Nigeria Petroleum and Gas News

By every account, it is one of the biggest frauds in the history of the Nigerian oil industry. About 2.6 billion US dollars are involved. So mind boggling is the revelation that the Funsho Kupolukun headship of the Nigerian National Petroleum Corporation (NNPC) is quick to say they were not part of the long-winding heist.

Levi Ajuonuma, the General Manager, Group Public Affairs Division, NNPC, said the ingenious theft of 65 million barrels of crude oil did not happen in the period of the present administration of Engineer Kupolokun, the Group Managing Director of the NNPC.

According to Ajuonuma, the scam took place during the period of the former MD, Gaius Obaseki. In his words: “We were not there at that time. It was Obaseki’s time. I can’t say anything on that. It is not our regime.”

Indeed, no one expected such a shocking finding when Oby Ezekwesili, the former Minister of Solid Minerals, got the Federal government to engage the Hart Group – a United Kingdom-based audit firm – to direct its searchlight at the nation’s oil industry. For long, it has been shrouded in secrecy, in the vice-like grip of foreign and local players.

At the end, it was discovered that between 1999 and 2004, about 65 million barrels of crude oil could not be accounted for by the NNPC. The Hart Audit report, compiled for the Nigerian Extractive Industry Transparency Initiative (NEITI), said the missing crude oil was due to shortfalls in the amount of crude sent to refineries within the period under review. Specifically, the report said: “There were differences between the amounts reported within NNPC for the volume of crude sent for refining with the discrepancies between what the oil terminals recorded as sent to the refineries and what the refineries recorded as received from the terminals.”

A chart in the report, obtained by Saturday Sun, shows that in 1999, about 66 million barrels of crude oil was sent by the Crude Oil Marketing Department (COMD) of the NNPC but the nation’s refineries received 99 million barrels within the year which shows a difference of 33 million barrels unaccounted for.

Also, in 2000, 36 million barrels was sent to the refineries going by the record given by the COMD but within the same year, the Pipeline Products Marketing Company (PPMC), also a subsidiary of the NNPC, reported that about 46 million barrels passed through its hands in the same year, indicating a difference of 10 million barrels. However, the discrepancies shows a shortfall of 22 million barrels, of crude oil as follows: - 3 million, -2 million, - 6 million and – 11 million for the years 2001, 2002, 2003, 2004 respectively. The NNPC still has not accounted for the 22 million barrels stolen at a time when oil money hovered between $25 to $40.

The Hart report said the NNPC could not convincingly say how the refineries in 1999 and 2002 received more crude oil than what was sent from the oil terminals, neither could it account for the 22 million barrels sent to it which didn’t get to the refineries during the years 2001, 2002, 2003 and 2004. Industry watchers are helpless as they ask: ‘Are the refineries on one hand getting phony supplies from oil terminals and do they sometimes get extra crude from another source?’

Under the carpet
Clinical as the investigations by the Hart Group were, local civil society and international watchdog groups were stunned when the findings were made available to Aso rock only for a livid President Obasanjo to treat the efforts of the foreign consultants with scorn. Unwilling to admit that such a systemic fraud had been going on under his administration, the president, balking at throwing the report into his shredding machine, gave the marching order to a bewildered Hart Nurse to go and do a more thorough job.

For those who had all along followed the Obasanjo regime’s anti-corruption war with misgivings, the Hart treatment bore the same motif as the reception given by the same President to the Economic and Financial Crime Commission (EFCC)’s report on the decay in the Nigeria Ports Authority which allegedly indicted some sacred cows, including Chief Bode George, the People’s Democratic Party (PDP) national Vice-Chairman, South West. The EFCC’s forensic examination had been pronounced sacriligious and unacceptable with the anti-corruption czar reduced to a laughing stock as he was ordered to do his homework well.

While the ghost of what is now known as the original NEITI report was haunting everyone who had anything to do with the missing 65 million barrels of crude oil, facts emerged early this year, that contract for a $10.3 million Chevron/Texaco EGP – 3B FEED Gas gathering compression platform project was awarded without competitive biddings, allegedly to Crestville Engineering and Technologies Company Limited, owned by the current Group Managing Director of the NNPC, Engr. Funsho Kupolokun. Industry players have since said that the actual estimate for the project, is about one million dollars.

The same Kupolokun’s company also allegedly cornered a $7 billion Olokola LNG contract while emerging the prefered bidder for the OPOL 246 AKPO FPSO field development project and the TotalEfina Ofon Phase II Transport and Installation contract. Despite outrages over the sweeping aside of due process and the excess billions of dollars being funneled into the projects, the only official reaction is mum.

