Introduction
Nigeria’s petroleum industry started with a modest crude oil production rate of 5100 barrels per day, following the first discovery and exploration of crude oil in commercial quantities at Oloibiri in Niger Delta in 1956. Nigeria’s crude oil reserve is estimated at 28.2 billion barrels, while natural gas reserves total about 165 trillion standard cubic feet (scf), including 75.4 trillion scf of non-associated gas (NNPC n.d.). Nigeria’s crude oil production accounts for about 80% of the country’s revenue and 95% of export earnings since the 1970s (Onuoha 2012, 14).
Nigeria attained a new frontier in oil and gas exploration (Ezirim 2018) with the development of offshore oil blocks in water depths reaching 2500 metres (see FRN 1996). This resulted in the allotment of some deep offshore blocks and even ultra-deep concessions to experienced international oil companies (IOCs) in the knowledge that the deep-water operations are technically challenging and massively capital intensive (NNPC n.d.). Over the past 55 years, a total of about 1182 exploration wells have been drilled in the Delta basin and about 400 oil and gas fields of varying sizes have been documented (Obaje 2009, 24; Alike 2017).
The IOCs operate in partnership with the Nigeria National Petroleum Company (NNPC) under Joint Venture (JV) or Production Sharing Contracts (PSCs). On the other hand, the indigenous oil companies operate in partnership with international companies under sole risk or as independents (NNPC n.d.). The Department of Petroleum Resources (DPR) performs regulatory functions such as issuing permits and licences for all activities connected with petroleum exploration and the refining, storage, marketing, transportation and distribution thereof (FRN 2004). However, some IOCs move offshore and divest their onshore assets, including marginal oil wells, to the advantage of indigenous oil and gas companies, partly due to Nigeria’s concerted push for local content and strict oil sector laws (Adedeji and Law 2016). The government therefore granted oil block ownership and mining rights, licences and permits to indigenous oil firms to prospect (oil prospecting licence or OPL) or mine (oil mining licence or OML) oil fields in Nigeria. However, the technical challenges of Nigeria’s virgin territory pose great difficulty for local investors: the deep and ultra-deep water depths of over 1000 metres entail extremely high prospecting costs in terms of the infrastructural support and services (NNPC n.d.). The Oil Revenue Tracking Initiative’s Interim Report (Oil Revenue Tracking Initiative et al. 2013) indicates that most of the indigenous oil firms who hold oil prospecting and mining rights are incompetent and default on correct remittances.1 The Interim Report flags some of the political realities and undercurrents underlying the manner in which these oil blocks were allocated to indigenous operators.
Are due process and transparency adhered to in the allocation and award of oil block ownership and mining rights to indigenous oil firms in Nigeria? What political interests are implicated in the allocation and award of oil blocks and remittances, signature bonuses and royalties in Nigeria? What socio-economic and political impediments weaken the capacity of indigenous oil companies to benefit from carrying out required exploratory activities, development and prompt drilling of the acquired oil blocks? The consequences of these pungent questions and interplays are rapid and deep-rooted. This has raised serious concerns among key stakeholders, practitioners, scholars and analysts in the Nigerian oil sector regarding the reality of corruption and personalisation of oil rents as well as the real use to which oil receipts are put in Nigeria (Adibe et al. 2018).
The politics of who controls oil blocks and the personalisation of oil rents in Nigeria therefore appear more intense than imagined, especially in relation to the manner in which the ruling elites confer oil blocks on themselves, their cabals and their cronies in the form of reward, settlement and compensation (Usman, Ikemefuna and Fatimah 2015, 2). What is particularly striking is how the licensing rounds and bidding for oil blocks occur arbitrarily. The DPR placed the total number of oil blocks in Nigeria at 390, of which 173 have been awarded – 90 to indigenous companies and 83 to IOCs. This comprises 111 oil mining leases (OMLs) and 62 oil prospecting licences (OPLs). The remaining 217 oil blocks are yet to be awarded. Nigerians own 52% of the oil blocks, while foreign petroleum companies own 48% of the oil blocks (The Punch 2019). Although more Nigerian companies are now active in the local oil and gas industry, only a small percentage of the marginal fields are actually producing (The Oil and Gas Year 2015).
Most indigenous oil companies under the independent risk operator scheme have declined due to a lack of the requisite financial and operational inputs for effective operation and drilling of oil wells in the marginal fields allotted to them. Why is it that of the current licensees, only 30% of the oil fields controlled by the local companies (Addeh 2021) have reached commercial production? This reveals that many indigenous oil companies are not in a position to invest in capital projects, owing to serious production challenges and funding problems. It is argued that
Many indigenous companies that depend on bank loans have not been able to invest much in oil and gas exploration and production. They have not been able to go into large scale investment. Some of them can still manage to sustain drilling. They cannot generally do more because of limited funding. But the big International Oil Companies (IOCs) still invest because they have the capacities to do so. In fact, many of them still carry out operations in the deep offshore, which cost a lot of funds. (D. Oni, quoted in Akpan 2017)
This research attempts to demonstrate the extent to which oil block allocation is conditioned by the interest of ruling elites and premised on the preservation of state power. The patron–client relations analysis is applied in the study to characterise the role of the ruling elite (‘patron’) – who dish out oil blocks to their political cronies and election financiers in the form of compensation; and the role of the indigenous operators/oil block awardees (‘client’) – who receive oil blocks in return as reward or compensation for preserving the patron/state power. The patron–client analysis espoused by this study reveals among other things the political economy of oil block allocation and receipts in Nigeria. It helps to highlight the myriad effects and implications of personalisation of oil block allocation by the ruling elites on the sustainable development of marginal oil fields and crude oil production in Nigeria. More importantly, a comparative analysis of the performances of indigenous operators and IOCs in oil well prospecting and mining is made, with critical evaluation focused on three component points: (i) actual exploratory activities; (ii) development activities; and (iii) prompt drilling activities.2 This evaluation is highly significant in understanding the cumulative effects of patron–clientism in oil block allocation/award in Nigeria.
