The Nigerian Oil and Gas Industry: A Comprehensive Overview of Challenges and Growth

AN OVERVIEW OF NIGERIAN OIL AND GAS INDUSTRY

BY

STEPHEN LAZI AKHERE, Ph.D.

Abstract

Nigeria is bestowed with huge potentialities in natural resources, among which is a

petroleum resource , a major dominant in the economy of the country . Harnessing and

managing these resources effectively for the benefit of Nigerians. Inappropriately, the sector

is faced with salient complex challenges resulting sometimes in poor channel ling of supply

and distribution; marketing and price volatility of petroleum products. This research work

scrutinizes various matters regarding the distribution and marketing of products with a view

to recommend that the entire oil and gas sector be strengthened for efficient participation of

private investors into the sector. It is hypoth esized that the participation of internal and

foreign entrepreneurs will boost efficiency in the sector. This will energize e ffectiveness by

reducing cost of operations, consequently reducing pump price of products at gas stations for

the benefit of stakeholders in the industry and consumers as well.

Keywords: Nigerian Petroleum Sector; Supply, Distribution, Pricing and Marketing.

1.0. INTRODUCTION

Since the emergence of oil and gas in large commercial quantities in 1958 by Shell

development, t he Nigerian economy had experienced massive growth and development.

However, the industry was grossly controlled by Transnational C orporations due to man

power professionalism skill and technology base until the early 1980 s when Nigerians began

to make frantic effort in the control of the oil and gas industry. Indigenous participation was

enhanced through the establishment of the Local Content Commission for the purposes of

implementing Nigerian Content Derivatives and National Content Directives issued by

Nigerian National Petroleum Corporation (NNPC) decade ago, through the promulgation of

the Nigerian Oil and Gas Industry Content De velopment (NOGIC) Act in 2010. The

objective of the Act is to promote the use of indigenous enterprises and resources in awarding

oil and gas projects, contracts, and licences . After about half a century of crude oil and gas

exploration activities in country, the sector is earning an overwhelming support in

comparison to other industries in the Nigeria, such that significant progress has been made in

terms of oil exploration and export sales of crude oil abroad. Unfortunately, the sector is

domestically comatose managerial and policy direction problems.1

In the area of structure, the petroleum sector is segmented into three features, these are:

• The Upstream sector,
• The Services Sector, and
• The Downstream Sector,

1 Ehinomen .C. & Adepoju .A. ( 2012), An assessment of the distribution of Petroleum products in Nigeria

We have the mid-stream operational structure whose activities include that of the commercial

sector of the petroleum sector . However, distinctions are made between the two sectors. The

downstream sector cult across: processing, logistic (transportation), storage (tank farms), and

marketing (supply, distribution and pricing) of crude oil and gas, gas-to Liquids and liquefied

natural gas. The major stream which is upstream sector is considered the exploitation;

exploration and refining activity chain of crude oil and operations. The act ivies incomes of

organizations involve in this business environment is subject to tax Petroleum Profits Tax

Act, 2004 (PPT A), as amended. This sector of oil and gas is the single most demanding

sector of petroleum economy globally, accounting for about 90 percent of Nigerian’s exports

earnings and about 81 percent of the government revenue.2

Exploration of c rude oil gotten from different three basins: offshore, location

(Benin/Dahomey that is, deepwater and ultra -deepwater), onshore location Anambra basin),

and Niger Delta (shallow and deep offshore basins). The huge reserves and large portion of

crude exploration resides in the rich areas of Niger Delta and Benin basins. Exploration crude

oil business became of huge success in the 1990s, as focus turned to maximise the business

potential ventures in the frontier basins of deep water offshore . This sector is becoming

increasingly attractive to penitential investors activities in the development of deepwater

exploration and production technology.3

The petroleum industry started manifest its vital role in building Nigerian economy and

political future of the country in the early 1960s. When Nigeria became an independent

nation on 1 October 1960, Shell–BP began to abandon its domain and its exploration licenses

were converted into prospecting licenses that allowed development and production.

Following the increase supremacy of the Nigerian economy by oil and gas sector, the sole

franchise policy was abandoned and exclusive exploration right was introduced to encourage

other transnational oil companies with a view to hastening petroleum explora tion and

production. Other transnational oil companies merged oil and gas exploration activities in

Nigeria, this include; Nigeria Petroleum Company Unlimited, Texaco Overseas, Amoseas,

Gulf Oil Company (now Chevron), all in 1961. Others are; Société Afri caine des Pétroles

(SAFRAP) in 1962 (which later later became Elf Nigeria Limited in 1974), Azienda

Generale Italiana Petroli (AGIP) in 1962, Tennessee Nigeria Limited (Tenneco) in 1962,

ENIin 1964, Philips Oil Company in 1964 and Pan Ocean Oil Corporatio n in 1972. Most of

these multinational oil companies recorded considerable successes in oil and gas exploration

and production in both offshore and onshore fields in the Niger Delta.4

Crude oil in Nigeria has gravity between 21o API and 45o API, and Bonny light (37o) as its

main export and Forcados (31o ). Nigeria crude oil has a very low surphur content of above

35o API. As at 2010, the country’s proven oil reserves was estimated at about 28 .2 billion

barrels (Bbl.), according to US Energy Information Administration (EIA) report. However,

exploration business activities have slowed down recently due to insecurity in the Niger

Delta, communion crises as a result oil spill and environment pollution and the doubts

surrounding the passage of the Petroleum Industry Bill into law. The objective of the bill is to

bring about significant reposition of the oil and gas activities in Nigeria. In addition, the

natural gas in Niger ia ha s a proven reserve of about 187.7 trillion cubic metres. That is , 3

percent of the global estimated reserve, while Nigeria’s undiscovered gas estimated reserves

2 Tekena Tamuno .N. (2011), Oil Wars in Niger Delta 1849-2009.

3 Aniefiok Ite . E. (2013), “Petroleum Exploration and Production: Past and Present Environmental Issues in the

Nigeria’s Niger Delta.”

4 Vassilou .M. S. (2009), The A to Z of the Petroleum Industry (The A to Z Guide Series).

is between 300 to 600 TCF. Nigeria has large untapped natural gas deposit, which describes

her as gas province with little crude oil. The country’s gas quality is of high potential,

particularly rich in liquids and low in sulphur. However, as result maladministration of gas

infrastructure in the country , about 75.4 trillion scf associated natural gas is domiciled in

Nigeria, and about 78 percent is been flared. Wh ile 15 percent is re-injected into the sector as

economic good. 5

1.1. Statement of the Problem

There are contending issues arising from the operations of oil and gas business in the

Nigerian environment which this study intends to address. The weakness or

underdevelopment of any economy of the world is the inability for any country not being able

to improve her domestic economy within its natural resources and human capita abundance to

attaining growth and development . The development of eco nomic goods leads to economic

growth and development, over decades, petroleum products supply, distribution, marketing

and p ricing in Nigeria has been suffocated by mal -economic policy and unpatriotic

behaviours of operators and stakeholders of the sector, crippling its expected derivability to

advance the economy for global oil and gas competition. These salient problems are

challenges which this study wants to analyse with a view to posit solutions towards; price

volatility, scar city of petroleum supply network across the country, hoarding and erratic

distribution problems, and the monopolistic tendencies of marketers/stakeholders of the oil

and gas sector.

1.2. Study Objectives

The study objectives of this research are listed as follows:

• To examine t he impact of petroleum products price volatility in Nigeria business

environment.

• To be able to promote a strong, effective and efficient supply and distribution chain of

petroleum products that will enhance global marketing integration and interaction.

• To analysis various economic indices that determine petroleum market fundamentals,

and

• To examine the impact of regional conflict on petroleum products availability.
• An overview of petroleum industry bill (PIB) in the Nigeria oil and gas sector.
• The paper also offers suggestions for improvement of the overall management of

downstream sector of the petroleum resources.

1.3. Hypothesis

5 NNPC (2013), Oil Production.

Petroleum product is one of Nigerian most consumables, yet, it has become out of the reach

of the average Nigerian, who at periodic time of the years queue to source the product. This

situation, from studies is energised by strong shortages in products supply, smuggling, pric e

volatility, stakeholder struggling to maximise profit at all Couse, pipeline vandalism in the

Niger Delta, lack of government political will, maladministration of public servants,

corruption, local refineries not refining adequately, etc., The industry stakeholders with

collaborating interest in the sector can only meet up with these challenges where high quality

human capacity development is attained and sustained t hrough improved technological

growth, increase economic proficiency, deregulating of the sector for investment and

business development, policy direction and implementation. However, the commercialization

of the Nigerian petroleum economy in 1958 to date, and it has been characterized by constant

failure and structure defect. However, the hypothesis of this study is that, t here is a strong

alignment between supply, distribution, marketing and price of petroleum products.

2.0. AN OVERVIEW OF THE NIGERIA PETROLEUM INDUSTRY

Over decades, the Nigeria oil and gas industry had suffered so much neglect in policy reforms

and, this situation has led to the distorting growth of the sector till date. One area of

contention is the supply/distribution network of products and pricing/sales of petroleum

products across the country. Thus, the study would appraise the functionalities of the

aforementioned features of the sector.

