oil revenues in nigeria  are the only economic driver in nigeria

this is a common but erroneous assumption
assuming that oil revenues are $70 dollars a barrel and we sell 2million barrels a day
70 x 2000000 x365 =$51 billion dollars.

this is the revenue on income from oil.

it is important to note that all our oil is sold on so called FORWARD contracts and daily price fluctuations seen in oil price do not directly affect revenues in the short term but when sustained will result in increased revenues reflected in the so called excess crude account  or the opposite a shortfall as witnessed in 2009/2010

the question is;
of that figure
1. how much is actually profit?? in other words how much money does it cost to bring this oil out of the ground i.e (EXPENSES)


2. i really do not know the Expenses figure but there are very few businesses in the world where this is less than  50% but let us be generous and say it is 20%  that means total profit is 80%.
http://finance.yahoo.com/q/is?s=XOM+Income+Statement&annual

exxon mobil for exammple in 2010 declared a GROSS PROFIT of 39 % and  NET PROFIT of less than 10 %

3. How much of the profit goes to the oil companies and how much to the government? the major oil companies run a 30/70 joint venture operation which means  the government would get 70% of 80% = .7 x.8 x 51 billion = 28.6 billion dollars(about 4.5 trillion naira)
4. how much of the expenses component of this operation is ACTUALLY SPENT in nigeria?? unfortunately no hard data is available but a very significant part is eaten up by foreign oil servicing and support companies like schlumberger pan african international  expatriates and all kinds of foreign expenses.

a good clue would be to look at data of how much dollars these companies were buying from the CBN  until the recent ban.
even though we continue to whinge about local content

5 . according to various estimates nigeria's GDP(actual economic out put) is somewhere between 250 and 350 billion USD . whatever you choose to believe we can see that oil is at best 20% of our GDP if you assume that ALL expense and profits remain in Nigeria.( an overly naive an optimistic assumption)

6. In short oil is important but not the most important part of our economy though it is of life and death importance to government.

7. as a matter of fact the GDP of Lagos state estimated to be over $30 billion is more than half (http://en.wikipedia.org/wiki/List_of_Nigerian_states_by_GDP) the TOTAL oil revenue and more than the TOTAL profits from oil

in summary oil is important to our economy but NOT as important as some would have us believe

aribisala0:


1. how much is actually profit?? in other words how much money does it cost to bring this oil out of the ground i.e (EXPENSES)

he cost of a litre of petrol, from exploration to the refinery, is about N12. I mean if we refine it here; from mining till the pomp price. It should be about N12.That is the cost per litre. But when you import from Britain or America or other countries, 66 per cent of the price of that import is tax put by those countries. More than two third of what we are importing is tax being paid to those countries.

2. i really do not know the Expenses figure but there are very few businesses in the world where this is less than 50% but let us be generous and say it is 20% that means total profit is 80%.

Profit is way more than 80%

http://nigerianewsday.com/menu/news-a-commentary/interviews/85-interview-nobody-can-be-compared-to-awo-prof-sam-aluko

Without oil money, Nigeria would have zero foreign exchange, because we export exactly nothing apart from oil.
Oil is the be all and end all of Nigeria. If you don't believe it, then the Moon might as well be in Ajegunle.

The GDP figures the CBN quotes are to make us happy, its the only drug Nigerians can legally sniff. Look around you, GDP from what?

aribisala0:

oil revenues in nigeria  are the only economic driver in nigeria

this is a common but erroneous assumption
assuming that oil revenues are $70 dollars a barrel and we sell 2million barrels a day
70 x 2000000 x365 =$51 billion dollars.

this is the revenue on income from oil.

it is important to note that all out oil is sold on so called FORWARD contracts and daily price fluctuations seen in oil price do not directly affect revenues in the short term but when sustained will result in increased revenues reflected in the so called excess crude account  or the opposite a shortfall as witnessed in 2009/2010

the question is;
of that figure
1. how much is actually profit?? in other words how much money does it cost to bring this oil out of the ground i.e (EXPENSES)


2. i really do not know the Expenses figure but there are very few businesses in the world where this is less than  50% but let us be generous and say it is 20%  that means total profit is 80%.
http://finance.yahoo.com/q/is?s=XOM+Income+Statement&annual

exxon mobil for exammple in 2010 declared a GROSS PROFIT of 39 % and NET PROFIT of less than 10 %