This research is apt as it encourages analysts, policy makers and stakeholders in the Nigerian oil sector to develop a more transparent, objective and robust framework for oil block allocation to indigenous operators in Nigeria. The research calls for strong institutional mechanisms that would underpin effective exploratory, development and prompt drilling of oil wells, and consequently enhance oil production capacity and rightful remittances by indigenous firms in Nigeria.
The Nigerian petro-state and the indigenisation policy in the oil sector
The history of the Nigerian oil industry is calibrated by the government’s indigenisation policies (decrees) of the late 1960s and the 1970s, which authorised Nigerian government ownership and control of the oil sector amid domination of the sector by foreign capital (Ekukinan 1974). This step began with the Petroleum Decree no. 51 of 1969 (FRN 1969) which conferred all the rights of oil exploration, mining and sale to the Nigerian government. On 18 June 1971, the Nigerian state set out the primary objectives of the indigenisation policy thus:
to build an independent economy that creates more opportunities for indigenous Nigerian businessmen;
to ensure greater retention of profits accruing from the economic sector; and
to encourage further foreign investment in the sophisticated area of intermediate and capital goods production (Africa Research Bulletin, 1971, cited in Ogbuagbu 1983).
Role of the petro-state, the Nigerian oil actors and the foreign oil capitalists
The state in Nigeria is composed of several key institutional elements: (i) a statutory monopoly over mineral exploitation; (ii) a nationalised (state) oil company that operates through joint ventures with oil majors who are granted territorial concessions (blocks); (iii) the security forces of the state (which protect oil investments); (iv) the oil-producing communities themselves, within whose customary jurisdiction the wells and facilities are located; and (v) a politico-financial mechanism by which oil revenues are distributed to the federation (states, local governments and central government) (Watts 2007).
The petro-state in Nigeria made much headway in firming up the above institutional frameworks through the indigenisation policy, amid varying competing interests. Soares de Oliveira (2007) argues that the ruling elites who controlled the state power gained consciousness, as a class, that capitalist accumulation is more profitable and preferable to dependence on political patronage from rent-seeking activities. Iliffe (1983) sets out three classes of ruling elite that emerged in post-colonial Africa: ‘anti-capitalist’, ‘parasitic capitalist’, and ‘nurture capitalist’. Importantly, nurture capitalism represents an attempt by the petro-state to create an economy in which significant areas of enterprise are in the hands of private capitalists. Boone (1998, 185) affirms that ‘Africa’s political class uses their power to expand the scope of local capital accumulation, especially by supporting and facilitating local private investment in the [oil] industry.’ This depicts a state with the institutional and political capacities needed to promote effectively the interests of nascent indigenous capitalist strata. The petro-state ensured that the Nigerian oil actors – including top bureaucrats, political (party) leaders and ‘godfathers’, business moguls, retired military officers, Nigerian and international oil industry bosses – controlled the new forms of capitalistic social relations of production in the oil sector as primary beneficiaries, in which the Nigerian content became a new strategy of accumulation (Ovadia 2013).
Therefore, the purpose of the indigenisation policy was primarily for economic nationalism (Ogbuagu 1983), which merely served the interests of a few Nigerian oil actors (Akeredolu-Ale 1975). The policy orchestrated a balance between the interests of the local bourgeoisie with those of the foreign bourgeoisie, who preferred to share their profits with local partners rather than to divest their investments in the country. However, since it lacked requisite funds and experience to acquire and run foreign enterprises, the petro-state took the initiative to take over and/or acquire substantial equity shares in foreign oil investments on behalf of the few Nigerian oil actors that controlled the state (Akinsanya 1994; Williams 1976).
Nonetheless, foreign oil companies retained control of their investments by providing funds for their influential indigenous business partners, whom they connived with to acquire equity interests in the investments or to use the company assets to obtain bank loans, and thereafter share the accruing profits with the indigenous business partners. Where foreign investors agreed to share or completely sell their investments to Nigerians, the process of acquiring these businesses by Nigerians had mainly favoured a narrow but easily distinguishable class of interested parties, who are tacitly backed by government parastatals that coordinate the indigenisation policy. The petro-state influenced the Nigerian Industrial Development Bank, and set up the Nigerian Bank for Commerce and Industry in 1973, to skew the provision of funds to the local bourgeoisie (based on high collateral for loans) in order to acquire more equity shares in foreign companies. Thus, the professional shareholders found it very difficult to secure shares in foreign companies, while the few Nigerian oil actors schemed to secure maximum allotment by conniving with foreign oil capital and some corrupt bureaucrats to acquire the majority of the shares quoted for sale (Akinsanya 1994; Kohli 2004).
The Nigerian petro-state thus continued to mediate the infusion of oil capital into the economy. Multinational oil companies secured several concessions from the Nigerian state which gave them the upper hand in the sector (Edogun 1985). The indigenisation decree encouraged oil companies to underpay the state in royalties on the basis of a negotiated price instead of the world price. The state further entered into a ‘buy back’ agreement with the oil companies based on the Participation Agreement of 1983, which gave the foreign oil companies the status of sole marketer of Nigerian oil. The state-owned NNPC therefore stopped being a major player in the production, refining and marketing of oil (Singh 2011). Foreign oil investors were able to forge and maintain close links with the local bourgeoisies that made them retain financial interests in the country, and also with the petro-state that lacked the political will to compel them to disinvest (Akinsanya 1994). Therefore, state policy on petroleum successfully established a framework that protects, perpetuates and promotes the selfish interests of the ruling elite and that of the foreign oil magnates at the expense of the state (Edogun 1985; Pegg 1999).
Williams (1976, 43) observed that the Nigerian state failed to ‘regulate relations between foreign capitalists and the indigenous bourgeoisie in such a way as to accommodate nationalist aspirations for Nigerian control of economic opportunities’. The state thus became ‘an instrument of private and sectional interests’, and could not maintain appropriate conditions for the development of capitalist production which requires:
a state able to override particular capitalist interests, both domestic and foreign, in the interests of the overall development of capitalist society … .