At the assumption of President Olusegun Obasanjo in 1999, he inaugurated the Oil and Gas

Industry Committee (OGIC), with a mandate to take a comprehensive appraisal of the

activities of the petroleum industry, with a view to give proper direction for econo mic

efficiency, viability, and benefit. Before now, various regulatory policies have been put in

place to harness the potentials of the sector since its emergence in commercial quantity in the

1950’s. However, before now, the petroleum sector undergone var ious forms of policies

amendments and reforms: the petroleum Act of 1960 that gave policy direction to crude oil

exploration, the NNPC Act of 1977, that gave policy direction to refining, joint venture

companies agreement, and commercial marketing activities which was attested to be obsolete

until recently the OGIC reforms initiative of the 1999s.

Furthermore, the government considered it to be of greater importance to holistically review

of the entire oil and gas activities of the industry for economic gr owth and development. The

OGIC was headed by a veteran petroleum engineer, Rilwanu Lukman who submitted its blue

print. The major objective of the reform is to drastically reposition of the petroleum sector for

onward growth and development. Also, it was t he OGIC agenda that informed the Petroleum

Industry Bill (PIB), which has since been politicized. The aim of the OGIC focuses on two

key aspects of the sector that is meant to enhance industry performance. First and foremost is

to come up with a draft that will enable legislation that would provide the required legal basis

for the reform exercise. The other significant task of the Committee is to devote time in

designing the required framework that will set the industry on the path of growth and

development of the totality of the oil and gas sector, while focusing on institutional functional

structure. This expected Institutional Structure of the industry would provide a picture of how

the industry is being envisaged by the National Oil and Gas Policy at imp lementation and the

shape of the various individual institutions and in terms of inter relationship between them6.

The key objectives of the OGIC reforms noted above are listed below

▪ It will bring an end to labour flight as more indigenous human capita would be

employed.

▪ To develop untapped natural resources potentials of gas in Nigeria to boost energy

utilization for economic growth. This PIB seeks to maximize.

▪ The reform will expand government revenue source to energize socioeconomic and

infractural development in Nigeria.

▪ The reform seeks to privatized the government own oil and gas sector for private

participation. That is, it will be fully deregulated to eliminate the current monopolistic

activities in the sector and the removal of petroleum subsidy fund (PSF), completely.

▪ The reform will discourage greenhouse gas emission and gas flaring. Thereby creating

alternative source to petroleum.

The bill empowered government to have ownership control and management of all petroleum

resources: offshore or onshore, in Nigeria. This implies that, irrespective of where the crude

oil and gas minerals are found, government of Nigeria owns it. But, equity recognizes the

localities where the resources are mined and consider ation are given in the area of revenue

sharing laws and other provisions of this Bill like the Host Community Fund.7

Under the PIB reform agenda, the following underlised Agencies are to repositioned in line

with the bill if successfully passed into law:

▪ Petroleum Technical Bureau (PTB):

This will be a special unit under the office of the Minister of Petroleum. It will be

peopled by professionals from both the upstream and downstream sectors and charged

with the responsibility of rendering professional support to the minister

▪ Upstream Petroleum Inspectorate (UPI):

The bill attributes the regulation of the exploitation, technical, exploration, upstream

commercial and licensing activities of the upstream sector. however, the upstream

petroleum inspectorate is not profit oriented organ, hence, is no taxable.

▪ Downstream Petroleum Regulatory Agency (DPRA):

There shall be a downstream petroleum regulatory Agency (DPRA) who will be

responsible for the refining, marketing, retailing and pricing of petroleum products in the

country.

▪ The Petroleum Technology Development Fund (PTDF):

6 Egboga Emmanuel .O. (2013), Oil & Gas Sector Reforms in Nigeria what you should know.

7Suraj Jarus .O. (2014), The Nigerian Petroleum Industry Bill (PIB): Framework For Economic Emancipation Or

Polity Destabilization?

The PTDF will responsible for scholarly manpower development skill through

training and retraining of personnel across the oil and gas upstream and downstream

sector.. The body major responsibility is to give scholarships to Nigerians, sponsors

and support researches in oil and gas activities.

• The Petroleum Equalization Fund (PTF):

The PTF continues to exist under the regime PIB seeks to introduce. The PEF is

responsible for accounting for the ‘subsidy’ – the leverage given to Nigerians by

making oil marketers sell at prices below market price i.e equalizing. But what is

unclear to me is how this will continue to exist when subsidy will be totally removed.

But my guess is the continuous existence will be to take care of the backlog s in the

equalization funds or to continue its function until after final subsidy is finally

removed

• The Petroleum Host Communities Fund (PHCF):

The bill also recognizes peculiarities of th e oil producing Host Communities i.e the

Niger Delta and other areas with a view to enhance their socioeconomic and

environmental development.

• The National Petroleum Assets Management Corporation (NAPEMC):

The NAPEMC in the bill is responsible for managing government investments in the

upstream of the oil and gas industry, with subsidiaries responsible to carry out

different aspects of these activities. This new organization will take over the assets

and liabilities of NNPC and will be incorporated into full profit-oriented sector. Thus,

a regulatory entity of NNPC and employees shall be transferred to this entity.

▪ The National Oil Company (NOC):

An offshoot of NNPC, but unlike NAPEMC as limited liability company, the NOC will

have its share listed on the Stock Exchange market where share worth about 30 percent

will be available for sale by the public. The assets, liabilities and employees of NNPC

will also be transferred to the NOC.

▪ The National Gas Company (NGC):

This will also be listed as a PLC and certain employees, assets and liabilities of NNPC

will be transferred to it.

The discovery of crude oil by Shell -BP was closely netted to the period when Nigeria joined

the ranks of oil nations in 1958 with a production of about 5,100 bpd. S hortly afterward in

1960, that exploration rights in offshore and onshore areas adjoining the Niger Delta were

extended to other foreign companies to explore. At the end of Nigeria/Biafra civil war in

1970, Nigeria was able to resume exploration activities , and became a member of OPEC in

1971, subsequently established Nigerian National Petroleum Company (NNPC) in 1977. A

government owned and controlled company became a dominant player both in upstream and

downstream sectors of global economy, attained a pro duction level of about 2 million barrels

of crude oil daily. However, production expectancy dropped in the eighties due to economic

fluctuation, while it pick up in 2004 as oil production hit 2.5 million barrels per day. But

government repositioned its dev elopment strategies which attained a target production of

4million barrels per day in 2010.

Nigeria economy is mono -cultural in nature, driven by Petroleum production and export

earnings which accounts for about 80 percent of her GDP. This dominant impac t relegated

agriculture sector, which was once the mainstay of the economy in the fifties and sixties,

economically ineffective:8

2.1. Genealogy Analysis Of the Of the Emergence Activities of the Petroleum Sector

from 1808-2012

There are major events in the genealogy of oil and gas activities in Nigeria from 1908 to

2012, analyzed below:

• British Colonial Petroleum & Nigerian Bitumen Corporation commenced crude oil

operation at Okitipupa in 1908.

• Exploration for prospective crude oil license was granted to Shall D’ Arcy in 1938.
• It was in 1955 that Mobil Oil Corporation kick -started its exploration operations in

Nigeria.

• Shell D’ Arcy had her first successful crude oil well drill in 1956.
• Shell D’ Arcy was renamed to Shell-BP Petroleum Development Company of Nigeria

Limited in 1956.

• 1958 was the year crude oil was first shipped out of Nigeria.
• 1961 experienced the commissioning of Shell’s Bonny Terminal and the operations of

Texaco Overseas in Nigeria.

• Elf and Safrap (Nigeria Agip Oil Company) initialized crude oil operations in Nigeria

1962.

• Obagi Oil field and Ubata Gas field Gulf first production was discovered by in 1963.
• Crude Oil was first discovered at Ebocha by Agip, and Philip Oi l Company started its

first opereations in the then Bendel State in 1965.

• In 1966 Elf refined its first 12,000 barrels per day (bpd) in Rivers State.
• The first drilled well (Dry) at Osari –I and the first oil was discovery at Gilli -Gilli –I

by Phillips Oil Company in 1967.

8 NNPC (2013), History of the Nigerian Petroleum Industry.

• Mobil Producing Nigeria Limited) formed commissioned Gulf’s Terminal at Escravos

in 1968.

• 1970 Mobil and Agip began production on 4 wells at Idoho Field. Also, it was same

year Department of Petroleum Resources Inspectorate was established.

• 1971 Shell’s Forcados Terminal and Mobil’s terminal at Qua Iboe were commissioned

in 1971.

• Federal government first Participation Agreement in 25 percent acquisition shares in

the Oil Companies and Ashland commenced PSC with then NNOC (NNPC),

including Pan Ocean Corporation first discovered drilled well at Ogharefe –I was in

1973.

• Second Participation Agreement, Federal Government subsequently increases her

second equity participation agreement to 55 percent in 1974. And, it was that same

period Elf formally changed its name from “Safrap”.

• Oil was first lifted by Agip from Brass Terminal, and DPR upgraded to Ministry of

Petroleum Resources in 1975.

• In 1976, Pan Ocean started production through Shell -BP’s pipeline at a rate of 10,800

barrels per day (bpd).

• Nigerian National Petroleum Corporation (NNPC) by Decree 33 by federal

government in 1977.

