Tracing the History of a Crude Oil Nation

In the depths of the delta region on a destined June in 1956, the oil explorer Shell-BP hit “black gold” as sweet crude oil was unearthed in Oloibiri community, present day Bayelsa State.

This was four years before Nigeria’s independence and the colonial government of the day naturally claimed any oil and mineral found within Nigerian soil as the legal property of the British Crown. At the time, Shell-BP was the sole concessionaire – having the exclusive rights to prospect and mine for oil. Presumably, the company would have operated under the Mineral Ordinance (1914, 1946) and Petroleum Production Act (1934). And so Nigeria’s journey to becoming a crude nation began as twenty-two oil wells pumped commercial quantities of export crude oil, two years after the discovery.

Independence and Beyond

After independence and in the wake of growing fortunes, Shell commissioned its Bonny Terminal in 1961. Perhaps in youthful exuberance, independent Nigeria liberally embraced more IOCs – international oil companies in the early 1960s: Mobil, Texaco, Agip, Elf and Gulf all purchased concessions.  Elf discovered Obagi field and Ubata gas field, Gulf started production and Agip found its first oil at Ebocha. The old alliances of global oil explorers forged ahead with a free hand, setting prices and solidifying their dominance as early players by forming the axles around which the present day oil industry revolves.

Collectively the IOCs had and still largely possess the technology, skills and money to undertake upstream activities of exploration and production in Nigeria. Basking in the glory days of independence, the unassuming Nigerian government’s involvement in the oil sector was limited to collecting taxes and royalties from the oil companies at this point. Agriculture was still the main revenue generator sustaining the economy and the population on 45.9 million people.

However, the country and indeed the IOCs began to feel the impact of the 1966 civil war as oil production dropped significantly from 418,000 barrels per day to less than 150,000 barrels per day 1968. Uncertainty loomed over the future of IOC investments and in a bid to protect their interests, the IOC countries of origin were caught between whom to support and who to placate during the war. Some sided with Biafra, eyeing the wealth of resources in the area while some backed the Nigerian government to secure their interest.

At the end of the civil war, the Nigerian government awakened to the importance of the crude oil resource and shifted away from concessions to put in place a legally binding Petroleum Act 1969. In a bid to wield more control over the oil industry, the government created a national oil company NNOC in 1971, supposedly to protect the interest of the Nigerian people. Five other laws were put in place before the end of the 1970s including the Offshore Oil Revenue Decree No.9 of 1971, the creation of the NNPC by Decree 33 as a major player in upstream and downstream sectors, Petroleum Production and Distribution (Anti Sabotage) Act 1975, the Exclusive Economic Zone Act 1978, and the Land Use Act 1979.

The Petrodollar Years

Nigeria joined the OPEC in 1971 after acquiring 51% stake of its oil sector as required by OPEC. The seventies oil boom brought about a sharp rise as production rocketed to over one million barrels per day and the nation of “no victor and no vanquished” reeled in so much petrodollars.

The increase in Nigeria’s fortune in increasing production was linked to three significant global events in the industry: Firstly the shift in control of oil prices from the United States to OPEC. The dominance of the old alliance over setting oil prices diminished with the 100% proration by the Texas Railroad Commission, which effectively controlled prices. This meant that there were no longer limits to oil production from the wells of American producers-Texas, Oklahoma and Louisiana, so the spare capacity the US had used as a tool to put upper limit on prices was gone. OPECs new found influence over the world market increased and its member exporting countries, including Nigeria, found increased demand for their crude oil.

Secondly, the 1972 Oil Embargo sparked by the Yom Kippur attack on Israel. Many western countries including the USA supported Israel and in reaction majority of the Arab exporting nations curtailed production by 5 million barrels per day.  Thirdly, between 1978 and 1979, the Iran/Iraq War caused serious supply losses of over 2 million barrels per day. These shortages led to another round of crude oil price increases. Swiftly enough, other exporting countries increased their production to cash in on supply shortfalls. The cocktail of power and wealth bolstered the political elites of the day, who have remained key players in the affairs of the industry.

Changing Fortunes

A turnaround of fortunes ensued after the boom. The 80s was a period of economic downturn with production dropping significantly. Adding to Nigeria’s dilemma was her negligence of the agricultural sector as a source of federal revenue. Before crude oil, cash crop production from commodities like cocoa, rubber, groundnut, cotton etc. sustained the nation and its coffers. After oil, even staple foodstuff supply plummeted. SAP (Structural Adjustment Program) supposedly attempted to mitigate the international debt repayment burden that the country had managed to acquire even though some $101billion oil revenue was made between 1958 and 1983. The irresponsible management of the country’s revenue reflected in the large sums allegedly siphoned out of the country as the powerful elites and pet projects indulged in the country’s common wealth. During the First Gulf War, Nigeria experienced a windfall from the sudden price jump which reeled in $12.2-$12.5 billion in oil revenues.  Despite the laws and decrees enacted in the 1990s to regulate petroleum drilling and production, pipelines, production sharing contracts, minerals and mining, the oil windfall also disappeared as quickly as it came about.

Lifting the veil of the past, puts in perspective the lack of transparency and good governance in the industry as a deeply rooted problem, knitted in the fabric of the polity and most of the institutions that govern Nigeria’s valuable resources. The presence of oil does not necessarily bring about a resource curse as many countries have proved by managing their oil wealth sustainably. Nigeria however remains a painful example of a 57 year old oil producing nation with very little to show as benefits directly linked to her oil wealth.

View of the Niger Delta From Space, Source: NASA