In order that impersonal rules governing competition may be established, [it is necessary to] weld the bourgeoisie into a coherent bloc able to institutionalize its rule over the classes …
so [it can] impose its own regulation and direction on foreign and indigenous capitalist interest. If this is not done the state will be unable to consolidate bourgeoisie domination and it will in itself become an arena in which sectional interests compete for resources (Williams 1976, 43–44, 191–192)
This means that the petro-state has been unable to establish appropriate conditions for substantial development of capitalist production that could stimulate secular nationalist economic development (Watts 2007). However, it is not expected that the government at any given period will represent a coherent bloc, where all the various factions of the bourgeoisie are welded together (Williams 1976). More importantly, the relationship between Nigerian oil actors and international oil companies has serious implications for patron–client relations in Nigeria’s political economy of oil. Widespread patron–client relations and discretionary control of oil resources became a major source of corruption, and many a fortune was made by those connected to the ruling elite and even by the Nigerian oil actors themselves (Kohli 2004; Obi 2009). Vines et al. (2009, 12) note that ‘[p]ast governments had given out oil blocks to their associates, friends and cronies without due process at giveaway prices. The beneficiaries, in turn, were able to hawk their blocks to foreign oil companies and walk away with huge profits.’
Conceptual analysis of patron–client relations
Patron–client relations imply the exchange of material resources, goods, services and benefits (Scott 1972), including the exchange of promises and obligations between patron and client (Nichter 2008; Kopecky and Spirova 2011). Some prominent studies discern key features of patron–client relations (Grazziano 1973; Lemarchand and Legg 1972). Eisenstadt and Roniger (1980) focus on personal communication, direct exchange of material resources and a certain degree of loyalty, and the asymmetrical structure of the patron–client relationship. These features are present in tribal settings and small groups (Smith 2004), and in government bureaucracies (Banfield and Wilson 1963). Some patrons rely completely on brokers and intermediary agents, including ‘friends of friends’, in order to share out more resources to the clients (Weingrod 1968; Stokes et al. 2013). This is organised in a highly complex (often pyramidal) arrangement or network, selectively reaching different strata, groups and sectors, and pervading political parties, factions and administrations from national to local level (Roniger 2004).
Milena (2017) highlights the element of ‘face-to-face’ contact and ‘diffuse flexibility’ in modern-type patron–client relations, which are maintained by trust, affection and a sense of responsibility that develop with time. Accordingly, democratic culture and socio-economic developments in modern societies make it possible for patron–client relations to adjust to new conditions (Brun and Diamond 2014). New forms of patron–client relations are more personalised, less structured and goal oriented, involving an array of interest groups, political influence and lobbying (Sandbrook 1972; Lebra 1975).
Patron–client relationships in Nigeria’s oil sector are, however, distinctively complex, imperative and significant in many ways, which the foregoing analysis did not capture. A number of competing frameworks or critiques attempt to explain the relationship between ruling elites and oil actors in Nigeria. One such is Schultze-Kraft’s (2013) concept of political settlement. Schultze-Kraft conceptualises ‘political settlements’ as formal and informal one-off events, such as political elite pacts, peace agreements and amnesties. But they also take the form of more dynamic and fluid processes of (tacit and open) negotiation, compromise, bargaining, accommodation, coalition and network-building among powerful persons and groups. The Nigerian oil actors therefore have vested interests in promoting or increasing their interests in Nigeria’s ‘oil sector’, which is lubricated via political settlement. Over many years, oil and the appropriation of oil rents by Nigerian oil actors and their international oil business partners have shaped this settlement (Ikein 1990). The political settlement arrangements generally undermine transparency, accountability and due process in the oil sector.
Watts (2007) contends that central to the operations of the new oil economy was the emergence of an ‘oil complex’ that overlaps with, but is not identical to, the ‘petro-state’. A volatile mix of forces shapes the oil complex. First, the geo-strategic interest in oil means that military and other forces are part of the local oil complex. Second, local and global civil society and human rights groups enter into the oil complex to demand the accountability of the petro-state. Third, the transnational oil majors, the independents and the vast service industry are engaged in community development, corporate social responsibility and stakeholder inclusion. Fourth, the inevitable struggle over oil wealth – who controls and owns it, and how to share and use it – inserts a panoply of local political forces (ethnic militias, paramilitaries, separatist movements and so on) into the operations of the oil complex. Fifth, multilateral development agencies, including the International Monetary Fund and the International Bank for Reconstruction and Development and other export credit organisations, act as key ‘brokers’ in oil development/expansion in oil-producing states. The last is the connection between oil and drugs, illicit wealth from oil theft, mercenaries and the black economy. It is this mix of forces that shapes the development of an ungovernable oil economy in Nigeria with a fragile and weak petro-state that fails to effectively regulate the competing interests of the Nigerian oil actors and the transnational oil actors.
More fundamentally, the patron–client perspective explains the ‘rationality’ of corruption, conflict and misgovernance in Africa (Obi 2009; Reno 2003). Thus, Chabal and Daloz (1999) argue that the ‘instrumentalisation of disorder’ by African ruling elites in pursuit of their private interests undermines the state, and results in conflict, state failure and crisis. Bayart, Ellis and Hibou (1998) connect this crisis to the predatory activities of Nigerian oil actors, which ‘criminalise’ the state, subvert it and enrich themselves. Reno (2003) shows how the role of international actors and agencies impacts on local patron–client networks and the ruling elites in Africa. Ruling elites construct ‘shadow states’ and ‘shadow economies’ by undermining the formal state and economic structures and engaging in profitable ‘informal sector’ economic activities whose benefits go directly to them, rather than the state or people (Iwuoha, Ezeibe and Ezeibe 2020; Iwuoha et al. 2021). Patrimonial political networks, corruption and state collapse thus strengthen the struggle for oil resources and the ungovernable nature of the oil economy.
The theoretical argument proposed in this research is that the Nigerian oil actors, particularly the indigenous oil block owners who are referred to as ‘clients’ in the Nigerian oil sector, possess a certain degree of power, resources and higher economic status and reputation than the patron, and more importantly control the behaviour of the patron to some extent. Clapham (1996) argues that clients, despite being on the supposedly weaker side of the relationship, nonetheless have a degree of agency to shape the power dynamics and exact concessions and benefits from what are, ultimately, asymmetrical power relationships. The clients can do this by playing the ‘superpowers’ (i.e. patrons) off against each other, minimising obligations while maintaining power, and by asserting hegemony – among other things.