• 1979 experienced the Third Participation Agreement (via NNPC) by increasing

government equity shares to 60 percent, fourth Participation Agreement; BP’ s

shareholding nationalised, leaving NNPC with 80% equity and Shell 20% in the joint

Venture.

• Shell D’ Arcy changed its name to Shell Petroleum Development Company of Nigeria

(SPDC) in 1979.

• NNPC/Shel1 joint Venture Agreement was consolidated in 1984.
• NNPC on behalf of the federal government signed a Memorandum of Understanding

(MOU) in 1986.

• It was in 1989 that NNPC 60 percent, Shell 30 percent, and Elf 5 percent, and Agip 5

percent Fifth Participation Agreement was actualized.

• 1991was heralded with S igning of Memorandum of Understanding & joint Venture

Operating Agreement (JOA).

• Production Sharing Contracts was signed between NNPC and SNEPCO in 1993.

Including Sixth Participation Agreement; of NNPC 55 percent, Shell 30 percent, Elf

10 percent, Agip 5 percent.

• The coming on-stream of Elf’s Odudu blend, offshore OML 100 was in 1993.
• In 1995, SNEPCO commenced its first drilling of crude oil exploration well
• NLNG’s had its First shipment of Gas out of Bonny Terminal in 1999.
• 2000 experienced the signing of NPDC/NAOC Service Contract.
• 2001 was the Production of Okono offshore oil field.
• In 2002 a New PSCs agreement was signed.
• 2012 also experienced the Liberalization of the downstream oil sector and NNPC

commences retail outlet scheme9

2.2. Major Forms of Oil and Gas Arrangement

There basically four forms of petroleum industry (Upstream Sector) Arrangements. These

are:

• PSCs (Production Sharing Contracts)
• SC (Service Contract)
• JV (Joint Venture).
• MFC (Marginal Field Concession)

2.2.1. PSCs (Production Sharing Contracts)

In view of the financial burden associated to funding of joint venture activities by the NNPC

and in a bid to increase Nigeria’s oil reserves from 20 billion barrels and the quest to

economically develop other sectors of the economy, the Nigeria government decided to

introduce the Production Sharing Contract (PSC) policy for the petroleum industry. The

objective of the policy is to transfer exploration funding, associated exploration risk and

development efforts on new field to interested oil companies. Furthermore, the core of PSC is

NNPC to engage competent and professional contractor that will carry out petroleum

exploration activities on NNPC’s platform or crude oil fields. The policy saddles the

contractor’s responsiveness to undertake the initial exploration risks and recuperates his costs

of exploration at the sighting of oil and extracted.

Under the policy, intending investor has a right to fraction of crude oil allocated to him under

the cost oil. That is, oil to r ecoup production cost and equity oil, this is to guarantee return on

9 Department of Petroleum Resources (2013), Evolution of DPR.

investment. Furthermore, the investor can also dispose of oil tax. That is, to defray tax and

royalty obligations subject to NNPC’s approval. The balance of the oil, after cost, equity, a nd

tax, is divided among parties according to the numbers of oil blacks each controls. For

example, Chevron has seven oil Blocks, Conoco has one oil Block, Allied Energy has one oil

block, Statoil/BP has three oil blocks, Ashland has two oil blocks to it favour, Abacan oil has

one oil block, Agip oil has one block also, Esso oil has one oil block, Shell acquired five oil

blocks, and Elf oil had two of the oil blocks.

Each had a 30 years term of contract, 10 years exploration period of activities and 20 y ears

OML period which could be terminated if at the end of 6 year, there are no effective date of

the contract or a situation where agreed Work Program has not been significantly executed,

or either party gives a notice of termination of contract not less than 90 days from the date

contract was awarded permitted by the contract terms. Furthermore, termination could take

place when prospective oil block is found not to have crude oil ten years into explorative

activities. The minimum work program during exploration period is captured in figure 1.1.

S/N Contract

Year

Amount To Be

Expended

1 1-3 $24 Million

2 4-6 $30 Million

3 7-10 $60 Million

Figure 1.1. Source: Directorate of Petroleum Resources (DPR)

From the above figure 1.1, a situation within any period of the contract years where the

contractor expends less the required expenditure, an amount equal to such under -expenditure,

it is carried forward and added to the amount to be expended in the following period of

contract years. Also, a ten man Management Committee appointed by parties concern on a 50

to 50 basis shall be established within 30 days from effective date of contract, while the

Committee Chairman is appointed by the government t hrough Nigerian National Petroleum

Corporation (NNPC). In the area of recouping of operational cast by an investor and

allocation of crude oil, available crude oil from the field of contract shall be distributed

within the framework of accounting principle s as inherent and applicable in the provisions of

the contract. Furthermore, in Production Sharing Contract (PSC) policy, royalty rates are

graduated according to offshore water depth as shown in figure 2.1.10

S/N

Area/water Depth Rate

1 In areas up to 200 meters water depth 16.67%

2 From 201 to 500 meters water depth 12 %

3 From 501 to 800 meters waters depth 8 %

10 Nigerian Investment Promotion Commission (2013), Production Sharing Contract (PSC) .

4 From 801 to 1000 meters waters depth 4 %

5 An increase in excess of 1,001 meter waters depth

Figure 2.1. Source: NNPC

2.2.2. SC (Service Contract)

The National Petroleum Investment Management Services (NAPIMS) is a subsidiary of the

Nigerian National Petroleum Corporation (NNPC), saddled with responsibility to formulated

policy on Exploration & Production (E&P) Directorate on activities in the upstre am

petroleum sector with a view to protects and oversees the government investment in the Joint

Venture Companies (JVCs,) Production Sharing Companies (PSCs) and Services Contract

Companies (SCs). NAPIMS is also responsible to ensure that margin arising fr om Joint

Ventures (JVs), Production Sharing Contracts (PSCs) Transnational oil Co rporations (TNCs)

and Service Contract Companies (SCs) investment are protected, including national strategic

interest. NAPIMS carry out exploration service activities in basin where investors hesitate to

explore (Chad Basin).

As a prospective world class investment management organization, their major strategic

function is to optimize accrued benefits to government from its investment in upstream sector

activities through:

• Petroleum Profit Tax (PPT) that will enable investor to maximize higher Margin (Rate of

Return) on investment, through effective cost monitoring reduction mechanism that is

reserve base sufficiency targeted about 42 billion bpd by year 2010.

• Increased petroleum refining capacity from about 2.6 million barrels per day (b pd) to

about 4 million bpd in year 2003 and projection about 4 million barrels per day (bpd) year

2010.

• Encouragement of gas utilization and commercialization.

Promotion of local content consumables input that will energised infrastructural

engineering, construction, supplies and materials utilization through in country

technological capability.

• Cultural and social integration between oil companies and host communities of oil & gas

producing areas . While setting standards for environmental protection and ensuring its

strictly adherence.

• Re-diversification of Nigeria’s earnings (revenue base) into hydrocarbon sector by opining

up the oil and gas industry (commercializing) thereby putting an end to gas flaring.

• Stimulating indigenous interest on crude oil exploration, refining and marketing with

foreign companies in frontier areas.

• Ensuring operations compliance with global standard on Health, Safety & Environment

and in all JV/PSC/SC upstream activities.11

2.2.3. JV (Joint Venture)

11 NAPIMS (2012), Service Contract Companies.

This is a business agreement betw een the government represented by Nigerian National

Petroleum Corporation (NNPC) and transnational oil companies (MOC). Under this

arrangement, both parties pool resources together to finance oil operations in proportion of

JV equity holdings, and crude oil produced is equally received in the same ratio. Oil

Companies under this arrangement are taxed under Petroleum Profit Tax Arrangement

(PPTA) at the rate of 65.75 percent, deducted as chargeable profits for the first five years of

operation (when the company is at its take-off stage), and subsequently deduct 85 percent tax

rate at maturity stage. Furthermore, tax payable is adjusted by the provisions of

Memorandum of Understanding (MOU) between parties. The MOU assist in guaranteeing

certain profit margins to investor , when there is fluctuation in crude oil market price , that is,

when price falls below certain thresholds.

Major players in the JVs with NNPC are ChevronTexaco, ExxonMobil, Agip TotalFinaElf

and Shell. However, current JV model is being phased out in the o il and gas industry, due to

the inability of NNPC to fund its share of JV costs. As a result of the increasing fu nding

pressure from JVs, the Federal Government of Nigeria (FGN) adopted the PSC model in

1993 as the preferred petroleum arrangement with MOCs. Apart from awards restricted

exclusively to indigenous companies, awards for upstream operations are now made o n PSC

basis. Under this arrangement, the concession is held by NNPC, as it engages MOC or

indigenous contracting companies to conduct petroleum operations on behalf of itself and

NNPC. The Companies takes the financing risk in exploration activit ies whether successful

or not and r ecover its costs on commencement of commercial production. The first set of

PSCs was signed in 1993, followed by those executed in 2001, after the 2000 licensing

rounds. ;the PSCs remain the same, except for differentials in crude oil profit sharing formula

and cost oil recovery capitalization.