3. How much of the profit goes to the oil companies and how much to the government? the major oil companies run a 30/70 joint venture operation which means  the government would get 70% of 80% = .7 x.8 x 51 billion = 28.6 billion dollars(about 4.5 trillion naira)
4. how much of the expenses component of this operation is ACTUALLY SPENT in nigeria?? unfortunately no hard data is available but a very significant part is eaten up by foreign oil servicing and support companies like schlumberger pan african international  expatriates and all kinds of foreign expenses.

a good clue would be to look at data of how much dollars these companies were buying from the CBN  until the recent ban.
even though we continue to whinge about local content

5 . according to various estimates nigeria's GDP(actual economic out put) is somewhere between 250 and 350 billion USD . whatever you choose to believe we can see that oil is at best 20% of our GDP if you assume that ALL expense and profits remain in Nigeria.( an overly naive an optimistic assumption)

6. In short oil is important but not the most important part of our economy though it is of life and death importance to government.

7. as a matter of fact the GDP of Lagos state estimated to be over $30 billion is more than half (http://en.wikipedia.org/wiki/List_of_Nigerian_states_by_GDP) the TOTAL oil revenue and more than the TOTAL profits from oil

in summary oil is important to our economy but NOT as important as some would have us believe

Excellent analysis, I will study your points and reply soon.

arsenefc:


he cost of a litre of petrol, from exploration to the refinery, is about N12. I mean if we refine it here; from mining till the pomp price. It should be about N12.That is the cost per litre. But when you import from Britain or America or other countries, 66 per cent of the price of that import is tax put by those countries. More than two third of what we are importing is tax being paid to those countries.

Profit is way more than 80%

http://nigerianewsday.com/menu/news-a-commentary/interviews/85-interview-nobody-can-be-compared-to-awo-prof-sam-aluko

thanks but please read the post carefully.

it is NOT AT ALL about petrol

^^^

Who told you I have time to read it properly?

Beaf:

Without oil money, Nigeria would have zero foreign exchange, because we export exactly nothing apart from oil.
Oil is the be all and end all of Nigeria. If you don't believe it, then the Moon might as well be in Ajegunle.

The GDP figures the CBN quotes are to make us happy, its the only drug Nigerians can legally sniff. Look around you, GDP from what?

sir rather than dogmatic assertions and pronouncements can you provide some data/analysis that we can discuss.
e.g do you have any data on exactly or roughly how many dollars enters nigeria as a result of oil sales. just a figure and reference would do??

you say the GDP figures are to make us happy can you provide an alternative perspective/analysis

there are estimates that $10 billion dollars enters nigeria from foreign remittance i.e so called diaspora

http://234next.com/csp/cms/sites/Next/Home/5641033-146/nigeria_gets_n1.5tr_in_remittances_.csp

how does this compare with oil.
is it really true that we export nothing other than oil

we export a lot of manpower who are paying returns in cash remittances and also in kind(imports)

arsenefc:

^^^

Who told you I have time to read it properly?
 

so why are you talking about petrol and refineries
if you don't have time stay away.
that has NOTHING to do with what i posted.
we are talking about profit on CRUDE OIL extraction and sales
your emetic comment is COMPLETELY irrelevant

aribisala0:

sir rather than dogmatic assertions and pronouncements can you provide some data/analysis that we can discuss.
e.g do you have any data on exactly or roughly how many dollars enters nigeria as a result of oil sales. just a figure and reference would do??

you say the GDP figures are to make us happy can you provide an alternative perspective/analysis

there are estimates that $10 billion dollars enters nigeria from foreign remittance i.e so called diaspora

http://234next.com/csp/cms/sites/Next/Home/5641033-146/nigeria_gets_n1.5tr_in_remittances_.csp

how does this compare with oil.
is it really true that we export nothing other than oil

we export a lot of manpower who are paying returns in cash remittances and also in kind(imports)

It is common knowledge that oil accounts for 95% of our foreign exchange. Depending on the year, it can drop to 89%. Those stats are everywhere, so I really think it wouldn't enrich my argument if I looked for links to back up what we all already know.

according to you 89-95 % i.e non oil 5-11%

this is quite different from EXACTLY NOTHING AS you initially claim.

rather than percentages do you have any actual dollar figures for any period??

i will not dispute the figures you have provided(FOR NOW).