The powerful presidential patron controls access to security, police, land rights, legislation, international relations, international oil contracts and soforth, and also through his agents/political appointees undertakes discretionary (lack of due process) allocation and issuance of oil block ownership, drilling and development rights to the clients; however, it all depends in toto – and delicately – on the financial lubrication of the clients, as these, in return, finance and sponsor elections for the political survival of the patron. Against Scott’s (1972) conviction that the patron draws much greater benefit from the relationship than the client, and decides on what terms the exchange of goods, services and obligations would be based (Wilson 1961), the research in this article contests rather that clients in Nigeria’s oil sector enjoy more economic returns/oil rents than the patron, and decide how much they pay for the preservation of state power (either in the form of kickbacks or as direct funding of the patron’s election) in exchange for oil block allocation. Moreover, the political and electoral gains of the patron are transitory, while the control of goods – oil resources – by the client is sustainable, and more decisive in controlling electoral outcomes.
Roniger (2004) draws attention to the democratic type of patron–clientism which involves the distribution of state resources (jobs, contracts and services) in exchange for political support. Those in power – patrons, sub-patrons, and power-brokers – provide selective access to opportunities and goods (i.e. oil block ownership rights) and place themselves or their supporters in positions from which they can divert resources and services in their own interest.
However, widespread patron–client relations can destroy the system of democratic accountability (Gedde 1994; Stokes et al. 2013), encourage corruption (Wilson 1961; Khan 1998), impede the professionalisation of state bureaucracy (Cruz and Keefer 2015), undermine resource mobilisation and institutional/economic development (Roniger 2004), and undercut the efficacy of public agencies and good governance initiatives (Lewis 2010). In the case of Nigeria, patron–client relations contribute to poor development of the upstream oil sector by the indigenous clients, to defaults in oil remittances and to consistent decline in crude oil productions. There is reckless neglect and abandonment of the required maintenance and development of oil wells by the clients, whose huge financial kickbacks and ability to finance elections for their patrons enable them to pass on the blind side of the state’s due process mechanisms. This conforms to Hicken’s (2011) claim that clients may enjoy some liberty of ‘voluntary compliance’.
The reality is that oil rents are used not for development purposes but for lubricating the patron–client system that underpins the fragile political settlement system in Nigeria. The goal is not developmental but is to use oil rents as a means of ensuring elite control over the Nigerian state. Therefore, what matters is that oil rents continue to flow to the ruling elites controlling the Nigerian state and, better still, that the percentage of the rents that come to them increase, a prospect that the patron–client relations have enhanced (Obi 2009). The Malabu scandal reflects this logic. Early investigations indicated a fraudulent and corrupt scheme in which the proceeds of OPL 245 – a ‘lucrative’ oil prospecting licence deal totalling about US$520 million – were alleged to have been channelled for personal payouts or payment of bribes to top politicians and government officials (Sahara Reporters 2017). A court ruling in Milan in December 2018 implicated Dan Etete, Aliyu Abubakar and two oil companies, Shell and Eni, in the scheme (Brun et al. 2021). Brun and his co-authors, in their updated World Bank Asset recovery handbook, draw attention to five ‘red flags and controversies in awarding the OPL 245 oil block’ (Ibid., 124–125). A subsequent court ruling in Milan in March 2021 acquitted Dan Etete and Aliyu Abubakar, as well as Shell, Eni, and their managers from the Malabu scandal (Olawoyin 2021). Earlier in the scandal, the December 2018 ruling found two middlemen guilty of corruption offences in relation to OPL 245 (Global Witness 2018). Before the indigenisation of the upstream oil sector it would have been rare for one person to make such huge gains from a single oil deal in Nigeria. The facts established in this controversy by investigators and the legal processes not only indicate the real uses to which oil receipts are put in Nigeria, but also highlight the reality of corruption and personalisation of oil rents in the country.
Politicisation of oil block allocation and its centrality to state power
The level of conformity to transparency and due process by the Department of Petroleum Resources (DPR) in the process of oil block allocation in Nigeria is a critical question for key stakeholders in the oil sector. While many observers believe that the process is yet to be made transparent, the DPR has continued in its responsibilities with little or no strict legal boundaries. Under the licensing regime, the DPR issues oil exploration licences (OELs), permitting a licensee to explore for petroleum in the licensed area for one year, renewable upon satisfaction of certain conditions. After receiving an OEL, the licensee is given an OPL, which grants him exclusive rights of exploration. Last, the OML is granted to the holder of an OPL, upon satisfaction of all conditions of the licence or of the Petroleum Act 2004 (as amended) (FRN 2004), and having discovered oil in commercial quantity (i.e. a flow rate of 10,000 barrels per day). However, only 57% of blocks offered in 2005 drew even a single bid; by 2007, the number was down to 40%. Nearly half of the awards in 2005 ended in default. Overall, it appeared that fewer than 50 contracts were signed on the approximately 175 blocks offered between 2000 and 2007. Acreage which in 2005 attracted signature bonuses of more than US$100 million, but saw bidders default, fetched less than US$20 million when reoffered in 2006 and 2007 (Sweetcrude Reports 2017).