2.2.4. MFC (Marginal Field Concession)

Marginal Field Concession is any field that has crude oil and gas reserves and remained

unexplored or produced for a period of about over 11 years. Booked and reported to the

Directorate of Petroleum Resources (DPR) . The government objectives of introducing

Marginal Field regime policy are with a view to; enlarge participatory scope of indigenous

player in the oil and gas sector; increase the existing oil a nd gas reserves in the country;

create employment opportunity; and enable investment opportunity portfolio in the industry.

The a warding of marginal field oil and gas e xploration Licenses are granted to investors

through direct negotiation or discretionary allocation by Nigeria government . The ownership

of Marginal Field Concession (MFC) remains entirely with NNPC, and contractor has no title

to the oil produced. However, reimbursed of cost incurred from proceeds of crude oil sales

and is paid remuneration periodical in accordance with the stipulated formula enshrine in the

contract. The Contractor has first Mansour right to buy back the crude oil produced from the

concession, and assessed to tax on its service fees under the Companies Income Tax Act as

amended (CITA) at 31 percent; while NNPC is assessed to tax under the PPTA.

Furthermore, in order to provide special incentives to m arginal field operators, government

promulgated the Petroleum (Amendment) Act No. 23 and the Marginal Field Ope rations

(Fiscal Regime) Regulations 2005 on the development of marginal fields. However, to

facilitate more transparency and increased revenue fro m award of oil licences, Nigeria

government initiated competitive tenders as the preferred mode for the award of contract.

This brought in transpiracy and competitiveness into the industry

Nigeria awarded periodic licensing rounds to new blocks and had promised to include

indigenous companies to having a foothold on onshore and offshore fields of about 2 billion

barrels, which would include both big and marginal fields. The operational forecast for

marginal field allocation by government was towards the end of 2010, through the gradual

development of sets of guidelines that will ensure transparency, that would con sidered past

experiences learnt from past exercises. This implies that, successful indigenous companies

will further increase participation in the industry, thus improving their technical and financial

capabilities. In 2003, 24 marginal fields were hande d over to 31 Nigerian companies by the

federal government; many welcomed the development, hoping that the confidence of local

players would boost oil exploration and production activities. The objectives of marginal

field oil and gas policy are to promote indigenous participation in the upstream sector of the

petroleum industry. With a view to achieve marginal fields concessions of the International

Oil Companies, IOCs to indigenous companies. In view of the inherent benefits of policy, the

success of the indigenous players’ involvement into field development and production can be

said to be very discouraging. That is, many have taking hold on such opportunity, hence,

appreciable progress with their concessions has not been attained. Industry stakeholders ha ve

cited finance, fluctuating technical assistance from foreign equity partners, and delay in the

passage of the Petroleum Industry Bill, PIB, as the major factors preventing all the operators

from coming on-stream.12

3.0. LITERATURE REVIEW

Marketing of petroleum products entail, supply, distribution and pricing. And when taking

strategic and tactical decisions, a number of variables are considered to ensure that the

totality of the marketing environment features is in place. In the area of p etroleum products

distribution in Nigeria, there core of the channels of distribution is the Retail outlets (gas

stations or filling station). These are the final links between the source of products to the final

consumers. There are two major marketers in the sector: Independent Marketers (IM) and

Major Marketers (MM). Major marketers of the sector are the Multinational Oil Corporations

(MOC), examples; Agip Oil, TotaFinElf, Shell Petroleum, etc. while the Independent

Marketers are predominantly indigenous markets like Conoil PLC, Oando Oil, Zaino Oil etc.

Supply, distribution and marketing of petroleum products are determinants of features of

Nigerian economy growth rate. The downstream of the oil and gas products marketing

includes: Automotive gas oil ( AGO); Premium Motor Spirit (PMS); Low Power Fuel Oil

(LPFO); Dual Purpose Kerosene (DPK); Cooking Gas Lubricant Oil, High Power Fuel Oil

(HPLO), etc. the aforementioned products are supplied, distributed and marketed by both

Multinational Oil Corporation ( MOCs) and Independent Oil Companies (IOCs) who came

into the marketing business due to inadequate marketers (MOCs) in the chain of supply and

distribution of petroleum products, built more depots and created large logistic facilities

(trucks) for dispensin g of locally and imported source of petroleum products across the

country.13

McCarthy defined marketing as a conceptualized set of actions, or tactics, that a an

organization processes to execute, promote, pricing, distribution of ideas goods and services

12 Uche.A. 2011), Marginal Fields – The Story So Far.

13 BOUBLGIST (2013), Marketing of Petroleum in Nigeria-Associated Problems (a case study of Selected

Independent Petroleum Marketing Firms in Port Harcourt, Nigeria.

with a view to satisfy individual and organizational objectives within the marketing

environment. There are global accepted marketing concept known as the 4Ps that make up a

typical marketing mix, these are: products, Price, Promotion and Place. However, current

studies have improved on the latter to several Ps: People, Packaging, Positioning, and

Politics as vital marketing mix elements.

Description: the 4Ps of Marketing:

• Price: this refers to the value placed on a particular good or service depending on

initial costs of production, segment targeted, ability of the market to pay, supply –

demand and a host of other direct and indirect factors. There are several types of

pricing strategies, each linked with the organization’s overall idea plan. In develo ped

economy, pricing concept is used a demarcation status of a class of people, to

differentiate quality of a product, enhance and promote the image of a product.

• Product: is the actual item being sold. A product must convey a minimum level of

performance and satisfaction to a buyer; otherwise it will be waste of business venture

on the other elements of the marketing mix..

• Place: could be refer as the market where these goods are sold. To every

businessman, attracting the attention of consumer and making it easy for her to buy

remains the very corn of business and it’s the main aim of a good distribution or

‘place’ strategy. Retailers pay a premium for the right location. In fact, the in tonation

of a successful retail business is strategic location.

• Promotion: this refers to all different forms of advertorial procedures taken to

showcase the product or service before the user and trade. This can include: word of

mouth persuasive marketin g, print and electronic media adverts, press reports,

incentives, commissions and awards to the trade. It can also include consumer

schemes, direct marketing, contests and prizes.14

Every Manager of an organization have applied marketing concept, which may be simple or

complex. The marketing concept and variants like total quality management concept for

example, are essentially concerned with satisfying customer’s needs and wants pos itively.

Developing and executing effective marketing strategies which integrate applicable

dimensions of the marketing concept involving organic tasks of selecting a target

environment/audience (customers/clients) in which to operate and developing an e fficient

and effective marketing thought, through better service industry posited by Kotler and

Connor. Various literatures, centers on the debates of whether marketing of physical product

is similar to or marketing are different from marketing of service . But, the conclusion is that,

the differences between physical product and service might be a matter of emphasis rather

than of nature or kind, argued by Creveling. Marketing concept is one of the most underlining

factors that energizes the service of an organization to meeting its set challenges and

obligation in a fairly competitive environment, and at the same time attain its set goals and

objectives.

Silvestro and Johnston 2011, argued that, the theme “service” is applied when describing an

organization or industry that has rendered “something” for someone, and does not “ make

something” for someone. “Service” is used by companies or firms that meet the needs and

14 The Economic Times (2014), Marketing Mix.

want of society such organizations are essentially bureaucratic. “Service” may also be seen as

intangible its outcome being perceived as an activity rather than as a tangible offering. The

question of the distinction between services and tangible products is based on the proportion

of service components that a particular offering contains.

Against this background, the present research attempts to assess an overview of Nigerian oil

and gas supply , distribution, pricing and marketing companies, the effectiveness of the

marketing strategies on the growth of oil and gas marketing companies an d business in

Nigeria, with the attendant competition and other factors. It seems that this growth in the

number of product distributing marketing companies in Nigeria has not been matched with an

equal growth in the awareness of oil and gas services to us ers and other interested publics. In

order to be efficient and effective, Nigerian oil and gas marketing companies have to develop

a good distribution strategies that will enable them to reach out to a wider spectrum of the

society for patronage. The inter action of these marketing strategies and the relevant

environmental factors determines the performance of product pricing regime in the oil and

gas industry in Nigeria. On the other hand, oil products in the Nigerian business environment

include PMS, gaso line, kerosene, diesel, lubricant, among others. While the environmental

factors include men, money, materials, management, machines, facilities location, market,

technology, legal provisions, economic factors, organizational culture, political factors,

structure of the oil and gas industry, oil and gas clients’ behavior, among others. These

factors are internal and external.

The marketing strategies of Nigerian oil and gas marketing companies are expected to be

adaptable to these environmental factors in order to achieve set performance goals. The oil

and gas industry seems to have witnessed some form of corporate performance over the years

which can be attributed to their district level of market share. However, a strategist and not

just a manager therefo re, should have an entrepreneurial vision, corporate philosophy,

competitive advantages, and should involve line managers in strategic marketing. Line

managers are the ones to implement strategies who should therefore be involved early in the

strategic mar keting process. Realizing however that strategic marketing process does not

specify how plans should be translated into action, the issue of strategic marketing

implementation led to the evolution of strategic marketing management.