Saturday Sun gathered that in digging up the dirt which the Obasanjo regime has now browbeaten the consultant to dress in a cleaner garb, the UK-based firm extracted information from different groups and individuals manning sensitive positions in the oil and gas industry. For example, on March 31st, 2005, Hart Nurse of the Hart Group in conjunction with Samuel Afemikhe and S. Bantafi both of SS Afemikhe & Co met with Stanley Lawson, NNPC Group Executive Director (Finance & Administration; E. Akhuemonkhan, Group General Manager (Head office Accounts) and Alhaji T.A. Rufai, Group General Manager (Finance & Administration).

At the Federal Inland Revenue Service, the auditors had useful talks with the Chairman, Ifueko Omogui; the Director Assessment, Mr A. Sulu and the Auditor, Mr ILo. The session at the Petroleum Equalisation Fund had in attendance the Executive Secretary, Mr. A. Gurin and Alaji Kwara while at the Department of Petroleum Resources the quesitons were answered by Mac Ofurhie, the Director; and B.O. Ogunjana, the Deputy Director (Resource Management & Reserves).

Three people at the Central Bank were reportedly interviewed in the course of the investigations. They were the Director of Research, O.J. Nnamma; Mr Bon Okafor and Mr. Festus Odoko. The report stated that “each of these meetings was designed to acquaint the respective entities with the audits and to outline the deliverables and the role of the entity in question.”

The same principle was applied when the auditors had a meeting with representatives of the different oil companies. Both Pascal Raab and Tai Oshisanya stood in for Total (EPNL) while Funke Alade-Adeyefa and Deji Haastrup were there for Chevron Texaco. Others were Wale Raji and Ola Sobande for Shell; Monday Otabor for Addax and Paul Stevens and Pat Ahonsi for Exxon-Mobil.

Essentially, the audit was directed at reported production and sales figures for the 1999 – 2004 period as against the actual crude oil lifted and amount payable. Saturday Sun gathered that there are myriad open windows through which crude oil is stolen. Other shades of corrupt practices are legion.
In specific terms, the Hart Group carried out domestic crude oil sales and receipts validation in the NNPC – Crude oil Marketing Department, Treasury, Finance and Accounts Departments and CBN. The objective of the exercise was to confirm volume of domestic crude oil actually invoiced and to find out if domestic crude supplied in the period under review was paid for and proceeds swept into the Federation account.

To carry out the exercise, the auditors requested and obtained documents on domestic crude lifting profile from NNPC – COMD from November 1998 to December 2004; domestic crude oil templates from NNPC – COMD for the same period; schedule of payments to CBN for the transfer of money from NNPC Oil and Gas Naira Account.

This was obtained from the finance and Accounts Department of the NNPC. Other documents included statements of account for CBN/NNPC oil and Gas where lodgments for proceeds of domestic crude are made before being transferred to the federation account. Then, there was the Federation Account Component Statements for January 1999 – December 2004. This is a monthly analysis of what goes into the Federation Account; and lastly, Federation Account statements for the period under review. The job here was to verify the volume of domestic crude in the template populated by NNPC – COMD against that in the lifting profiles.

Mapping out the procedures in the nation’s oil industry, it was gathered that the NNPC is supplied with domestic crude for the purpose of refining it and distributing the petroleum products (Petrol, kerosene, etc) derived therefrom for domestic consumption. NNPC is then expected to pay for the agreed crude oil lifted from proceeds realized from sale of petroleum products.

NNPC pays for the domestic crude allocated to it monthly into the federation account maintained by the CBN. A credit facility of 60 days is granted to enable NNPC collect the sales proceeds from its customers who also have a 30-day credit facility which is a normal global business practice. However, from October 2003, this term was further extended to 90 days, following what was said to be “mounting liquidity problem experienced by NNPC as a result of the global increase in crude oil price.”
The quantity of export crude oil is determined by what is called metering or by a static method which involves ‘fiscalization and defizcalisation’ of the storage tanks designated for the crude oil export operations.

Be they domestic or export crude, the CBN warehouses funds that flow from the oil and gas sector. However, before the funds flow into the federation account, they pass through some designated bank accounts, both foreign and local, depending on the currency in which they are paid – dollars, pound sterling, euro, naira, etc. These designated accounts are operated by the NNPC for crude oil sales and the Accountant General of the Federation (AGF) for oil and gas taxes. The NNPC account is with JP Morgan Chase Bank, New York while the AGF account is with Federal Reserve Bank of New York. The AGF has another account for local taxes and this is with the Banking Operations Department (BOD) of CBN. In the period under review, two banks were used by the CBN to receive federation account funds.