More importantly, the oil block award process and bidding rounds were considered curious and intricate by some sources, as the exercise boycotted and circumvented due process relating to the principles of transparency, openness, and competitive bidding. The manner of arbitrary allocation of oil blocks in which due process is sidelined is a key indicator to show that oil blocks in Nigeria are awarded based on political interests. Vines et al. argue that:
There is a widespread perception in Nigeria that the timing of the oil deals had a strong political undertone. … The unspoken need to generate funds for President Obasanjo’s (ultimately unsuccessful) bid to change the constitution to allow him to run for a third term is seen as the key to the unravelling of the deals. There are credible reports of large sums paid to President Obasanjo to support an extension of his tenure by certain beneficiaries of the ‘oil-for-infrastructure’ deals. It is also believed that officials who negotiated the deals compromised the arrangement by putting personal profit above the national interest. …
But the political game had changed, from raising third-term funds to raising funds for the ruling party for the 2007 election and rewarding cronies in a last-minute fire sale. (Vines et al. 2009, 7, 17)
The state power brokers make discretionary allocations to unqualified independent bidders who end up abandoning the oil blocks because of either lack of money or lack of expertise and technology to develop the fields, thereby denying the country revenues from the oil blocks. For instance, former president Olusegun Obasanjo, being Minister of Petroleum Resources, allocated four oil blocks – OPLs 218, 219, 209 and 220 – to Transnational Corporation (Transcorp), a company in which he was a major shareholder (Nwokeji 2007). Meanwhile, barely one month before Nigeria’s 2003 presidential election, three oil blocks – OPLs 223, 251 and 257 – were scheduled for inclusion in a bidding round by Funsho Kupolokun who served as Special Assistant to former president Obasanjo. ExxonMobil and Vintage Oil and Gas Ltd received a joint award of OPL 257, and ECL International Ltd was awarded OPL 251, but OPL 223 was not awarded to any company. However, the report of the Committee on the Evaluation of Bids remarked that the awarded oil blocks were not officially listed as being on offer. It was also discovered that both Vintage Oil and Gas Ltd and ECL International Ltd had ‘doubtful experience, technical ability and track records’ and were not known to the Nigerian oil and gas industry (Ezeamalu 2018).
Again, the first ever open auction in which bids were simultaneously projected to the public via an electronic screen in 2005 had a total of 77 blocks on offer (out of which 44 blocks were finally awarded), as against 61 blocks directed in an internal memorandum sent to the DPR, the permanent secretary at the petroleum ministry, and NNPC, by the Presidential Adviser on Petroleum and Energy, Edmund Daukoru, on 5 March 2005. There were in fact no comprehensive data provided by the DPR on the actual total number of oil blocks put on offer in each round of bidding (Olsen 2005). In its report, the House of Representatives Committee on Due Process of Allocation of Oil Blocks by the DPR discovered that Daukoru’s internal memo stated 61 blocks, while the Bid Evaluation Report stated 77 blocks. This problem was also reflected in the number of oil blocks won and awarded, which had two different figures – 36 and 44 respectively. About 38 companies won interests in 23 out of the 36 oil blocks put on offer, even though their names and application forms did not appear in the Bid Report. The application documents of about 11 companies that participated in the registration process and won oil blocks were also missing (Ezeamalu 2018). It is therefore noted that:
What is established is that companies that did not register for the bid process were pre-qualified, and eventually awarded blocks in clear violation of both the Internal Memorandum and the Guidelines. …
Moreover, participation in a bid process is, depending facto [sic], an application for an Oil Prospecting Licence (OPLs). The non-registration of these 38 companies and their consequent non-payment of the statutory application and processing fees of US$10,000 each totalling US$20,000 per application (are) therefore a clear violation of paragraph 59(a) and (b) of the Petroleum (Drilling and Production) Regulations. (Ezeamalu 2018)
Importantly, the principle of ‘forced marriages’ affected operators, who were authorised to relinquish about 10% equity in any block to an indigenous company, known as the local content vehicle (LCV). Out of over 100 LCVs that pre-qualified for the round of bidding, only 10% had previous experience in oil exploration and development (Vines et al. 2009). Many of the LCVs of choice were cronies of powerful politicians in Nigeria. For example, Emmanuel Ojie, who owns NJ Exploration Services, was a close associate of former president Obasanjo, and was the approved LCV on one of the blocks awarded to the Koreans. Ojie also had another company in his name, Emo Oil, and was the LCV approved for two blocks awarded to the Indian government-owned Oil and Natural Gas Corporation (ONGC). Southland, which is owned by Senator Andy Uba, a former special adviser to President Obasanjo, was given OPLs 321 and 323 in a joint award with Korean National Oil Company, KNOC (Ezeamalu 2018). Shore Beach Exploration, a company co-owned by Ojie and Emeka Offor (a powerful politician and power broker in Anambra state) ‘was the approved LCV for blocks awarded to China in 2006’ (Ibid.). Aliyu Abubakar, owner of Bayelsa Oil Company – OML 46 – was an associate of a top government official and a front man in the Malabu oil scandal (Ibid.).
The foregoing illustrates how oil blocks were awarded without due process to associates, friends and cronies of those linked to state power. Beneficiaries of these discretionary oil block awards pay back by sponsoring party politics and financing election campaigns for the consolidation of state power and maintenance of the status quo. For instance, Nigeria’s richest businessman, Aliko Dangote, who bought the Kaduna and Port Harcourt refineries under the Dangote Group, donated one-third of the funds raised at a party dinner for Olusegun Obasanjo’s election campaign in 1999, and significantly funded the 2003 election for Obasanjo (Financial Times 2008; Oguniesi 2015). In the build-up to the 2003 general elections, the indigenous company Orandi, linked to Peter Odili, the governor of Rivers State, paid US$190 million in signature bonuses for an oil block (Vines et al. 2009). The owner of OPL 291 operated by Starcrest Energy Nigeria Limited/Chrome Energy, Sir Emeka Offor, was reported to have donated N200 million to the Obasanjo/Atiku presidential re-election campaign in 2003. He also, according to President Buhari's spokesperson, managed ‘a special account to finance the PDP [Peoples Democratic Party] presidential re-election bid in 2003’ (Adebayo 2017). Prince Arthur Eze, owner of Atlas Petroleum Int. Ltd (OPL 109) and Oranto Ltd (OPL 320), who declared support for President Buhari ahead of the 2019 general elections, donated the sum of N1 billion for the re-election bid of Governor David Umahi of Ebonyi State, who was endorsed by Buhari despite being a PDP governor (Odogwu 2018). Mike Adenuga, who owns Conoil (with six oil blocks), the oldest indigenous oil exploration industry in Nigeria, and other indigenous operators including Tony Elumelu and Jim Ovia, were on the PDP donors' committee set up ahead of the 2011 election in the country (Abati 2011). Femi Otedola, who is a key stakeholder in Transcorp (OPL 281), was appointed onto the Special Advisory Committee on Buhari’s 2019 re-election. Players in the Nigerian oil and gas sector, most of whom owned oil blocks, announced a donation of N5 billion (representing roughly 24%) out of the total sum of N21.27 billion raised during the December 2014 PDP campaign fundraising dinner for Goodluck Jonathan held at the old Banquet Hall of the Presidential Villa, Abuja (Sahara Reporters 2014).