but do you have any comment on the figure for diaspora remittances and how does this compare with foreign exchange revenues from oil??


there is a distinction i must make here foreign exchange revenues accruing to the government and revenues entering the economy.
the CBN has been operating a policy of building foreign reserves thus keeping much of these dollars outside the country apart from what they auction weekly.
whereas diasporans actually bring dollars(goods) into the economy
it is the case in Nigeria now that companies/individuals are allowed to earn and retain foreign currency in domiciliary accounts.
in short there is a difference between public finances(government) and THE ECONOMY
e.g many nigerians work in the UK/US and send money home to build  build houses technically these nigerians (to the extent of their remittances) are an export

^
My guy, how much money do you think is coming from abroad these days? Its more like money flowing out of Nigeria to save brothers and sisters abroad; the economic climate in the West is very harsh and getting harsher.

. . .By the way, "exactly nothing" was exageration for emphasis.

Beaf:

Without oil money, Nigeria would have zero foreign exchange, because we export exactly nothing apart from oil.
Oil is the be all and end all of Nigeria. If you don't believe it, then the Moon might as well be in Ajegunle.

The GDP figures the CBN quotes are to make us happy, its the only drug Nigerians can legally sniff. Look around you, GDP from what?

That's a lie. Nigeria is the 4th largest producer of Cocoa in the world currently and all this is produced between the Ondo/Ekiti axis. We are behind Ivory coast, Indonesia and Ghana.
http://en.wikipedia.org/wiki/Cocoa_bean
http://www.bloomberg.com/news/2011-06-02/nigeria-s-cocoa-bean-exports-climbed-by-47-last-year-akingbola-says.html

Nigeria ranks twenty fifth worldwide and first in Africa in farm output.

Agriculture has suffered from years of mismanagement, inconsistent and poorly conceived government policies, and the lack of basic infrastructure. Still, the sector accounts for over 26.8% of GDP [1] and two-thirds of employment. Nigeria is no longer a major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil. Cocoa production, mostly from obsolete varieties and overage trees, is stagnant at around 180,000 tons annually; 25 years ago it was 300,000 tons. An even more dramatic decline in groundnut and palm oil production also has taken place. Once the biggest poultry producer in Africa, corporate poultry output has been slashed from 40 million birds annually to about 18 million. Import constraints limit the availability of many agricultural and food processing inputs for poultry and other sectors. Fisheries are poorly managed. Most critical for the country's future, Nigeria's land tenure system does not encourage long-term investment in technology or modern production methods and does not inspire the availability of rural credit

http://en.wikipedia.org/wiki/Economy_of_Nigeria#Agriculture

GDP - composition by sector: agriculture: 30%
industry: 32%
services: 38% (2010 est.)

http://www.indexmundi.com/nigeria/gdp_composition_by_sector.html

jason123:

That's a lie. Nigeria is the 4th largest producer of Cocoa in the world currently and all this is produced between the Ondo/Ekiti axis. We are behind Ivory coast, Indonesia and Ghana.
http://en.wikipedia.org/wiki/Cocoa_bean
http://www.bloomberg.com/news/2011-06-02/nigeria-s-cocoa-bean-exports-climbed-by-47-last-year-akingbola-says.html

And how much foreign exchange does that bring in? You don't get points for being rude, its a trick for fools.

i think what would be useful would be some actual comparative figures for any given period.

for example oil revenues versus cocoa, (ASHAWO ) or what other export is being argued.

my point is that not all oil sales translates into income for our economy as some of it is actually part of the expense of exploration etc and a lot of this accrues to the oil majors and servicing companies some of which never enters the economy e.g. seismology analysis ,computer modelling and much more is done in labs in europe and paid for from sales. ditto for expatriate wages and much more that goes into the CASH CALL that the FG struggles to meet.

pretty much all the machinery ,hardware etc that goes into the industry is bought abroad. and paid for OUT OF OIL REVENUES
this is also true for banking/financing/consulting  services that these companies use . as such how much of the sale price of a barrel of crude oil enters the nigerian economy?

beaf please tell us as i have asked you severally rather than making assertions. HOW MUCH  MONEY DOES OIL BRING IN IN ANY GIVEN YEAR.

do you have any idea
i do not see why you are now name calling.

jason123:

GDP - composition by sector: agriculture: 30%
industry: 32%
services: 38% (2010 est.)

http://www.indexmundi.com/nigeria/gdp_composition_by_sector.html

The question you should be asking is where proceeds from other sectors beside oil ends ?