They were Bank for International Settlement (BIS), Switzerland and JP Morgan Chase.
In his observations on the NEITI report, Prof. Ademola Ariyo of the Department of Economics, University of Ibadan, said: “It appears that the level of transparency in the operations within the nation’s oil and gas sector is less than desirable.” Both Prof Ariyo and Zacc Ososanya, Professor of Accounting, Olabisi Onabanjo University, Ago-Iwoye, agreed that there had been a regime of “under-assessment of actual revenue due to the nation and possible underreporting of revenue collected for and on behalf of the nation.”

Saturday Sun gathered that the lack of transparency in the oil and gas sector is traceable to an incurable langour on the part of officials of Department of Petroleum Resources (DPR) who are statutorily the police of the industry, but who are known to habitually turn a blind eye to or even partakers in the orgy of corruption which the NEITI audit was expected to unearth. This aspect of the assignment is named in the report as physical audit. The other two aspects are Financial Audit and the Process Audit.

Some of the roles of the DPR are stated as: “supervising all petroleum industry operations being carried out under licenses and leases in the country in order to ensure compliance with the applicable laws and regulations in line with good oil field practices; keeping and updating records on petroleum industry operations particularly on matters relating to petroleum reserves, production and exports of crude oil, gas and condensate, licenses and leases as well as rendering regular reports on them to government; ensuring timely and adequate payments of all rents and royalties as at when due; (and) enforcing safety and environmental regulations and ensuring that those operations conform to national and international industry practices and standards.”

It hardly came as a surprise to industry watchers that the notoriously sweetheart relationship between oil companies and DPR officials was one of the major attractions for the Hart Group. Indeed, one of the fallouts of the audit is a letter sent to Hart Nurse Limited by Atlas Petroleum International Limited on November 10, 2006. Signed by its General Manager, Emeka Gbulie, it was entitled ‘Representation of full disclosure.’

The body of the letter says: “In connection with the financial audit being undertaken for the National Stakeholder Working Group of the NEITI, concerning a retailation of the revenue flow as received by the relevant agencies of the Federal Republic of Nigeria with all payments made by participants in Nigeria’s oil industry for years 1999 – 2004, we confirm that to the best of our knowledge and belief, we have fully declared, in the templates to you, the financial amounts paid and/or received by us as regards the respective financial flows in the specific periods.”

It was paragraphs 3 and 4 that said it all. They read: “No further payment was made by the company to any official of the Federal Republic of Nigeria or of agencies thereof, aimed at securing benefits for the company. After making appropriate enquiry, no payment was made by any third party to any of the relevant agencies of the Federal Republic of Nigeria or officials thereof on behalf of the company…”

Interestingly, Atlas Petroleum was not the only one that forwarded a ‘Representation of Full Disclosure.’ Over a dozen other oil companies sent letter-head denials of monetary inducement or any kind of underhand dealing with government officials. The different letters, from the different companies as signed by their executives, came from Chevron Nigeria Limited (signed by C.A Taylor, General manager NNPC/CNL JV); Conoil Producing Ltd (M.E. Omatsola); Continental Oil and Gas Ltd (Anthony Nwosu); Dubri Oil Company Ltd (J.O. Onilude); ELF Petroleum Nig. Ltd (J. Marraud des Grottes, MD/Chief Exec); Express Petroleum and Gas Company Ltd (T.A. Dantata, MD); Exxon-Mobil (John P. Chaplin, Chairman/MD); Nigerian Agip Exploration Ltd (A. Panza) and Nigeria LNG Ltd (Dr. Chris Haynes, MD/CEO).

Others were Ocean Energy Nig. Ltd (Raymond S. Marchand, MD); Pan Ocean Oil Corporation (Dr. F.A. Fadeyi, Chairman/MD); Petroleo Brasileiro Nig. Ltd (Wilson De Oliverira Senna, Finance Manager); Phillips Oil Company (Nig) Ltd (Todd Creeger, MD); Shell Petroleum Development Company of Nig Ltd (Anolu O.M. Jonathan, JV Controller) and Agip Energy and Natural Resources Nig. Ltd (A. Panza).

Saturday Sun gathered that the verdict on oil companies operating in Nigeria are damning, as contained in the Neiti report. In the course of the audit, it was discovered that “there were differences between the amounts reported by the companies as paid and the amounts reported by the CBN as received.”
Another worrisome observation was that “comparison between the reconciled physical hydrocarbon balances and the declared volumes for PPT (Petroleum profit Tax) purposes revealed differences both higher and lower. These differences require investigation. Some companies have not provided explanation for the differences.”

Yet another grouse was that “comparisons of the deductions claimed by companies for PPT purposes against the expenditures in their audited accounts revealed in some cases differences which the companies have not explained.”