That the state powers connived in this is established in the press statement of the DPR, which defended the state authorities and said that some of the oil blocks/acreages were actually ‘discretionary awards’ which ‘stemmed from the need to pave the path for ownership of oil assets by Niger Delta companies’ (Alike 2017). Specific cases abound in which about seven oil blocks were discretionally allocated by the office of the Minister of Petroleum Resources in 2008, 2009 and 2011. The Corporate Affairs Commission found that Iyabo Obasanjo-Bello, daughter of former president Obasanjo, was one of the beneficiaries of the illegally distributed oil blocks. One other senator, Magnus Abe (Rivers State), was also mentioned in the arbitrary award (Corporate Affairs Commission, cited in Sweetcrude Reports 2017). A detailed breakdown listing the real indigenous oil block owners in Nigeria, as well as the operators of marginal fields, is set out in Appendix 1. Many of the politically influential oil block owners are directly or indirectly linked to state power and are power brokers in the different regions of the country. They are held in trust and esteem by the central authority, as they habitually finance the electoral campaigns of the ruling elites in the country.
The act of indiscriminate, arbitrary and secret oil block allocations contravenes international best practice and critically undermines due process. While the government has always declared that the process of awarding oil licences is to be done publicly through competitive bidding, its sincerity of purpose remains in great doubt. Key sections of the Petroleum Act 2004 (FRN 2004), as set out in Figure 1, ascribe undue advantage and overwhelming powers to the president and to the minister of petroleum resources in Nigeria with respect to oil block allocation and ownership rights.
President Yar'Adua set up an investigative committee on the award and development of oil blocks, almost immediately after he took office in May 2007, and the committee presented its report in August (Special Investigative Committee 2007). Vines et al. noted the report's findings that
Many [indigenous] companies took advantage of [the oil-for-infrastructure scheme] to have access to concessions with high potential without fulfilling their commitments to government by initiating downstream/infrastructure projects of strategic national importance which formed the basis of the philosophy. … That was to place [the indigenous companies] in the line of fire for the non-delivery of projects two to three years after oil blocks had been awarded to them. …
The oil-for-infrastructure concept … in Nigeria … was poorly conceived and poorly implemented – and above all, it was distorted by political considerations. What should have been a ‘win-win’ situation turned into a ‘lose-lose’ situation. (Vines et al. 2009, 21, 28)
Loss of oil revenue and royalties
Tables 1 and 2 provide information on crude oil royalty rate and parameters used in determining the rates in Nigeria (FRN 2004). However, there is no single point of accountability for the income and expenditure streams of upstream petroleum operations. Discretionary decision-making in the award of oil blocks resulted in high revenue losses (from signature bonuses) in Nigeria (Petroleum Revenue Special Task Force 2012).
Crude oil royalty rate.
| Water depth | Production percentage payable in royalties (%) |
|---|---|
| Onshore areas | 20 |
| Inland basins | 10 |
| Up to 100 metres water depth | 18.5 |
| Up to 200 metres water depth | 16.5 |
| From 201 to 500 metres water depth | 12.5 |
| From 501 to 800 metres water depth | 8 |
| From 801 to 1000 metres water depth | 4 |
| Areas beyond 1000 metres water depth | 0 |
Source: Nigeria Petroleum Act 2004, Cap. P10 (FRN 2004).
Note: The royalty rate is calculated based on the percentage of the total volume of crude oil production in specific production areas/water depth.
Parameters used in determining crude oil royalties in Nigeria.
| No. | Parameters | Description |
|---|---|---|
| 1 | Official selling price (OSP) | This is the price of crude as advised by the Crude Oil Marketing Division (COMD) of the Nigerian National Petroleum Corporation (NNPC). |
| 2 | Reference API gravity (APIr) | This is the index assigned to a type of crude to indicate its level of quality, a measure created by the American Petroleum Institute. The higher the quality of crude, the higher the API, and the more ‘white’ products (e.g. benzene and kerosene) will be obtained from it when it is refined. |
| 3 | Field API gravity (APIf) | This is the API gravity level of the field the crude oil is produced from. |
| 4 | Realisable price (RP) | This is the actual price of the crude oil from a particular field when compared to the price of the benchmark crude for that particular field. The realisable price is determined based on the relationship between the OSP, the APIr and the APIf. |
Source: Nigeria Petroleum Act 2004, Cap. P10 (FRN 2004).
A series of sharp practices underlies the payment of signature bonuses on the oil blocks. Some 67 licences were awarded between 1 January 2005 and 31 December 2011, with an outstanding balance of US$566 million in signature bonus payments still not remitted. For the seven discretionary allocations reviewed, about US$183 million was due to the nation’s treasury but still outstanding. The outstanding US$566 million from the 67 licences awarded between 2005 and 2011, when added to the US$183 million outstanding from the seven discretionally awarded blocks, comes to a total of US$749 million due to the treasury but still unpaid. Vintage Oil and Gas paid a mere US$2.5 million as signature bonus, while Elf Petroleum Nigeria Ltd made a staggered payment of US$15 million, as against the US$20 million assessed as being due (Petroleum Revenue Special Task Force 2012). There was also an outstanding sum of N137.572 billion (US$946.878 million) from SNEPCO, one of the independent oil block owners, representing the proceeds due from the Bonga oilfield. Chrome Oil, owned by Sir Emeka Offor in partnership with Taiwan’s Chinese Petroleum Corporation Taiwan (CPC), was awarded two blocks (OPL 274 and 275) during the 2005 bidding round, but failed to pay the signature bonuses (Vines et al., 2009).