4.0. THEORETICAL FRAMEWORK

4.1. Resource-Based Theory

In the past decades, more than 500 percent of global researchers have made use of resource –

based theory (RBT) in marketing concept, which applause its efficacy as a framework for

analyzing and predicting competitive advantages and performance outcomes. RBT provides a

comprehensive review of contemporary definitional foundation for relevant terms and

assumptions and a synthesis of empirical findings from marketing literature. The resource –

based perspective argues that sustained c ompetitive advantage is generated by the unique

bundle of resources at the core of the firm (Kozlenkova and Stephen 2014). The theory

describes how investors develop their businesses from the little initial resources and

capabilities that they currently possess or can acquire to grow such business to maturity stage.

The term “resources” implies “anything that can be thought of as a strength or a weakness” of

the firm to grow. The theory addresses the central issue of how superior performance can be

attained relative to other firms in the same market and posits that superior performance result

from acquiring and exploiting unique resources of the firm.

The centrality of the venture’s capabilities in resources based theory explains the efficiency

of an organ ization’s key performance indices (KPI). Resources have remained the most and

first components of investment and production which ultimately is linked to performance.

According to resource -based theorists, organizations can achieve sustained competitive

growth from such resources as strategic supply, distribution marketing, pricing, competency

managerial skills, tacit knowledge, capital, employment of skilled personnel among others.

Resource based theorist argued that the assets and resources owned by organ izations

determines the differences in performance. Resources may be intangible or tangible,

harnessed and converted into strengths for the organization and being able to manage its

weaknesses. By so doing, organizations leveraged upon her competitive adva ntage. The

resource- based theory continues to be improved upon through empirical test. Given that the

resource-based view addresses the importance of resources and capabilities of an

organization via its performance, it becomes imperative that resource ba se theory is found to

be a suitable theory.15

4.2. Organizational Theory

Organizations theory helps an organization to define and identify the patterns and structures

adopted to solve problems, maximize efficiency and productivity, in order to meet the

expectations of stakeholders. Correct application of this theory have impact ed several

benefits for both the organization and society at large, towards economic developments

potential in a society which assist in generating tools necessary to fuel its capitalistic system.

Once an organization sees a window for expansion, it begins to grow and thus alters the

economic equilibrium by catapulting itself forward. This expansion induces changes not only

in the organization’s infrastructure but also in competing organizations and the economy as a

whole. For example, in the area of factor y production efficiency, Henry Ford created the

assembly line, a system of organization that enabled efficiency which catapulted both Ford

automobile plant and subsequently triggered U.S. economy growth.

organization theory is one of the most widely used and extensively tested theories in decision

making that explain organization’s growth and relationships (Ivanko 2013) in decision –

making responsibilities. Several models, on organization theory, have been developed to

explain resource transfers to constit uent units whose current financial performance is poor.

Some conclude that such transfers are inefficient and value destroying. They have been

modeled as bribes to managers of weak units to induce them to cooperate with the firm’s

stronger units ( Rajan, et al 2000) or as stemming from the fact that managers of poorly

performing units have a lower opportunity cost of engaging in non -productive bargaining

activities. Others argued that such transfers are representations of unobserved value creation

and are a means of promoting long run firm efficiency. Thus, suggested that managers who

provide critical services to the firm may be housed and networked within poorly performing

units. Transfers are a means whereby stronger organizations can make irreversible

commitments to such managers. Modern theorists, suggested that internal resource also flows

15 kozlenkova . I. (2014), Resource Base Theory for Marketing.

to poorly performing firm as a means of developing new businesses as the firm searches for

new avenues to exploit its organizational capabilities.16

4.3. Conflict Theory

Conflict theories are part of sociology perspectives that emphasizes on social, political, or

material inequality of a social group, critiquing broad socio-political system, or that otherwise

detract from structural functionalism and ideological conservatism. Karl Max argued that

individuals and groups (social classes) within a society have differing amounts of material

and non-material resources (such as the wealthy vs. the poor) and that the more powerful

groups make use their power in order to exploit groups with less power.

However, a basic tenet of conflict theory is the absence of interdependence in a social system.

Thus, it could be agued further that mutual dependence is the cause of conflict in an

environment. Confkicts are opposite ideas, goals, or behavioural atti tude that occurs among

classes of management of institutions that constitute marketing team. inter and intra conflict

within na marketing environment can result to a threat to the survival of a particular system.

For example, hoarding of supply of petroleu m products in Nigeria from March to June 2015,

led to chronic scarcity which advertly led to high density of quenue across the sixt

geopolitical zones of the country. This led to the detrimental to the effective performance in

the system. It could equally be beneficial to the members of the marketing channel (Assael

2000), if it is used to identify channel weakness the resolution of which leads to the

strengthening of the channel. Hadjimanolis (2000), isolate three forms of distributive conflict

in the di stribution channel: – horizontal competition, inter -type competition and vertical

competition.

Horizontal competition exists between middlemen of the same type. An example in the oil

industry will be a conflict between Oando Petroleum (Nigeria) Limited dealer and Shell

Petroleum Development Company (SPDC) Nigeria, dealer. These rivals compete for more

patronage, thus, using various methods which in some cases can lead to a price war. Class

inter-type competition exists between middlemen of different type s in the same distribution

channel processes. But, in a situation, where a Shell Petroleum competes with an Independent

Marketer with just one filling station outlet. Because the independent marketer will generally

enjoy a higher discount rate than the dea ler, he, the independent marketer, will tend to sell at

a very attractive price to wool customers and hence the competition that arises is inter type.

The reverse is the case, when vertical conflict occurs among multifarious dealers in channel

of distribution at different levels, the following could be experienced; when an agent (dealer)

of Shall Petroleum (Nigeria) competes with Shell Petroleum (Nigeria) in the supply of

products to its customers, .It will be obvious that the agent will not be able to com pete

favorably because Shell Petroleum (Nigeria) has more resources base then that individual

agent who source (buys) his products from Shell Petroleum to resell to the final consumer.

This implies that, the primary sourcing of products could attract confl ict with the channels of

product distribution, supply and pricind diue to existing marketing varibles and strength and

weeknesses of competitors. the primary business philosophy is that the key to understanding

management’s problem of cross purposes is th e recognition of the fundamental philosophies

16 Stefan Ivanko (2013) Modern Theory of Organization, Faculty Of Public Administration. University of

Ljubljana.

of the high level of the corporate manager and that of the typical retailer in the distribution

system. The former philosophy can be characterized as essentially dynamic in nature,

continuously evolving while the latter, small distributor’s philosophy is in sharp contrast, and

essentially static in nature, reaching a point and leveling off into a continuously satisfying

plateau. These differences could be attributed to the different perceptions of the horizons of

the two groups and the possible variations in their aspirations. The primary causes of conflict

associated with the channel of products supply and distribution are as follows:

• Goal incompatibility – the big marketers’ use the principles of flooding the market

with high volume of petroleum products to reduce unit overhead costs but involve

dealers in uneconomical inventory levels.

• Domain-position-role incongruence such as the inability of marketers to supply and

distributes petroleum products due to moribund logistic facilities (depots and farm

tanks) across the country.

• Communication breakdown, where there faulty pump at the retail outlets,

breakdowns marketing companies does easily communicate such t o their parent

organization. Rather dispense with a view to under dispense products to buyer with

the intent to short change them financial and a view to maximize profit.

• Differing perceptions of reality encompassing members’ self -perception, members’

perception of channel leader and the leader’s perception of each channel member, and

• Ideological differences resulting from issues which arise out of channel members’

consideration of value. For example, where channel members see the causes of

shortage differently.17

4.4. The Resource Dependency Theory (RDT)

Resource dependence theory (RDT) originated in 1970, with the principle of understanding

the impact or influence of external resources on an organization or firm vis -a-vise the

behavior of the organization. For instance, the procurement of external resources remains an

important tenet in both strategic and tactical management of any company’s raw materials.

This implies that, resource dependency theory enable an organization to leverage on its

ability to gather, alter and make use of raw materials faster than its competitors who

fundamentally aid growth and success. Most importantly, the theory encourages the firm to

view customers as a resource inclined to scarcity. According to Jeffrey and Gera ld, RDT are

the basic keys to organizational success and that control and access over resources is a source

of power. Resources are often controlled by organizations and not in control of organization

needing them, connotation is that, strategies must be carefully considered in order to maintain

open access to resources. For instance, firms characteristically build laying -off into resource

acquisition in order to reduce their reliance on single sources e.g. by liaising with multiple

suppliers.

The view of proponents of resource dependency theory (RDT) is that organizations should be

proactive in the control of her resources in order to achieve organization objectives

effectively. Being Effective is described as follows: “The effectiveness of a firm determ ines

17 Karl Max (2013), social conflict Theory. Retrieved from: https://en.wikipedia.org/wiki/Social_conflict_theory

its ability to initiates acceptable outputs and results”. In this view, effectiveness can then be

refer to as being proactively managing the competitive environment to its advantage in its

quest to create acceptable outputs and results. To describe th e latter of firms managing the

competitive environment to its advantage, the authors posited that, the term controlling

orientation is the means to adopt a strategic thrust that enable an organization to successfully

and proactively being able to manage i ts competitive environment within its legal and quasi –

legal manner to its advantage, by integrating a range of resource dependency theory (RDT)

strategies in their strategic managerial planning and decision making with a view to having

superior financial platform.

Formal discussion of managing the competitive environment in the marketing literature

began with Zeithaml in 1994, with the argument that environment where firm operate can

indeed be influenced and that only marketing strategies are central to th e achievement of this.

