Indications have emerged that the recently introduced reforms to the Nigerian Upstream Petroleum Measurement Regulations, NUPMR, 2023 on the measurement of petroleum production in Nigeria are reasons why major unions in the sector are now at loggerhead with the Nigerian Upstream Petroleum Regulatory Commission, NUPRC.
The key changes to the NUPMR had come into effect on 24th May 2023 as a major shift in paradigm in the measurement of petroleum production in Nigeria.
The Commission had issued the reforms pursuant to its powers to make regulations for the upstream petroleum sector.
The key changes represent a first attempt in the upstream regulatory space to introduce a regulatory instrument that gives the Commission the latitude to ensure that all hydrocarbon produced in Nigeria are accurately accounted for, for the purposes of hydrocarbon accounting, royalty calculations and export.
However, leading the NUPRC’s branch of the union, PENGASSAN and NUPENG had allegedly opposed the reforms under the disguise of poor staff’s welfare and also called for reversal of the reforms.
The unions in a joint letter dated 30 July 2023 and delivered on 31st July 2023 with refer no. (PEN/NUPRC/BRANCH/S.1/1000) also threatened to embarked on a strike action while escalating concerns over the commission’s staff welfare.
Reacting to the unions’ threat, the management of the NUPRC, described the planned strike action by PENGASSAN and NUPENG, over its staff’s welfare, as an ambush against the Commission and circumvention of the due grievance process established for employee relations.
NUPRC said contrary to the allegations and concerns raised by PENGASSAN and NUPENG about its staff’s welfare, all obligations relating to staff’s claims have been fulfilled and efforts are also in motion to achieve closure on all pending items.
It also described the proposed staff strike, as reactionary forces threatening reforms in the sector.
It however listed the following recently introduced reforms on the measurement of petroleum production in Nigeria, as the crux of the matter:
KEY CHANGES INTRODUCED TO THE NIGERIAN UPSTREAM PETROLEUM MEASUREMENT REGULATIONS 2023 ON THE MEASUREMENT OF PETROLEUM PRODUCTION IN NIGERIA.
The Nigerian Upstream Petroleum Measurement Regulations 2023, which came into effect on the 24th of May 2023 introduces a major shift in paradigm in the measurement of petroleum production in Nigeria. The Regulation issued by the Commission pursuant to its powers to make regulations for the upstream petroleum sector represents a first attempt in the upstream regulatory space to introduce a regulatory instrument that gives the Commission the latitude to ensure that all hydrocarbon produced in Nigeria are accurately accounted for the purposes of hydrocarbon accounting, royalty calculations and export.
2. Prior to the coming into effect of the Regulation, measurement of petroleum production was carried out without any specific regulation solely dealing with the issues and challenges of petroleum production measurement. The Guidelines in use during this period merely provided the procedure for measurement by licencees and lessees while allowing operators to make the key critical decisions relating to petroleum accounting such as-
i The determination of the measurement point
ii The specification of measurement equipment to be used for petroleum measurement
iii The deployment of the measurement equipment
iv Actual measurement of production
v calibration of measurement equipment; and service/repairs of measurement equipment.
3. Leaving control of the above critical areas for operators meant that for a long time, the regulator did not have effective regulatory over-sight of petroleum measurement operations in the sector, hence activities in that area of operation was characterised often by uncertainty in petroleum measurement and accounting, production losses due to inadequate metering and in some cases lack of metering which gave rise to the practice of out-turn activities to carry out measurement at ports of discharge after export.
4. The 2023 Measurement Regulations is aimed at eliminating all of these challenges by introducing a novel strategy in petroleum production measurement which hands over control and supervision of that aspect of the industry to the regulator and thus, ensures that the regulator bares full responsibility and accountability for measurement of production in Nigeria.
5. The novel strategy for petroleum production measurement introduced by the regulation is based on two broad principles as follows:
i. The principle of basing all measurement of production on a Metering Plan identifying the measurement points relating to a licence or lease pre-approved by the regulator; and
ii. The introduction of third-party independent metering services providers to provide metering services to the industry.
6. These two broad principles underline the changes introduced by the Regulation and guide the key provisions contained in the Regulation for measurement of petroleum production in Nigeria. These broad principles are captured in Part 1 of the Regulation which outlines the Objectives and Application of the regulation as follows:
7. OBJECTIVES AND APPLICATION OF THE REGULATION
i. Provide a framework for-
a. the installation of measurement equipment at measurement points as prescribed by the Commission,
b. accelerate meter roll-out at measurement points as determined by the Commission, and
c. the provision of independent and competitive metering service operations in the upstream petroleum sector.
ii. encourage private investments in the provision of metering services in the upstream petroleum operations; and
iii. provide the procedure for the measurement of petroleum produced from upstream petroleum operations.