Unpaid revenue from arbitrary awards, in which seven oil blocks were discretionally allocated by the office of the Minister of Petroleum Resources in 2008, 2009 and 2011, was US$414.45 million. The signature bonuses per concession over the period range from US$150,000 to US$310 million. Of the US$414.45 million expected for the seven discretionary allocations, three were assessed at US$150,000 each to Afren Energy Services/Oriental, All Grace Energy and Green Energy Nigeria Limited. The Petroleum Revenue Special Task Force report (2012) found that ‘US$3.027 billion was outstanding from the operators for crude oil royalties as at 31 December 2011.’
Comparing levels of exploration and development of oil wells
Effective management of the marginal oil fields is key to greater oil productivity, economic development and transformation of the nation. Table 3 explains the different categories of oil exploration and production agreements in Nigeria.
Description of different operating agreements in the upstream oil industry in Nigeria.
| No. | System of agreement | Description |
|---|---|---|
| 1 | Joint Venture (JV) | Under a joint venture (JV) arrangement, because the government is a major stakeholder in the joint venture, it shares or benefits equally from the proceeds/profit/gains/revenue accruing from oil production with the oil companies involved in the JV. These arrangements do not preclude the levying of royalty and taxes on the JV companies. They are often known as ‘concessionary’ JV systems, where the JV company is granted a concession to explore and produce. Nigeria operates the Joint Venture (OPL/OML) licence, given to a corporate entity that has more than one shareholder. For every JV in Nigeria, the government, through NNPC, is a shareholder. The Nigerian JVs are governed by the Joint Operating Agreement (JOA), which the Department of Petroleum Resources (DPR) issues on behalf of the Ministry of Petroleum Resources. About 95% of Nigeria’s current oil production is carried out by such JVs. The JV arrangements have meant that Nigeria has had to fund much of the exploration and developments costs directly. |
| 2 | Production Sharing Contract (PSC) | The Production Sharing Contract (PSC) is another type of licence for oil and gas exploration and production, and is used to exploit the hydrocarbon resources in Nigeria and most OPEC countries. Under the PSC licence, the government has equity in the company but shares in the volume of oil or gas produced by the licence holder. The government’s share of production volume after deduction of exploration and production costs (estimated in terms of the value of the production volume) escalates as production volume increases. The principal difference between a JV arrangement and a PSC licence is that oil companies fund the operations 100% under a PSC licence, and it is therefore a no-risk option for the government. |
| 3 | Independent Risk Operator | Under a pure royalty/tax system the state does not take a physical share of the oil and does not contribute to or underwrite the costs of exploration and exploitation. Royalties are due on quantities extracted and tax is due on the profits of the companies. A system consisting solely of royalty and taxes is known as a concessionary system. It is a fact that most indigenous oil companies under independent risk operator schemes have cut their production levels – indeed, are producing below the levels they ought to produce – due to the lack of requisite financial and operational inputs for effective operation and drilling of oil wells in the marginal fields allotted to them. Many indigenous oil and gas companies have not been in a position to invest in capital projects in Nigeria in recent times, owing to certain production challenges and funding. |
Source: Compiled by the author (see also Alalade 2014).
Appendices 2, 3 and 4 depict a summary of drilling activities by company on both exploratory and development activities in the marginal oil fields respectively between 2007 and 2015. The data in Appendix 2 show that between 2007 and 2015 40 exploration activities were conducted by Joint Ventures (JVs) while the companies under the Production Sharing Contract (PSC) conducted 36 exploratory activities. Only nine exploratory activities were successfully completed by independent companies in the same period. If compared with the IOCs, it becomes obvious that the independent companies put less effort into marginal oil field exploration (see NNPC Annual Statistics Bulletin, 2007–2015).3 Activities and commitments toward development of oil blocks by the indigenous oil companies have generally been marginal when compared with the effort of those companies in JVs and PSCs with the NNPC. For instance, in the aspect of activities relating to actual development of oil blocks between 2007 and 2015 (Appendix 3), 368 JVs and 261 PSCs were conducted, yet the independent/indigenous oil companies only conducted 53 development activities. Drilling activities in the oil wells also dropped significantly between 2007 and 2015 (Appendix 4): 507 JVs and 482 PSCs were conducted, yet the independent/indigenous oil companies only conducted 60 drilling activities in that same period.
Poor commitment on the part of independent and indigenous oil companies has direct effects on the general trends in exploration, development and drilling of oil blocks in Nigeria. The total number of development programmes conducted by all companies in their respective exploration and production agreements (Appendix 3) dropped from 138 in 2007 to 46 in 2014 and 51 in 2015, after a brief resurgence to 113 and 118 in 2012 and 2013 respectively. The total number of oil wells drilled in the period (Appendix 4) also dropped from 200 in 2007, to its lowest level, 77, in 2014: while there was some recovery in 2015, the numbers vary considerably from year to year. This clearly suggests that the participation or recruitment of more indigenous oil firms in the upstream sector of the oil industry is implicated in the decline in oil production in Nigeria. The number of indigenous oil companies under the ‘independent risk operator’ scheme (see Table 3) has decreased due to the lack of requisite financial and operational inputs for effective operation and drilling of oil wells in the marginal fields allotted to them (Akpan 2017).
Activities of indigenous companies and crude oil production
It is difficult for indigenous companies, including subsidiaries under the IOCs, to thrive, due to their peculiar failure to own or demonstrate ownership of a minimum of 50% of the equipment deployed for execution of work, as provided for in the extant laws. Of the current oil block licences awarded to indigenous firms, only around 30% of the fields have reached commercial production and this has affected crude oil production. A 20-year review of the overall trend of crude oil production in Nigeria, as set out in Table 4, shows a consistent decline in successive years. Crude oil production reduced from the heights of 910.16 million barrels in 2004 and 918.97 million in 2005 to the lowest levels in this period of 670.05 million barrels in 2016 and 689.74 in 2017.