Thus, for instance, organizations dexterity for public relations and political recognition

through putting in place lobbyist platform who help the organization to create a more

promising legislative environment that will action bett er legislate business policy for the

organization’s growth and development.18

4.5. Analysis of Petroleum Products Channels of Distribution and Marketing Industry

There are eight major oil companies in Nigeria, of which two are indigenous; African

Petroleum (AP) and Oando Plc. They constitute and dominate the center stage of local

market. The other six, National oil and Chemical Marketing Plc, include: Agip Plc, Tot al

plc,.Texaco Plc and Elf are jointly owned by Nigerians and foreign owners. All the seven

companies excluding Elf recorded a combined turnover of N7,289 billion, N9,132 billion,

N16 billion and N34 billion in 1992; 1993, and1994 respectively. This tren d was followed

by a general decline in volume turnover due to political instability especially in August of

1994 when there was nationwide strike by oil workers on fuel price hike. In 1995, however,

there was an increase pre -tax profits for the seven major companies from N2 billion in 1993

to N 5.6 billion, representing a 175 percent increase in 1995.

Furthermore, research survey on nationwide Retail outlets carried out by Petroleum Products

pricing Regulatory Agency (PPPRA) in 1996, recoded about 2000 independent retail outlets

(marketers) who dispenses, supply, distributes and control about 70 percent of the domestic

marketing network. These independents operators are licensed to reflect geographical spread.

Products are largely sourced from Pipeline and Products Marketing Company (PPMC), a

subsidiary of NNPC. Product distribution from the refineries i s done through a 4,950 –

kilometre system of pipelines and twenty storage depots and through trucks from sourcing

points to the coastal vessels and extreme northern parts of the country, attracting bridging

fund from Petroleum Equalization Fund Board (PEFB) in distribution mode to the final

consumers at the filling stations, see table 1.1.. The market pricing for petroleum products

and pricing was largely regulated by government through Petroleum Support Fund (PSF)

being administered by PPPRA, as individual c ompanies were entirely free to maintain their

18 Jeffrey .P. and Gerald .R. S. (2013), what is Resource Dependence Theory (RDT). Retrieved from:

http://www.hrzone.com/hr-glossary/what-is-resource-dependence-theory-rdt

market quotas in order to meet total national demand. Government continues to regulate the

industry in the areas of prices and marketers’ margin.19

Figure 3.1.

SAMPLING OF MAJOR AND INDEPENDENT MARKETERS OF PETROLEUM

PRODUCTS IN NIGERIA

DAILY EX-DEPOT PRICES

MARKETER S/No DEPOT/FACILITY PMS(N/litre) DEPOTS

MAJOR

MARK

ETERS 1 FORTE OIL ONNE NA

2 CONOIL PH NA

3 OANDO ONNE NA

4 OANDO PH 98.00***

INDEPENDENT MARKETERS

5 AITEO PH NA

6 CYBERNETICS NA

7 DELMAR PH NA

8 EVER OIL CALABER NA

9 DOZZY OIL PH 87.66

10 FRESH SYNERGY, IKOT ABASI 87.66

11 GRAND PET NA

12 HONEYWELL DEPOT NA

13 IBAFON CALABER 102.50*//100.09

14 KINGS CROWN NA

15 MASTERS ENERGY NA

16 MATRIX ENERGY NA

17 NORTHWEST PET & GAS 87.66

18 ONTARIO DEPOT CALABAR 99.00

19 ORYX DEPOT NA

20 PETROSTAR NIL

21 RAINOIL DEPOT NA

22 SAHARA ONNE NA

23 SHORELINK PH 88.00

24 SPG ONNE NA

25 TEMPOGATE ENERGY NA

PPMC DEPOTS 26 PPMC DEPOT ABA 87.66

27 PPMC DEPOT BENIN 87.66

28 PPMC DEPOT CALABAR 87.66

29 PPMC DEPOT ENUGU 87.66

30 PPMC DEPOT MAKURDI 87.66

31 PPMC DEPOT, PH 87.66

32 PPMC DEPOT, WARRI 87.66

Source: *Throughput Product Belonging To Ontario Ltd,

**Ex-Depot Price For Ibafon Oil & Gas Ltd, and

***Throughput Product Belonging To Sahara Energy Ltd. Retrieved from: DPR

19 Petroleum Products Pricing Regulatory (2010), Revised Guidelines for the Administration of Pe troleum

Support Fund (PSF).

Figure 4.1.

SAMPLING OF LOGISTIC FACILITIES FOR PETROLEUM PRODUCTS

ACROSS NIGERIA

JETTYS

CALABAR JETTY

CYBERNETTI JETTY

DELMAR JETTY

ECO MARITIME JETTY (ECM)

FEDRAL LIGHT TERMINAL

(FLT)

FEDERAL OCEAN TERMINAL

(FOT)

HONEYWELL JETTY

MARCOBAR JETTY

MATRIX ENERGY JETTY

MASTER ENERGY JETTY

NIGERIA PORT AUTHORITY

(NPA)

OKIRIKA JETTY

PETROSTAR JETTY

RAINOIL JETTY

WARRI JETTY

CALABAR JETTY

SOURCE: Petroleum Products Marketing Company (PPMC).

Figure 5.1.

SAMPLING OF PETROLEUM PRODUCTS RETAIL OUTLETS IN NIGERIA

RETAIL OUTLETS

PRICES

S/No LOCATION RETAIL OUTLET

1 RIVERS

LUMCO

NNPC MEGA

MRS

ROMANS

OANDO

TOTAL

AP

TOTAL

JIJISCO

NNPC MEGA

TONNIMOS

OANDO

MOBIL

MRS

SOBAZ

STARK ENERGY

CHELSE OIL

OANDO

YKC

AP

CONOIL

MEIN OIL

MOBIL

CONOIL

BIDDEL

2 ABIA

NNPC MEGA

METCO

EZEXO

LAWPAC

ZEMA OIL

TOTAL

PRIMATH

BENANTO

GGOIL

AVIL OIL

3 CROSS RIVER

NNPC MEGA

HONEYWELL

TONIMAS

NORTHWEST

SYNTO OIL

MRS

MOBIL

CONOIL

TOTAL

OANDO

CONOIL

MILLICENT

4 EDO

IDONIJE

MOBIL

NNPC MEGA

TOTAL

TOTAL

CONOIL

MOBIL

OANDO

TOTAL

CONOIL

5 DELTA

TOTAL

CONOIL

CHI TIN PET

RAINOIL

ALIYU OIL

SMILE

AP

TOTAL

JENITE

NNPC

PEMOK OIL

BENJONES

MOBIL

NNPC

COSCO

CONOIL

TEA PET

EDDY UBREYEN

SOLEVAD OIL

MOBIL

6 ENUGU

NNPC

MOBIL

MRS

CONOIL

JUHEL PETROL

NNPC MEGA

NIPCO

ALON ENERGY

FOTANA OIL

CEKON OIL

MOBIL

BONTUS

OWOKEEN OIL

MASTERS

MOBIL

ANCCORI

AMARA OIL

TOTAL

7 BENUE

EMAS

DOCHISS

TOTAL

YAMOYUS

NNPC MEGA

P-KURA

BOLEK

CONOIL

OANDO

KYABIZ

8 AKWA IBOM

FENS OIL

EMESON

FONEX

EXPI PET

Figure 5.1.

SAMPLING OF RIVERS STATE RETAIL OUTLETS SUPPY & DISTRIBUTION OF

PETROLEUM PRODUCTS IN THE MONTH OF NOVEMBER, 2012.

DATE: 21ST NOV, 2012

LOCATION PMS(N/litre) AGO(N/litre) DPK(N/litre)