8. To give effect to the fore-going objectives, the Regulation in its body introduced key provisions to ensure that the objectives are met. The most significant of these key provisions and their implications are discussed below:
Significant Provisions of the regulation and their implications to petroleum production measurement in Nigeria.
i. The requirement for all licencees and lessees to have a metering plan approved by the Commission for the measurement of petroleum production from its producing licence or lease.
a. This requirement never existed in the industry and is completely novel. Its implementation would ensure that production measurement in the industry is anchored on a planned architecture with all measurement points and the measurement equipment installed at those measurement approved by the Commission.
b. Aside from providing a global view of the actual situation regarding measurement points and measuring equipment operational in the sector, this requirement would ensure that the Commission exercises an overall regulatory over-sight in the determination of locations for measurement and the type of measurement equipment that are installed in those locations.
c. In addition, the licencee or lessee under the metering plan is required to provide the details of a plan for the actual metering of production, thus giving the Commission the opportunity to ensure that such plans meet the standards and procedures prescribed by the Commission and provide a clear road map for its enforcement.
d. To effectively implement this requirement, the Metering Plans submitted by licencees and lessees shall be anchored on an independent audit of metering locations and metering equipment installed in those locations by the Commission prior to the submission of the plans.
e. The audit is aimed at ensuring that the Commission establishes an accurate data of all existing measurement locations and installed measurement equipment, type of equipment and status in terms of operability, as well as identifying all metering gaps in the area of metering operations by licencees and lessees.
ii. The requirement for all licencees and lessees to carry out meter equipment installation and metering services under a metering plan through licenced metering service providers licenced by the Commission.
a. This is another practice introduced by the Regulation which is completely novel and aimed at ensuring that measurement of petroleum production in Nigeria is accurate, transparent, and conducted in an independent manner in accordance with standards and procedures prescribed by the Commission.
b. This gives the Commission over-sight control on the installation of the meters and actual measurement of petroleum production and eliminates the risk of bias or under-handed dealing on the part of any rogue licencee or lessee.
iii. The requirement that no person shall provide metering services in Nigeria without obtaining a licence issued by the Commission and the requirement that the Commission must licence any person (in this case a company registered in Nigeria) before such a person can provide metering services in Nigeria.
a. Allied to this requirement are provisions in the Regulation which creates the regulatory framework for the supervision of the metering services provision regime created by the Regulation. Such regulatory framework includes:
(i) The qualification requirements to obtain a metering services provision licence from the Commission;
(ii) The technology or technological systems to be deployed by a metering services provider;
(iii) The standards of measurement;
(iv) The reporting requirements to the Commission;
(v) The contracting arrangements between the metering services provider and the licencee or lessee;
(vi) Supervision and monitoring by the Commission
(vii) Title to metering equipment and transfer of title to the Commission;
(viii) Duties of licencees and lessees in relation to the provision of metering services by a metering services provider; and
(ix) Duties of a metering services provider in relation to the provision of metering services to a licencee or lessee
b. This provision introduces a regulated regime superintended by the Commission on the provision metering services and by so doing, create a distinct service sector, thus expanding the opportunity for investment and business in the sector.
iv. The requirement that measurement equipment and metering systems deployed by a licencee or lessee under a metering plan shall conform with the standards and specifications prescribed in a regulation, guidelines or directives issued by the Commission.
a. This provision gives the Commission the powers to determine the standards and specifications for equipment used in measurement of petroleum production to be determined by the Commission.
v. The requirement for all metering services by metering services providers to licences and lessees to be carried out under a Metering Services Agreement based on a model approved by the Commission.
a. This requirement ensures that the Commission regulates the provision of metering services by metering services providers and thus monitor the industry for effectiveness and efficiency.
vi. The requirement that metering services provided to licencees and lessees shall be enumerated based on a cost structure provided in the regulation.
a. This requirement provides the basis for the economic and commercial regulation of the provision of the service by the Commission and ensures that parties including the Government receive optimal economic benefit from operations in the sub-sector.
vii. Requirement to maintain proper logs and reports on Petroleum Production and Custody Transfer Logs.
a. This requirement ensures that the Commission shall be furnished with every data and information relating to petroleum production and custody transfer in a systematic format and on a regular basis in accordance with the provisions of the Regulation.
f. Imposition of administrative penalty for contravention of the provisions of the regulation
9. For the first time, the Regulation gives power to the regulator to impose administrative penalties up to $100,000 for any contravention and $1000 for each day of continuing contravention of any of the rules relating to the new petroleum production regime introduced by the regulation.
10. This is a powerful tool to dis-incentivise non-compliance and ensure full compliance
11. In conclusion, the Nigerian Upstream Petroleum Measurement Regulations 2023 represents a major paradigm shift in the management of petroleum production measurement in Nigeria and would, upon effective implementation ensure that the systemic gaps identified in the second and third paragraphs of this memo bedevilling the petroleum production measurement sub-sector of the Upstream industry are closed.
12. This would result in accurate accounting of petroleum production, increase in efficiency, and improved transparency in the measurement of production and ultimately lead to the optimisation of revenues for the government and the operators.
13. Further, the introduction of a distinct measurement services sub-sector in the sector would expand the industry and create significant opportunities for new investment, deployment of new technology, transfer of metering technology, acquisition of new skills by Nigerians and expanded employment opportunities for Nigerians in the areas of metering equipment technology and installation, repairs, and services.
14. Overall, this new Regulation would improve the global perception of the industry as one that is anchored on transparency and clear rules in the accounting of petroleum production, as it would lead to the curbing of production theft through the isolation of clear cases of theft or vandalism by eliminating any errors in accounting.