Audit-Report-on-NNPC

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Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) 4.5. NPDC Liftings 4.5.1. Introduction NPDC has the following assets: 100% ownership of five (5) blocks: OMLs 64, 65, 66, 111 & 119; 55% equity in eight (8) blocks: OMLs 4, 26, 30, 34, 38, 40, 41 & 42; 60% participatory interest in (4) blocks: OMLs 60, 61, 62 & 63; as well as Varied interest in seven (7) deep water concessions 62 . NPDC, like other upstream petroleum companies, is statutorily expected to pay Royalty and Petroleum Profit Tax on its operations. Royalty is deducted from revenues as a first line charge while taxes are computed after deducting qualifying costs. Between 2010 and 2011, Shell Petroleum Development Corporation (SPDC) sold its 45% Joint Venture minority stakes in eight onshore marginal fields to indigenous oil companies 63 . The NNPC further sold its interests in the divested assets to its fully owned subsidiary, NPDC. The divested assets are being funded through Strategic Alliance Arrangements (SAAs) with Septa Energy and Atlantic Energy. The company has also been running a Service Contract in its offshore operations with Agip Energy and Natural Resources Ltd since 2001. 64 Atlantic Energy 65 : a private Nigerian-owned group of E&P companies, focused on optimising under-developed assets in the Niger Delta, with offices in Lagos, London and Zurich. The company has SAAs in place with the NPDC relating to NPDC’s 55% operated interest in OML 26, OML 30, OML 34, OML 42 since 2011. NPDC holds a 55% legal interest and is the operator of the OMLs. As part of the SAAs attributed to these leases, Atlantic Energy (the SAA contractor) provides direct advice to NPDC on commercial, technical and financial matters as well as pays NPDC’s share of OPEX and CAPEX cash calls. Atlantic Energy then receives 100% cost recovery of the OPEX and CAPEX cash calls and a percentage share of Profit Oil from NPDC’s 55% working interest. The SAA contractor receives its entitlement from independent oil lifting rights. Septa Energy 66 : is an indigenous Nigerian oil and gas production development company. It has an upstream portfolio of assets onshore in the Niger Delta. The company has production interests in OML 4, 38 and 41 through a Strategic Alliance and Service Contract with NPDC. These assets sit within two core areas located in the South East and North West Niger Delta. Under the arrangement, Septa is required to match NPDC’s 55% share of petroleum operation costs for the development of the OMLs as well as provide training facilities for NNPC/NPDC Vanguardngr 62 Source: www.npdc.nnpcgroup.com; Please note that we did not obtain any information directly from NPDC, and cannot also confirm the completeness and accuracy of information on the Company’s website. 63 CBN’s submission to the Senate Committee 64 NPDC’s Submission to the Senate Committee 65 We obtained and reviewed a copy of the Strategic Alliance Agreement between NPDC and Atlantic Energy covering OML 30 only. The agreement alongside a Marketing Paper put together by Atlantic Energy was submitted to the Senate by CBN. 66 We obtained and reviewed a copy of the SAA agreement between NPDC and Septa Energy covering OMLs 4,38, 41; as well as a press release by the parent company Seven Energy addressing the relationship with NNPC from www.sevenenergy.com Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 80
Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013) staff. In turn, Septa receives allocation of cost oil sufficient to recover its costs as well as share of profit oil upon the full recovery of development costs. Agip Energy 67 : AENR and NPDC went into a Service Contract agreement and signed a Memorandum of Understanding (MOU) in December 2000 for the development of offshore fields, Okono and Okpohu in OML 119, under a joint operatorship. NPDC later assumed full operatorship of the fields with a sharing formula of 30% and 70% in favour of AENR and NPDC respectively. 4.5.2. Procedures Performed The following were the procedures performed to meet our objectives: Requested for but did not receive the following from NPDC: o Detailed breakdown of the crude oil assets transferred to NPDC o Terms of divestment and contract documents involving the assets taken over o Strategic Alliance agreements between NPDC and counterparties o Monthly volume allocations to Strategic Alliance Partners o Monthly balance of NPDC crude over/under lifts by Strategic Alliance partners o List of receiving banks, account numbers and bank statements for NPDC crude proceeds Held a meeting with the former Group Executive Director, Exploration & Production of NNPC, Dr Joseph Dawha and former MD NPDC Mallam Hamidu Namtari, to inform them of our engagement and request further meetings to obtain an understanding of NPDC’s processes particularly around its operations, business objectives and internal accounting/financial reporting, etc. Visited NNPC and NPDC websites to obtain further understanding of the company’s operations. Reviewed NPDC’s submissions to the Senate Committee to fully understand company’s official position on the revenues relating to the liftings from its assets during the review period. Obtained information on the volumes and prices of crude oil lifted in favor of NPDC during the period under review from COMD and DPR, to verify the figures quoted by NPDC at the Senate. Vanguardngr Verified pricing information and recomputed values based on lifting profile obtained from COMD and DPR. Confirmed royalty and tax payments to information provided by DPR and FIRS by tracing amounts to DPR and FIRS accounts with JP Morgan. Documented findings and conclusions. 67 Source http://www.eni.com/en_NG/eni-in-nigeria/eni-profile/eni-profile.shtml We did not gain access to NPDC and as such had no official information on the Service Contract. Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation. PwC 81
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