolen while the remainder is lost to shut-ins as a result of pipeline damage, down time and deferred production.

"The impact of such large losses is immense and translates to severe revenue shortages for the federal government of our estimate of N995.2 billion per annum. The security costs, environmental damage and loss of investments in the region as a consequence of oil theft are estimated at $55 billion over the last decade.

"These losses are greater than the combined health and education allocations in the 2018 budget."

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