How pipeline vandalisation is affecting oil sector

Oil and gas investments is continuously been threatened by activities of pipeline vandals, Group Managing Director/CEO of Midwestern Oil & Gas Company Limited, Charles Odita has said.Speaking in an interview with our correspondent at the weekend, he said if the company produces 1000bbls of crude, it may have not more than 250bbls to itself at the end of the day due to the current spate of pipeline vandalisation coupled with a high rate of crude theft and royalties.He spoke when the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kolo Kyari met with him to identify solutions to the Nigerias oil and gas industry.Declaring support for the new GMDs transformation agenda, Odita said: As much as over 40 percent loss of crude was experienced about three months ago and this amounts to significant revenue loss to companies and the government.In addition, Odita identified Over Riding Royalty Interest (ORRI) computation as another major challenge confronting the industry.He said that in the past, when the laws were written, it was stated that ORRI payment was based on production at the well head. As at then, this was exactly the same volumes as injection at terminal.Over time, companies have recorded significant difference between wellhead and terminal injection due to losses and crude theft, as such he proposed that NNPC should compute ORRI based not on wellhead production volumes but on terminal injection.Explaining further, he said if a company produces about 1000 bbls of crude and 40 percent is stolen or unaccounted for during injection due to losses, the company is left with 600 bbls. Government royalties of about 20 percent of the total production (200bbls) is now deducted, then the company is left with 400bbls.NNPC overriding royalties at an average of 8 percent of production is also deducted; the company is now left with about 350 bbls. The pipeline operators charge transportation and terminal charges based on production, which results to another 13 percent of value of the produced crude, then the company is left with about 250 bbls. These deductions do not include the operations cost on the banks, taxes, NDDC levies, education taxes, financing costs, he added.In his response, the GMD while acknowledging Midwestern as being the most successful marginal field encouraged the oil firm to set its sights on greater things including the possibility of getting an oil block to further demonstrate its capacity beyond the marginal field space, while promising to consider issues raised within the bands of the law.
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