Examining DPR’s Regulatory Role
The Department of Petroleum Resources has always prided itself as a business enabler, beside its primary function of monitoring and ensuring standards in the oil and gas industry. In this report, Emmanuel Addeh analyses the several roles played by the government agency as well as how well these functions have helped spur the Nigerian economy by generating revenues for the government
Although not as complex and robust as it is now, since the discovery of oil and gas in the country, several attempts had been made by the authorities to establish or set up agencies to ensure compliance with the country’s petroleum laws. Before the establishment of the Department of Petroleum Resources (DPR), which has also evolved over the years, matters were handled by the Hydrocarbon Section of the Ministry of Lagos Affairs, which reported directly to the Governor-General at the time.
The Unit kept records on matters relating to exploration, and importation of petroleum products and enforced safety and other regulations on matters which were then mostly products importation and distribution.
But as the activities of the petroleum industry expanded, the unit was upgraded to a petroleum division within the ministry of mines and power.
In 1971, a new body – The Nigerian National Oil Corporation (NNOC) - was created to handle direct commercial operational activities in the oil industry on behalf of the federal government, while the department of petroleum resources in the federal ministry of mines and power continued to exercise statutory supervision and control of the industry.
This was the situation till 1975, when the department was upgraded to a ministry and named the ministry of petroleum and energy which was later renamed the ministry of petroleum resources.
By a decree in 1977, the Ministry of Petroleum Resources and the NNOC was merged to form the Nigerian National Petroleum Corporation (NNPC) as well as the creation of the petroleum inspectorate as an integral part of the NNPC to regulate the petroleum industry.
In a re-organisation in 1988, the petroleum inspectorate was excised from the NNPC and transferred to the ministry as the technical arm and renamed the DPR.
And that marked the formal birth of the DPR which has the statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the oil and gas industry.
In discharging this responsibility, the DPR engages in monitoring of operations at drilling sites, producing wells, production platforms and flow stations, crude oil export terminals and refineries.
It also monitors storage depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold as well as all pipelines carrying crude oil, natural gas and petroleum products.
Added to that, it supervises all petroleum industry operations being carried out under licences and leases in the country, monitors issues relating to flare down and domestic gas supply obligations, ensuring that health, safety and environment regulations conform with national and international best oilfield practices.
Maintaining records on petroleum industry operations, particularly on matters relating to petroleum reserves, processing industry applications for leases, licences and permits and ensuring timely and accurate payments of rents, royalties and other revenues due to the government, are among some other functions of the organisation.
The important role that the DPR plays in the economy is further underscored by the spread of its regulation, including overseeing adherence to the rules in the country’s hydrocarbon endeavours of about 323 developed fields, spanning both onshore and offshore platforms.
Essentially, these fields contain crude oil, condensates as well as natural gas reservoirs and connected to 265 production processing stations, and exported through 31 export terminals.
As part of its core functions, the DPR ensures crude process review for smooth operations in Nigeria’s upstream sector.
Indeed, the fact that Nigeria relies almost solely on crude receipts for its forex income and to fund its national budget, makes it even more critical to enable the government maximise revenue and be able to meet its responsibilities to Nigerians.
While fields are drilled based on oil equivalents - oil, gas, condensates and water, upon distillation, the products are separated and actual quantities are then determined, another highly regulated process.
It also underscores why crude oil cannot be stolen except the pipelines are compromised, because the process of transporting the crude from well heads to terminals are highly technical and strictly regulated by the DPR.
Because the process of transportation is via pipelines owned and operated by private companies, products are pumped from various well heads through these pipelines - Nembe Creek (NCTL), Transnational Pipeline (TNP).
Only the regulator, as the licence issuers for the all facilities involved in the process of crude explosion, transportation and based on approved allocations, can confidently determine who pumped what volume and when.
On this, the DPR recently clarified the process it uses for accounting for crude production in the country, noting that most incidents relating to oil theft occurs from the land terminals.
Director, DPR, Mr. Sarki Auwalu, while speaking before the House of Representatives Ad-hoc Committee on Oil Theft in Abuja, stated that the DPR was the agency of government saddled with the responsibility of monitoring crude oil production and lifting, dismissing the almost impossibility of rumoured huge oil theft from the system, especially offshore.
