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Community Development
 

CRUDE OIL THEFT ALLOCATION: Resolving a Solomon-Like Puzzle (Continued from the last edition) By: Andrew Grant and Florence Eke

 

The committee investigated all the methods that the parties proposed for sharing the theft losses, before coming up with a solution. The investigation involved a lot of mathematical analysis of network data over 2 years. At the end of the exercise, the committee was able to identify the key factors that need to be considered, among other lessons learnt.

There was a progressive development of the formula for theft allocation as the committee interacted with the companies involved in these CHA disputes. The complex formulae can be simplified into three:

First Formula: The Theft sharing methodology that was initially proposed focused on sharing the theft losses proportionally. So a 10% loss on the network means that all parties will loss 10% of their oil. This formula is called the Proportional Method.

Second Formula: Following the complaint of third parties that they are not exposed on the entire network, it was decided to introduce network effects to account for the pipeline mileage each flowstation or injector utilizes in flowing its crude to the terminal.

The new equation called Pipeline Exposure Equation, simply applies weighting factors that represent the relative pipeline distances of each of the flowstations to the crude oil terminal.
The flowstations further from the terminal tended to have a higher share of the theft losses, compared to when the Proportional method was used.

Disputes: It should be mentioned that interspersed with all these were lots of disputes as to the proper way to implement the formulae. Each party tried to skew the formula in its favour, that is, to reduce their share of the theft volumes. These disputes took several meetings and presentations to resolve.

A major skill the committee utilised in solving these disputes was making presentations that “even the blind can see.” Without this skill, even the DPR-NAPIMS effort in crude theft sharing would have been a resounding failure.

The committee also demonstrated a lot of patience, compassion and understanding in dealing with the companies. Crude Theft is a big loss to the country, and these companies are the ones directly affected. They are losing a lot of revenue, and they have a lot to explain to their principals and overseas head offices.

Third Formula - Difference in Theft Levels between Swamp and Land: It is generally accepted that crude theft is more severe in swamp than on land. A Land and Swamp ratio of 1:5 is typical.

This brought about a second Network Factor - Proneness of the Network Segments to Theft. A new term Terrain Theft Factor (TTF) was introduced, and the initial formula had to be modified. Terrain Theft Factor or Terrain factor for short, is a factor that depicts how prone pipelines in different terrains are to crude theft. The inclusion of this additional weighting factor resulted in the final formula called the Terrain Factor equation.

The advantage of TTF is not its preciseness, but that it introduces into the theft allocation equation something to account for the relative theft levels in different areas of the network. This was absent in the pipeline exposure equation, and it had a significant effect on the theft allocations in our case study network. Some flowstations that were high on pipeline exposure were significantly lower on TTF; thus their share of theft oil dropped significantly when TTF was included.

This was the final formula that the committee settled for. This is a simplified explanation of the formulae, and there were a lot of other technical issues that had to be settled in the application of the formulae.

GOING FORWARD: Industry Wide Initiative
As a further step towards consolidating on the achievements, DPR and NAPIMS recently held an industry-wide meeting to present this formula for crude theft allocation to the Nigerian oil industry. The meeting was well attended with the oil majors, marginal producers, and many of the numerous newer companies well represented.

A very animated Q&A session followed the presentation, and many participants lauded this DPR/NAPIMS initiative.

...to be continued in the next edition

© 2015 NAPIMS
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