Crude oil production by regime (millions of barrels), 2001–2018.
| Year | Joint Venturesa | Joint Ventures (AF/CARRY)b | Production Sharing Companies | Service Contract Companies | Sole Risk Independent Companies | Marginal Fields | TOTAL |
|---|---|---|---|---|---|---|---|
| 2001 | 815.34 | 0 | 8.86 | 5.31 | 35.66 | 0 | 865.17 |
| 2002 | 687.98 | 0 | 11.50 | 4.24 | 25.46 | 0 | 729.19 |
| 2003 | 719.15 | 72.07 | 16.72 | 3.48 | 20.34 | 0 | 831.78 |
| 2004 | 722.80 | 121.97 | 24.40 | 3.89 | 37.10 | 0 | 910.16 |
| 2005 | 689.11 | 141.51 | 36.71 | 4.32 | 47.17 | 0.14 | 918.97 |
| 2006 | 518.18 | 144.31 | 162.53 | 4.01 | 39.37 | 0.78 | 869.20 |
| 2007 | 462.89 | 118.58 | 192.62 | 3.93 | 24.55 | 0.43 | 803.00 |
| 2008 | 471.90 | 70.24 | 195.13 | 3.36 | 25.27 | 2.85 | 768.75 |
| 2009 | 331.55 | 131.50 | 268.79 | 3.24 | 41.39 | 3.88 | 780.35 |
| 2010 | 364.72 | 165.99 | 316.89 | 2.71 | 41.94 | 3.80 | 896.04 |
| 2011 | 348.51 | 173.01 | 289.33 | 2.80 | 44.51 | 8.08 | 866.25 |
| 2012 | 314.74 | 150.24 | 320.43 | 3.06 | 46.25 | 18.06 | 852.78 |
| 2013 | 293.40 | 105.98 | 313.97 | 3.20 | 64.59 | 19.35 | 800.49 |
| 2014 | 256.36 | 140.49 | 320.20 | 3.00 | 58.80 | 19.68 | 798.54 |
| 2015 | 247.45 | 124.73 | 320.63 | 2.55 | 54.81 | 23.29 | 773.46 |
| 2016 | 208.63 | 85.93 | 324.33 | 2.15 | 32.06 | 16.94 | 670.05 |
| 2017 | 213.36 | 92.23 | 303.95 | 1.51 | 56.53 | 22.17 | 689.74 |
| 2018 | 228.26 | 86.70 | 270.61 | 1.34 | 92.65 | 21.88 | 701.43 |
| Total | 7894.35 | 1925.48 | 3697.61 | 58.11 | 788.46 | 161.33 | 14,525.34 |
There are other incidental factors that contribute to the downward trend in crude oil production in Nigeria. These include insurgency and oil pipeline vandalism in the Niger Delta, the lifting of embargo on Iran’s crude oil and the relocation of some companies to other countries. Nonetheless, it should be noted that inadequate exploration and development of oil wells by indigenous oil companies has contributed considerably to the shortfalls in crude oil production in Nigeria, showing the stark consequences of only some 30% of the fields, less than one third, reaching commercial production, as noted above.
More importantly, the reality is that oil rents are used not for development purposes, but for ensuring elite control over the Nigerian state. Therefore, what matters to those in power is not per se that oil production increases – an effort that is partly undermined by indigenous oil companies’ poor commitment – but that oil rents continue to flow to the ruling elites in the corridors of power who are controlling the Nigerian state; and, better still, that the percentage of the rents that come to them increases, a prospect enhanced by the indigenisation and local content programmes. This reality is illustrated, as an example, in the Malabu scandal described above.
Conclusion
This research has established the extent to which oil block allocation in Nigeria, as a form of political settlement for cronies of the ruling elite, is conditioned by the inordinate interest of the ruling elite and premised on the preservation of state power. The study hinged on patron–client relations to explain the prevailing patrimonial structure in the Nigerian oil sector and to understand the reality of corruption and personalisation of oil rents. It demonstrates that ‘clients’ in Nigeria (i.e. indigenous oil block awardees) have a certain degree of power over the patron (ruling elite), enjoy more economic returns/oil rents, and possess some leverage over the patrons’ decision-making power, especially over how much they pay for the preservation of state power (either as kickbacks or direct funding of the patron’s election) in exchange for oil block allocation as well as oil prospecting and oil mining rights.
The study confronted some key assumptions of early patron–client theorists, including Wilson’s (1961) and Scott’s (1972) claims on the superiority of the patron over clients; and argued that despite being on the supposedly weaker side of the relationship, clients maintain a degree of agency to shape the power dynamics and exact concessions and benefits from power relationships that are, ultimately, asymmetrical. The character and nature of patron–client relations are such that they essentially facilitate corruption, the lack of professionalisation of state bureaucracy and due process, and the erosion of public agency resource mobilisation and accountability processes. The clients breach due process and transparency principles in the oil sector with impunity, by subverting and robbing the petro-state of its remittances and royalties in order to enrich themselves and their patrons – the ruling elite.
This study contributes to existing knowledge and ongoing debate by showing that the implementation of indigenisation and local content programmes serves neither national economic development purposes nor the socio-economic wellbeing and general interest of the people, but is instead adopted by the ruling elite as a potent tool and specific modality for subversion of the state through personalisation of oil rents in order to preserve state power. There is a growing predatory class conspiracy between the ruling elite/patron and Nigerian oil actors/clients to undermine and subvert the state by stealing its remittances and royalties in order to excissively enrich themselves and lubricate their increasing demands. This predatory ‘patron–client conspiracy’ produces inbuilt institutional mechanisms that facilitate systemic corruption, lack of professionalisation of state bureaucracy and due process, and erosion of public agency resource mobilisation and accountability processes.
This study therefore maintains that patron–client relations contribute to poor development of the upstream oil sector by the indigenous ‘clients’, to defaults in oil remittances and to consistent decline in crude oil production levels. This results in state collapse and the ungovernable nature of the oil economy. Hence, it is imperative to establish appropriate legal and institutional frameworks that promote conditions for substantial development of capitalist oil production in order to stimulate national economic development. This can be achieved by better organisation of the public bidding process for oil block allocation as well as by the creation of a legislator–public joint inspectorate for routine monitoring of prospecting and mining activities of indigenous operators and oil remittances in Nigeria’s oil sector.