Economic Implications of the Insecurity Surrounding the Oil and Gas Business Environment in the Niger Delta Region of Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VI, Issue VI, June 2019 | ISSN 2321–2705

Economic Implications of the Insecurity Surrounding the Oil and Gas Business Environment in the Niger Delta Region of Nigeria

Ogunsola-Saliu Kehinde (Ph.D.)*, Prof. Adenikinju A.A, Prof. Falode O.A.

Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan, Nigeria.
*Corresponding author

Abstract: – Since the detection of crude oil in Nigeria in the 1950’s, the Nigerian oil and gas sector has been having huge transformation. This transformation has attracted many international and local investors. However, the insecurity surrounding the oil and gas business environment in the recent time has become amajor threat to the investors and the Nigerian Government in meeting its actual revenue. Thus, thispaper identifies the challenges responsible for the insecurity using descriptive-analytical approach and also examines the economic implication of such insecurity on the company’s Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PP) using sensitivity analysis. The study made use of data obtained from secondary sources including published data from Nigerian National Petroleum Corporation (NNPC), Department of Petroleum Resources
(DPR), and Energy International Administration (EIA), Annual reports from already producing oil and gas fields, internet and journals articles. The study adopts Frustration Aggression Displacement theory as the theoretical framework. Revenue lost as a result of oil theft and oil bunkering, Cost of repairing or replacing vandalised pipelines/blown-up facilities, ransom paid to kidnappers and revenue lost as a result of annual shut-down due to vandalised pipes were the main variables considered. Sensitivity analysis on the field shows that out of the four variables captured under the insecurity facing the business environment, replacement cost as a result of the blown up facilities/ Vandalisation had the most impact of -42, -28 and 24% on company’s NPV, IRR and PP respectively, while, annual shutdown had an impact of -9, -5and 3% on NPV, IRR and PP respectively. Estimated ransom paid had an impact of -2, -2 and 1% on NPV, IRR and PP respectively and finally revenue lost as a result of oil bunkering and theft had an impact of -7, -12, and 4% on NPV, IRR and PP respectively. In conclusion, frequency of insurgent attacks has exposed business environment to insecurity resulting in collateral damage on the infrastructure, stability, development and success of the oil and gas sector. The study recommends the need for urgent and critical action from the government and oil companies to adopt new management strategies that will address and contain the insecurity and insurgency in Nigeria.

Key words: Oil and gas Sector, descriptive-analytical approach, insecurity, marginal fields, Niger- Delta militant groups.

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