PROBLEMS AND PROSPECT OF MARKETING PETROLEUM PRODUCTS IN NIGERIA (CASE STUDY OF STUDY OF INFRA OIL COMPANY NIGERIA
The aim of this chapter is to present the introductory part of this work which comprises the followings:
The background of the study, brief history of the company etc.
1.1 BACKGROUND OF THE STUDY
Oil exploration began in Nigeria in 1908, although the documentation of the occurrence of minerals was reported some five years earlier in 1903. The exploration efforts were punctuated by the two wars but eventually yielded result with the discovery of oil in Olribiri in 1956 by shell – BP.
Production increased from a mere 5,000 barrels per day (bid) in 1957 to 17,000 b/d by independence in 1960 and leap flogged to 450,000 b/d by 1966. although this upward trend was slowed by the civil war, by 1970 daily production had reached one million barrels. A peak production level of 2.4 million barrels per day was achieved during the second quarter 1979.
Production had fallen since them to the current 1.611 billion b/d both on technical grounds and adherence to OPEC quota brought about by the need to control production to support prices.
Government’s interest in the oil industry was handled by a number of government department of petroleum in the ministry of mines and power 1970. although the Nigeria National oil Corporation (NNOC), the forerunner to the Nigeria National Petroleum Corporation (NNPC), was formed in 1971 primarily to market. Nigeria crude oil, government’s direct involvement in the marketing of oil did not begin until 1973. that was when the government started having it’s own equity crude acquisition of participation interest in the operations of the oil companies.
The government initially sold back the bulk of it’s participation oil to the foreign oil operation companies through a buy-back arrangement. Under this arrangement, the government sold back 50 percent of its equity crude oil to another companies at a concessionary price to help cushion the effects of it’s participation and to enable the companies meet previous long term commitments.
It sold another 25% of it’s oil to the companies option oil. The remaining 25% was sold to third party customers, that is, those buyers with no concession or stake in the country. The buy-back arrangement with the producing companies terminated in December 1975 giving way to a formal sales agreement between the NNOC and the various producing companies operating arrangement in all OPEC countries was meant as an interim arrangement to ensure the oil producing countries some access to government crude oil hitherto controlled and disposed by the companies and partly to enable government and it’s agency gradually develop the framework, for international oil sales. The NNPC therefore had to develop avenues other than through international majors for disposing it’s crude oil. Hence NNOC entered into sales agreements effective in September 1973 with two independence oil companies namely, Gelsenberg (a German Company) and Termco can American oil company). The total sales of 40,000 b/d to these two companies represented the first successful efforts in direct marketing of govt. crude to third party buyers.
The second attempt at direct marketing took place during the lasting quarter of 1973 which coincided with the energy crises bought on by the Arab-Israeli war. The Crumble to purchase Nigerian crude oil brought as many as 113 foreign companies in a purchase bid. However, the four successful companies having initiated their contracts on December 22, 1973 failed to sign the contracts in January 1974 when invited to do so on the grounds that the 22 60 per barrel prices was higher than what they could live with.
The only new oil sale contract entered into during the oil crises was with the Ghana government which started oil lifting in Nigeria in the February q974. the 10,000 b/d contract on the basis of government to-government contracts as consumer government in both the developed and developing nations besieged NNOC in the wake of oil shortage during the 1973 Arab oil embergo. The oil shortage of 1979 following the sales to independent oil buyers and government of consumer countries.
The cyclical market downturn of 1976-1978 shared the independent oil as mere fail weather friends who besiege you when the trading marging are good but are the first to varnish at the slightest hint of a downturn.
Between 1976 and 1978, during the world economic recession that followed the 1973 /74 four-fold oil price increase, about 65% of our direct sales went to the oil producing companies who had a stake in Nigeria. In 1979 and 1980 when the oil market had improved substantially. There was a swing back to third –party customers and government to-government sales.
Direct sales to the oil producing companies dropped from 65% in 1977 t0 3% in 1980 sales to third party customer’s and on government to government basis increased from 30% and 5% in 1977 to 43% and 18% respectively. The collapse of the market in 1986 again witness a shift back to the oil producing companies averaging about 61% percent of oil sales while third party government to government sales dropped to 28% and 12% respectively.
The culmination of the givens back and forth from independent third-party buyers, most of them merely traders to oil producing companies let to the termination in early 1988 of all third parties contracts when almost all such third parties had stopped lifting during unfavourable market conditions.
It was then decided by government to adopt a new sales strategy that would guarantee regular and secure outlets for the crude oil and steady flow of revenue.
1.2 BRIEF HISTORY OF INFRA OIL NIGERIA PLC
INFRA oil Nigeria Plc is a leader among the major Nigerian marketers of refined petroleum products. The company was incorporated on the 8th of July 1975 following the acquisition of 50% equity share of Shell Nig Ltd by the federal government of Nigeria. Before this period, the company was operating as SHELL Trading Company Service 1927. By 1938, it existed as oil storage company of Apapa-OSCH and also existed as shell company of West Africa. Ltd by 1952, covering Nigeria and the English speaking West African countries.
The company registered as SHELL company of Nigeria ltd in 1960 following the Nigeria’s independence and the companys Act of 1968 saw it converted to shell Nigeria limited. In the these transformations, the total equity holding was held by SHELL Intenational petroleum company limited.
Later, the company became jointly owned by federal government of Nigeria, and SHELL Petroleum Company Lagos limited following an arrangement reached in Lagos on Tuesday April, 1975 between the company and then Military Government of Nigeria. INFRA Oil Nigeria Plc emerged as a result of this. Under the government the Federal Government has 60% interest, while shell Nigeria limited had 40% interest in the company.
As a result of this, the familiar SHELL Eblem was replaced by the Eagle-the Nigeria National Emblem. However, with the federal government sales of a third of its equity share holding in the company publicly quoted on the Nigeria Stock Exchange in 1989.