“The process starts from the well because every crude oil comes from well, and you cannot drill a well without knowing the capacity of that well to produce.
“So, the hydrocarbon accounting in DPR starts from the well. Once you drill a well, you will need to have what we call a maximum efficiency rate (MER) to know the capacity that well will produce. The volume accounting starts from that point.”
According to him, the methodology used in hydrocarbon accounting are static measurement and dynamic measurement, which are highly scientific.
He added: “The static is the volume that went into tank that you can dip and know the volume while the dynamic is the volume that goes across the meter. We have two kinds of meters: we have production meter that you measure the volume of oil produced and we have custody transfer meter where you measure the volume of oil that exchanged hands.
“What we do is to take inventory of all wells producing in every field based on the volume we give, within which that well cannot produce more than that.
“If you under produce, you can kill the reservoir. If you over produce, you can kill the reservoir. All these volume measurements, whether static or dynamic, we take record of them.”
He disclosed that Nigeria has over 30 terminals with five of them being land terminals, saying that thefts coming from land terminals are because they have to use pipelines to transport the crude into the terminals for export.
“In the process, you have a lot of third party interference which results in volumes that are being taken and are stolen. So, most of the discrepancies in production and export, you can easily calculate the theft volume.
“And the theft volume, if not all, come from the land terminals. But the offshore terminals, it is actually practically impossible to steal crude from offshore terminals, since it is from the bottom of the sea,” he said.
Apart from ensuring standards and compliance, the DPR has continued to use its regulatory instruments to enhance revenue collection for the federal government, especially through the collection of oil and gas royalties.
These represent the proportional value of oil and gas production, flare gas penalties, concession rentals paid for grant of oil and gas acreages and miscellaneous oil revenues comprising statutory application fees, licences, and permit fees.
For instance, despite the depressingly negative impact of the coronavirus pandemic, the oil price crash and the Organisation of Petroleum Exporting Countries (OPEC) plus production cuts, the DPR hit its target for revenue collection in 2020, making over N742 billion for the federal government between January and August last year.
To ensure transparency, the organisation operates a cashless revenue system which enables all revenue remittances to be paid directly to the federation account in total compliance with the Treasury Single Account (TSA) policy of government.
The DPR boss, Auwalu, said the agency had, therefore, adopted several approaches and streamlined its processes to deepen its influential role as an opportunity house and business enabler for the Industry.
He said the approaches include cost control and management, strategic partnership, vertical integration and diversification and portfolio rationalisation and operational resilience.
In all, while there would always be claims and counter claims by operators, as it is, only the DPR can resolve such disputes amicably based on available data for all parties’ mutual benefits.
Its past audit which is available to members of the public on upstream operations will come in handy in terms of crude losses if any.
It is also pertinent to note that upstream operations are in venture partnerships, therefore, whatever decision/penalty prescribed by the DPR in the process of the dispute resolution is shared by the venture partners according to equity holding.
On the claims over alleged admission of theft of 2 million barrels of crude by Shell in an online publication, the body has also said that is imperative to clarify that what is being referred to as admission of theft is a process and regulatory issue arising from disputes over shared facility.
“A simple analogy is in the telecoms sector where the NCC resolves similar disputes over collocation among network service providers arising from origination and termination of services.
“In conclusion, process reviews or reconciliation of crude volumes is not an admission of theft but the outcome of investigations arising from operational disputes on field reserves and it’s daily output template by operators who share common facilities like pipelines and terminals,” a source with knowledge of goings on within the sector stated.
In addition, as part of its responsibility of ensuring revenues for the government, the organisation generated N1.3 trillion and additional $200 million from legacy indebtedness in 2018 alone into the government coffers.
To ensure that it shores up its revenue, the DPR sometime ago also embarked on reducing approval time for permit certificates which now takes 48 hours to get approval for permits, so that revenue accruable to the federation account comes in as soon as possible .
To ensure transparency, the organisation operates a cashless revenue system which enables all revenue remittances to be paid directly to the federation account in total compliance with the Treasury Single Account (TSA) policy of government