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Tempest in an oil barrel

Had three of the world's largest and richest oil companies been caught cheating a major OPEC oil-producing nation out of $6.1 billion? Or was it simply that the OPEC producer was attempting to blame the oil companies for the missing money in order to cover up its own administrative incompetence?

For a briefly tantalizing moment last week, those were the questions being asked in the world of Big Oil. Breathless dispatches out of Lagos, Nigeria, hinted at an erupting major scandal. On one side were the Royal Dutch/Shell Group, Mobil and Gulf Oil. Arrayed against them was the ten-month-old civilian government of President Alhaji Shehu Shagari, which seemed to be charging that the oil companies had somehow or other tricked it out of 183 million bbl. of high-quality Nigerian crude. The government appeared to demand that the oil be either returned or paid for. The situation took on added importance because Nigeria is the U.S.'s largest supplier of crude oil (923,000 bbl. a day) after Saudi Arabia.

In fact there was far less to the diverting little drama than met the eye. Though front-page stories in the U.S. anxiously warned that the action by Nigeria had dealt a serious blow to oil companies and consumers alike, the Shagari government had done nothing of the kind. The stillborn scandal really amounted to something considerably different from what the overeager press reporting in Lagos and the U.S. implied.

The confusion began a year ago when the Punch, a newspaper that is more noted for its third-page cheesecake than its investigative prowess, reported that approximately $5 billion was missing from the accounts of the government-run Nigerian National Petroleum Corp. In response to the charges, the newly installed Shagari government last spring appointed a five-man tribunal to investigate. The group's report, which was released two weeks ago, noted that the government's oil records were a shambles, but that there was no evidence of any missing funds.

Instead the tribunal concluded that during the years 1975-78, when Nigerian crude was not selling well because of a short-lived world oil glut, the three oil companies, which pump approximately 80% of Nigeria's normal production of some 2 million bbl. daily, had cut back production, at the government's request, to an average of about 1.7 million bbl. a day. Traditionally, the companies had been splitting their production on a 45%-55% basis with the government, for daily liftings of about 1 million bbl. of crude. In order to stay at that level, the companies kept somewhat more of the reduced daily production for themselves and delivered somewhat less to the government.

The Nigerian government settled for that arrangement in hopes of offsetting as much revenue loss as possible. The oil companies continued to pay the same taxes and royalties, even though overall Nigerian production had declined.

Now, with oil prices nearly triple what they were two years ago, the Nigerians want to start pumping some of the oil that they left untapped before, and the real issue between the two sides boils down to who is going to pay the cost of pumping it out of the ground. That is something the three companies will probably be happy to discuss.

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