In fact, there were many things the oil companies did not want explained. Some of them even erected roadblocks for the auditors who in sheer frustration protested to the National Stakeholder Working Group that some companies were not cooperating with the audit process. On September 8th, 2005, the auditors reported that “there appear not to have been any change in the position of the companies during August. None has responded to the previously submitted requests for information.

The affected companies were given as Amni International Petroleum Development Co. Ltd, Continental Oil & Gas Ltd, Atlas Petroleum International Ltd, Moni Pulo Ltd, Cavendish Petroleum Nig. Ltd, and Express Petroleum & Gas Company Ltd. Others were Africa Petroleum Plc, Texaco(downstream), African Petroleum (downstream), Conoil Producing Ltd, Ocean Energy Nig. Ltd and Petrobras.

Royalty fraud
Saturday Sun gathered that massive frauds are known to occur at three major points: wellheads, oil terminals and refineries. One of the most notorious corrupt practices in the oil industry is said to be royalty fraud. This occurs when production figures and/or export crude are ingeniously understated merely to underpay government of royalties.

Because of this huge challenge, and to forestall cases of stolen crude, the DPR is expected to be most active at the oil terminals where they are expected to monitor and record crude oil/condensate and gas production from the fields into the terminals by metering and static measurement methods. DPR officials are to verify the vessels and the respective quantities of crude oil/condensate and gas nominated to be lifted by the vessels.

They are to participate in the calibration of storage tanks, maintain production and export figures data bank and also participate in the fiscalisation, defiscalisation exercises and dynamic metering to compute the quantity exported. Fiscalisation is the measuring of actual volumes of crude oil considered fit for export after undergoing degassing and dehydrating.

Investigations revealed that at either the flow stations or the production platforms, field by field production with their corresponding ‘API gravities’ are used for the computation of royalties. There is supposed to be a periodic check to ascertain if the companies are underpaying the government or not. It was gathered that not all flowstations have meters and not all the flowstations and/or production platforms that have meters get their meters calibrated forthnightly as is the standard practice. There are also serious question about meters at Lease Automatic Custody Transfer (LACT) points and at the export loading terminals.

Saturday Sun discovered that one contentious issue on royalty is the oil companies’ insistence that royalty be based on export volumes and not production from wellheads. When the Hart Group visited Shell’s Bonny Crude Oil terminal in August 2006, the Terminal Manager said that 19,500 bbls /day had been lost due to theft from the pipeline between the flow stations and the terminal and hence if the point of royalty calculation was the wellhead, then they could be paying royalty on crude they do not have to sell.

In addition, there is what is called “unaccounted oil”. This may come under unrecovered spilled crude oil, arising from acts of vandalization, that cannot be estimated. Plausible as the arguments may be, industry watchers say accidental spills and pipeline incidences are massively abused with stolen crude written off as unrecovered spilled crude.

The Hart Group visited the Escravos terminal as well as the Brass Crude Oil terminal. In their report, the auditors acknowledged five key personnel, Francis Damola, Emmanuel Okonkwo, Basoene S. Douglas, Francesco Arena and Romeo Evangelista for making their work at Brass as easy as possible. However, it was discovered that the flow computers were not fitted with numbered lead seals to show that they had not been tampered with between maintenance jobs. Similarly, numbered lead seals are not fitted to the detectors on the proover loop to show that they have not been changed since the annual calibration visit. In the industry generally, meter manipulation is a common problem.

Saturday Sun gathered that one of the bizarre finding by the auditor is a DPR standard form or certificate of quantity (a state security document printed by Nigeria Security and Minting Company) that have to have numbers filled in by typewriter. The auditors were equally alarmed that DPR procedure guide for the determination of the quantity of crude oil and petroleum products at custody transfer points “look like they have not been upgraded since the 1980s.”

Another plague detected by the auditors is the issue of underpayment or overpayment of invoices. It was observed that January 2001 funds swept by CBN was stated as N873, 857,000 instead of N8,738,857,000. Another sum of N734,642,000 deemed to have been paid by NNPC was not swept from CBN/NNPC oil and Gas account to the federal account as at December 31, 2004. What’s more, NNPC-COMD have no ledger in Abuja to track crude oil debtors, both export and domestic.

Speaking on the missing 65 million barrels of crude oil, Rev. David Ugolor, National Coordinator of Publish What You Pay (PWYP) Nigeria, said that Nigerians must insist that the truth be unearthed. He condemned the prevailing culture of secrecy in the oil industry, saying “the DPR did not keep a centralized computerized records of activities of the extractive industries to enable it get an overall picture of Hydrocarbon flows.”