ALONG IWOFE ROAD, PH 120.00 140.00 130.00

LAGOS B/STOP, PH 97.00 152.00 50.00

MILE 3 ROAD, PH NIL NIL NIL

ADA GEORGE, PH 97.00 162.00 NIL

IWOFE ROAD, PH 137.00 NIL NIL

DIOBU, MILE 3 ROAD, PH 120.00 NIL NIL

IWOFE ROADPH 130.00 158.00 125.00

AZIKIWE ROAD, PH 97.00 NIL NIL

ONNE,PH NIL 150.00 130.00

OIL MILL, PH NIL NIL NIL

ADA GEORGE, PH 130.00 NIL 130.00

ELEME ROADD, PH NIL 165.00 NIL

GARISSON, ABA ROAD, PH 97.00 NIL NIL

MILE 3 ROAD, PH NIL NIL NIL

IKWERRE ROAD, PH 97.00 150.00 NIL

ELELEWON/AKPAJO ROAD, PH 130.00 163.00 NIL

WOJI ROAD, PH 140.00 NIL NIL

ABA ROAD, PH 130.00 NIL NIL

WOJI ROAD, PH 140.00 NIL NIL

PETER ODILI ROAD, PH 97.00 150.00 NIL

AMADI AMA ROUNDABOUT 120.00 NIL NIL

AIRPORT ROAD, PH 105.00 NIL NIL

NPA ROAD, PH 97.00 NIL NIL

LEVENTIS B/STOP, ABA ROAD, MILE, PH 97.00 160.00 NIL

IWOFE ROAD 130.00 NIL NIL

ABA – OWERRI ROAD, ABA 97.00 NIL NIL

ABA – OWERRI ROAD, ABA 110.00 160.00 160.00

PH, ABA 105.00 180.00 135.00

ABA – OWERRI ROAD, ABA 105.00 NIL NIL

ENUGU/PHC EXPRESS, ABA 115.00 150.00 120.00

ABA – OWERRI ROAD, ABA 97.00 145.00 NIL

ABA – OWERRI ROAD, ABA 105.00 160.00 NIL

ABA 135.00 NIL 125.00

ABA – OWERRI ROAD, ABA 105.00 160.00 125.00

ABA – OWERRI ROAD, ABA 110.00 160.00 130.00

MURTALA WAY, CALABAR 97.00 152.00 NIL

MURTALA WAY, CALABAR 120.00 155.00 110.00

MURTALA WAY, CALABAR 110.00 150.00 115.00

PARLIAMENTARY ROAD, CALABAR 97.00 NIL NIL

ZONE 6, CALABAR 110.00 NIL NIL

ZONE 6, CALABAR 97.00 145.00 NIL

MCC JUNCTION, CALABAR 97.00 NIL NIL

MCC JUCTION, CALABAR 97.00 NIL NIL

CALABAR ROAD, CALABAR 97.00 NIL NIL

OPPOSITE STADIUM, CALABAR NIL NIL NIL

WATT MARKET, CALABAR 97.00 NIL NIL

MURTALA HIGHEWAY, CALABAR 100.00 NIL 130.00

BENIN-AUCHI ROAD, BENIN 97.00 NIL NIL

AKPKAPAVA ROAD, BENIN 97.00 NIL NIL

SAPELE ROAD, BENIN 97.00 NIL NIL

USELU ROAD, BENIN 97.00 NIL NIL

SAPELE ROAD, BENIN 97.00 160.00 NIL

AKPAKPAVA, BENIN 97.00 NIL NIL

AKPAKPAVA, BENIN 97.00 NIL NIL

OGHARA, SAPELE ROAD, BENIN 97.00 NIL NIL

AIRPORT ROAD, BENIN 97.00 NIL NIL

IKPOBA HILL, BENIN 97.00 NIL NIL

ESTATE JUNCTION, WARRI 110.00 NIL NIL

ESTATE JUNCTION, WARRI 110.00 160.00 NIL

REFINERY ROAD,WARRI 115.00 NIL 120.00

ALAKA EFFURUN, WARRI 97.00 160.00 NIL

SAPELE, DELTA STATE 120.00 NIL NIL

EFFURUN ROAD, WARRI 97.00 NIL 115.00

OGOR, UGHELLI NORTH, DELTA 115.00 NIL 130.00

OKUMAGBA AVENUE, WARRI 97.00 145.00 NIL

AGBAHO, DELTA 110.00 NIL 120.00

EKPAN ROAD, WARRI 97.00 145.00 NIL

EDJEBA JUNCTION, WARRI 110.00 140.00 NIL

NPA EXPRESSWAY, WARRI 115.00 140.00 120.00

OKUMAGBA AVENUE, WARRI 97.00 NIL NIL

REFINERY ROAD, WARRI 97.00 NIL 50.00

OKUOKOKO ROAD, WARRI 120.00 NIL 120.00

AIRPORT JUNCTION, WARRI NIL 170.00 NIL

JAKPA ROAD, EFFURUN 110.00 NIL 120.00

ENERHEN ROAD, WARRI 97.00 NIL NIL

EFFURUN – UGHELLI ROAD, WARRI 110.00 NIL 120.00

AIRPORT JUNCTION, WARRI NIL 165.00 NIL

NAIRA TRIANGLE, ENUGU 97.00 152.00 50.00

AIRPORT ROAD, ENUGU 97.00 NIL NIL

ABAKALIKI EXP BY NEW HAVEN,

ENUGU 97.00 160.00 NIL

OGUI ROAD, ENUGU 97.00 160.00 NIL

EMENE, ENUGU 120.00 NIL 130.00

NEW HAVEN,ENUGU 97.00 NIL NIL

NEW HAVEN,ENUGU 120.00 150.00 120.00

EMENE, ENUGU 120.00 160.00 NIL

INDEPENDENCE AVENUE, ENUGU 120.00 NIL 125.00

OGUI ROAD, ENUGU 120.00 NIL 125.00

ABAKALIKI EXP BY NEW HAVEN,

ENUGU 97.00 160.00 110.00

OGUI ROAD, ENUGU 125.00 NIL 125.00

ABAKALIKI EXP BY NEW HAVEN,

ENUGU 120.00 NIL 125.00

ABAKALIKI EXP BY NEW HAVEN,

ENUGU 120.00 160.00 NIL

AIRPORT ROAD, ENUGU 97.00 160.00 NIL

AGBANI ROAD,ENUGU 120.00 160.00 125.00

ABAKALIKI EXP BY NEW HAVEN,

ENUGU 120.00 160.00 NIL

PRESIDENTIAL ROAD, ENUGU 97.00 NIL NIL

GBOKO ROAD, MAKURDI NIL NIL NIL

OLD OTUKPO ROAD, MAKURDI 120.00 165.00 125.00

OLD OTUKPO ROAD, MAKURDI 97.00 NIL NIL

OTUKPO ROAD, MAKURDI 125.00 NIL NIL

OTUKPO ROAD, MAKURDI 97.00 152.00 NIL

OTUKPO ROAD, MAKURDI 115.00 165.00 NIL

ATOM KPERA ROAD, MAKURDI 120.00 170.00 125.00

GBOKO ROAD, MAKURDI 97.00 174.00 NIL

KASIM KAREEM ROAD, MAKURDI 97.00 170.00 NIL

GBOKO ROAD, MAKURDI 120.00 165.00 125.00

IKOT ABASI ROAD, AKWA IBOM 115.00 NIL NIL

IKOT ABASI ROAD, AKWA IBOM 120.00 NIL NIL

IBEKWE ROAD, IKOT ABASI 115.00 NIL NIL

IBEKWE ROAD, IKOT ABASI 120.00 NIL NIL

Source: Petroleum Products Pricing Regulatory Agency (PPPRA)

Figure 6.1.

Alternative Fuel sources for Domestic Cooking

N/S Alternative Fuel percentages

1 Kerosene/Oil 58.13

2 Generator plant 3.04

3 Gas 1.11

4 Electricity 0.52

5 Firewood 32.55

6 Charcoal 2.82

7 Crop Residue Or Sawdust 0.07

8 Animal Waste 0.08

9 others 1.68

Total 100

Source: Nigerian Bureau for Statistics (NBS).

Greater percentage of Nigerians living in the rural and urban cities uses firewood as their

main source of fuel for domestic cooking; about 27.5 make use kerosene while only 1.1 1

percent used gas in the period covered by the survey. In Nigeria, the use of LPG gradually

becoming accepted by the mass as the cleanest and safest mea ning of cooking that is

environmentally friendly. The use of electric cooking-gargets and kerosene is becoming

prominent as a result the high price of LPG. Although, the constant use of firewood is

gradually being discouraged, due to its advert impact on disforestation and direct relation to

poverty.

5.0. GENERAL DISCUSSION

In the oil and gas activities, the d ownstream subsector plays key role in the industry. It is the

segments of the downstream sector that relates with the public through commercialization,

supply, distribution, pricing and marketing activities through enabling logistic facilities which

entails transportation of crude oil and gas to the refinery and gas stations via pipeline network

from the wellhead to the refinery or plant. Vehicular t ankers and purpose -built vessels are

also used for this purpose Nigeria has four refineries: two situated in the South-South region

of the country (one in Port Harcourt and one in Warri ) and two in the Northern region of the

country (one petrochemical and one refinery, both in Kaduna State). The se refineries are

owned by government, managed by NNPC, with a total nameplate capacity of about

505,000b/d. but, these refineries are currently under refining about 33percent of their

installed capacity; necessitating the importation of refined petroleum products to meet up

with the growing internal demand.

The government over the years has constantly awarded Turn -Around Maintenance (TAM)

maintenance contract to rep utable foreign organization, all to no avail. However, with

anticipated Petroleum Industry Bill (PIB) being passed and the full deregulation of the entire

petroleum industry, which will allow stiff competitiveness, the country’s refineries is

expected to i ncrease in future as new licences will be granted. And g overnment’s strategy

plans to award new oil licences to intending investors in the oil and gas sector, railway lines,

gas pipelines that will adequately em power energy plants across the country . Distribution,

pricing and Mark eting of petroleum products are determined by business and economic

indices. Distribution involves availability and adequate dispensing of refined petroleum

products through pipelines and bridging ( coastal vessels, road trucks , rail wagon) etc. gotten

or loaded from farm to the storage depots across the country . This process is directly

monitored by the Nigerian Petroleum Product Marketing Company’s (PPMC) , which links

the refineries to the about 22 regional farm tanks depots via pipeline network system across

the six geopolitical zones of the country . The se pipelines are segmented into t hree phases:

Phase 1 and 2 entails five systems, referred to as 2A, 2B, 2C, 2D, and 2E ; Phase 3 has three

systems, referred to as 2cx, 2dx and 2ex2. Petroleum product marketing involves in the

purchasing, retailing and sale s of refined petroleum products. Marketers upload products

from PPMC farm tanks and deliver same to various retail outlets in the country.20

PPMC, as marketer imports complementary refined petroleum products into the country to

meet the demands of their customers. However, guidelines for importation are issued by

Directorate of petroleum Resources ( DPR) to ascertain and sustain quality standard in order

to prevent importation of substandard products into the country . In the bid to reform the oil

and gas sector, the government of Nigeria established a downstream subsector regulatory

committee known as the Petroleum Product Pricing Regulatory Commission (PPPRC) in

2000 and later transcended into the Petroleum Products Pricing Regulatory Agenc y (PPPRA)

by Act of the Nation al Assembly in 2003, with the mandates to oversee the activities of the

downstream petroleum products pricing, supply and distribution. One of its major

responsibilities is the constant checkmate on petroleum products price volatility, while

ensuring a level playing ground for investors and return on their investment. 21 However, the

underlying factor is a complete deregulation of the entire oil and gas industry through the

passage of the Petroleum Industry Bill (PIB), an initiative for the repositioning of the sector

in accordance of global standard. Although, the proposed reforms face s stiffer opposition

20 PPMC (2013), Petroleum Products –Significance of Pipeline Transportation.

21 Oluwole .O. (2003), Liberalization of Downstream Petroleum Sector: The Nigerian Experience

from the organized labour and civil society groups in the country , thus, there is collective

effort by Nigeria ns to ensure it passage as lasting solution to all the challenges confronting

the oil and gas industry in Nigeria.

Nigerian Liquefied Natural Gas (LNG) is the largest natural gas reserves in Africa yet limited

infrastructure and is an untapped sector. Nigeria’s first and most ambitious gas project, the

first Nigerian commercial LN G refining plant is the Nigerian Liquefied Natural (NLNG)

facility located in Bonny Island of River State with six LNG trains currently operational with

annual capacity of 31 billion cubic meters ( bcm). Placing Nigeria as one of the major

exporters of LNG in sub -Sahara Africa to Europ e, and the propose construction of the

seventh LNG train with expected nameplate capacity of about 8.6mn . All companies

operating in the downstream petroleum sector are assessed to income tax under the

Companies Income Tax Act, 2004 as amended (CITA) at the rate of 30 percent of their

chargeable profit.22

Furthermore, the government introduced the Nigerian Oil and Gas Industry Content

Development Act (NOGIC Act) with a view to increase the level of Nigerian Content in oil

and gas industry. It is the significant of comp osite value added to Nigerian economy by a

systematic development of human capacity, material resources and services utilization of

Nigerian oil and gas industry. NOGIC Act provides first consideration to Nigerian

independent operators of in the oil and gas sector, those who renders services, manufacturers,

and those Nigerians in employment and training of mental work fabricator and welding

activities should be locally sourced. The Act imposes a levy of 1 percent on the value of

contracts awarded in the ups tream sector. The amount is required to be deducted at source

and paid into the Nigerian C ontent Development Fund (NCDF). The Act empowers the

Nigerian Content Development and Monitoring Board (the Board) to monitor, coordinate and

implement the provisions of the Act. 4.2 The Petroleum Industry Bill (PIB) . With the

objectives which include: potential increase in the country’s share of the revenue accruable to

the government from crude oil production, increase in the participation of Nigerians in the

industry through the enforcement of the Nigerian Content provisions and the realignment and

integration of the various functions and d epartments in the Nigerian National Petroleum

Corporation (NNPC), Directorate of Petroleum Resources ( DPR), Ministry of Petroleum

Resources and Petroleum Products Pricing Regulatory Agency (PPPRA) . The PIB also hopes

to achieve the enforcement of international best practices in the Nigerian oil and gas industry,

amongst others. To the oil producing companies, the potential benefits include removal of the

restriction on capital allowances claimable against profit in any particular tax year and the

reduction in the petrole um profit tax (PPT) rate from 85 per cent to a combined rate of 80

percent for joint venture operations (30% CIT and 50 percent Nigerian Hydrocarbon Tax).

5.1. Challenges in the Nigeria Oil & Gas Sector

In spite of the economic benefits of the sector, there are some salient challenges confronting

the oil and gas industry in Nigeria. Thus: Niger-Delta militant c risis as a result of abject

poverty; environmental p ollution and degradation ; deforestation; periodic attacks on oil

facilities and pipelines; gross unemployment among employable youths; colossal waste and

corruption among public servant elites; and lack o f government political will towards

resolving the problems . Government underfunding was a recurring problem in the upstream

sector. That is, the inability of the NNPC to meet up with funding obligations to JV

22 PPMC (2013), Petroleum Products Distribution & Marketers.

operations; the tedious manner at which Contract are processed and award between initiation

and eventual execution of the agreement could take as much as 36 months in some cases.

Infrastructure Nigeria is also faced with the challenge of lack of sufficient infrastructure to

run the oil and gas industry . Government aims to fast track the monetization of the nation’s

gas resources, instituting a gas based industrialization and increasing the generation capacity

of the power sector, to ensure sustainable electricity delivery for domestic and industrial uses.

5.2. Doing business in Nigeria

There are different investment vehicles that could be used for carrying on business in Nigeria.

These include partnerships, unincorporated joint ventures and limited and unlimited liability

companies. However, the authori zed mode of investment by foreigners in Nigeria is through

limited liability companies. Under section 54 of the Companies Allied Matters Act (CAMA),

that regulates company formation and activities in Nigeria, deterring foreign companies from

carry out business in Nigeria expect is being incorporates as a local subsidiary in the country.

However, government empowered section 56 to exempt some mandatory requirement to

foreign companies in the following categories: those f oreign investment initiated and

approval by the federal government to execute special projects; foreign companies in Nigeria

saddled with the responsibility to execute specific loan scheme projects on behalf of donor

countries or foreign organizations; those foreign government-owned companies that engages

mainly on export promotion businesses; and technical and engineering consulting experts

who engages in specialist executing projects on behalf of the donor (government) or any of

the government agencies as approved by government.

6.0. FUTURE SUGGESTIONS AND RECOMMENDATIONS

This study has enumerated practical and significant impact of petroleum products

distribution; supply, marketing and pricing performance interact with the related economic

components to facilitate growth and development. It also indicates that different performance

factors that moderates price volatility and scarcity . Therefore, the Nigerian economy is a

dynamic business environment which is anchored on oil and gas activities.

6.1. Suggestions for Further Studies

This research leads to some observations that might be of interest to future researchers, as

they represent the seeds from which future research can be developed.

1. This same research can be carried out in other nations so that a broad comparison of

the concepts of strategic marketing as it affects firm performance can be made.

1. Research into the combined effects of strategic marketing practice and performance

factors as mediators of firm performance relationship.

1. Research into the effects of key characteristics of industries environmental indices

and marketing strategy could be carried out to further explain the differences in the

firm’s adoption of strategic marketing.

1. Finally, future research works are to be undertaken in order to refine the cobwebs

found in the present research, and orient it to more specific contexts (business, time,

location, etc) in Nigeria’s oil and gas industry.

6.2. Study Recommendations

1. The concepts and principles of total quality management (TQM) are recommended

for holistic study, in addition to contemporary marketing management issues such as

relationship marketing, value analysis, business process re -engineering,

megamarketing, re -marketing, co -marketing, bench marketing, and permission

marketing, among others.

1. Efforts should be made by organizational marketers to understand the relevant

factors that affect both clients’ behaviours, and the strategic options to be adopted to

cope with such behaviours.

1. Oil and gas marketing scholars or researchers should endeavour to study holistically

the relevant business functions and activities which may enhance or hinder the

understanding and subsequently applicability of relevant modern managemen t

concepts and principles to oil services marketing.

1. Firms that are not operating in a dynamic business environment need not adopt a

strategic marketing practice as this may cause the firm to look inconsistent in the

eyes of its customers and eventually reduce effective performance.

1. The need for the identification of options and resources and of capabilities of

deployment constitutes an impetus to effective strategic marketing implementation,

since the practice derives from capabilities in assembling and maintaining an

appropriate resource portfolio and coupling the resource portfolio with the

identification and recognition of options.

1. In a constantly changing business environment, firms can adopt a strategic marketing

practice because it is able to enhance their business performance.

1. The need for configuration, reconfiguration and deployment of resources to arrest

negative changes in the business environment.

1. The need to generate real options by devising and configuring resource – based

capabilities.

7.0. CONCLUSION

The distribution system of petroleum products in Nigeria is found to be ineffective and

inefficient due to a number of factors which have been identified. It is recommended that the

downstream sector of the industry be completely deregulated, and the apparent subsidy be

removed such that the prices of the products will be determined by the market forces of

demand and supply. It is argued that the private investor and entrepreneurs should be allowed

full participation in the sector, a situation tha t will lead to effectiveness in the distribution of

the product. In effect, as discussed by Adeleke (2002), this will create job opportunities for

Nigerians and promote further, the development of small and medium scale enterprises in the

oil sector of the economies. Finally, the refineries should be privatized, that is, sold to private

investors. The NNPC should hands off the operation of refining petroleum products for

domestic consumption. This process, no doubt, will usher in a more effective system and

operation in the industry.

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