Beaf:

And how much foreign exchange does that bring in? You don't get points for being rude, its a trick for fools.

Apologies if I was rude.

The closest I could find for now is the 2001 figure:
Exports of cocoa beans that year totaled $210.4 million

http://www.nationsencyclopedia.com/Africa/Nigeria-AGRICULTURE.html

according to the world bank nigeria received $10 billion in remittances in 2010


http://en.wikipedia.org/wiki/Remittance#Africa

http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1110315015165/MigrationAndDevelopmentBrief13.pdf

this is not necessarily THE WORD OF GOD but it is a starting point does anyone have data for oil revenue

Beaf:

^
My guy, how much money do you think is coming from abroad these days? Its more like money flowing out of Nigeria to save brothers and sisters abroad; the economic climate in the West is very harsh and getting harsher.

. . .By the way, "exactly nothing" was exageration for emphasis.

let us have less exaggeration and more data
according to the world bank $10 billion last year. i reckon this is close to 40% of our foreign exchange income.
bearing in mind that this money actually ENTERS nigeria. as opposed to oil revenues that are being built up as FOREIGN RESERVES

this,of course, is that which is officially recorded

I see this post intresting but the issue with Nigeria is always the other way round the remittance they are talking about dont you think 15% is from investment fruad because i begin to wonder how come a country that expoxt nothing get such remittance dont you think the figure are just to make us happy

Beaf:

It is common knowledge that oil accounts for 95% of our foreign exchange. Depending on the year, it can drop to 89%. Those stats are everywhere, so I really think it wouldn't enrich my argument if I looked for links to back up what we all already know.

Yes, the figure you quote is true and everywhere just like the figure on oil contribution to GDP being lower than Agric's is true and everywhere
You have to take both as true and being everywhere
Without oil we would still have a decent GDP, although significantly lower because of multiplier effect
You don't need oil revenue to do basic farming, fishing, native weaving, alternative medicine (in the absence of imported drugs) etc
All these contribute to GDP

oil = easy income.

When Nigeria has to start working for money, these useless politicians will wake up

daywatcher:

oil = easy income.

When Nigeria has to start working for money, these useless politicians will wake up

You said that well! That is the gospel truth. Accountability will improve when people start to demand what their hard earned money was used on. . .

daywatcher:

oil = easy income.

When Nigeria has to start working for money, these useless politicians will wake up

This is the most profound thing I've ever heard from anyone on Nairaland. Oil is the bane of our problems and it is what has destroyed our work ethic and moral values. It is also what has bred the get rich quick, short cut mentality that is prevalent in Nigeria today. The best thing that can happen to Nigeria is for all that oil to either turn to water, or to become worthless. Nigeria will start the journey to the promised land on that day. Until then stay tuned.

The average cost of drilling a barrel of lrude oil is $12 but no more than $18 in most difficult of terrain such as the Niger Delta.
Anything above $18 is shared between the oil company and NNPC in a 20:80 ratio

we have other sources of foreign exchange:

419

yahoo yahoo

charcoal and foodstuff exports, especially to feed the diaspora Nigerians' voracious appetite for Nigerian food.

remuneration (western union and moneygram payments from diaspora Nigerians to their families back home)

tourism (it is supported primarily by diaspora Nigerians who visit home on holidays or other days and spend money while there)

Removed,

you what percentage of the 51 billion does nigeria govt get.

It get about 60% which give you just $30 billion which is just 4.5 trillion naira

with minumum wage at N18000 if 40% of the population of nigeria pays taxes. it is more than oil revenue.

@manny there really is no need to confuse people who are not accountants and apart from indulging

a need to show off i really don't see how you have illuminated the subject.

you may spot some flaws in my analysis but i have not made that many CALCULATIONS so i am not sure which flaws you claim to have spotted.


Gross profit is just that GROSS
what is important is the bottomline how much profit is available to investors,
the NET profit minus tax.
in this specific industry items like Research & Development (Looking for oil) just like a drug company looking for a blockbuster drug will be deducted from gross profit in short this is the BOTTOMLINE and that is what i am talking about. few companies of this scale make a net profit over 50 % i used the MOBIL example to illustrate the kind of margin that OIL majors make which is about 40 % gross and much less NET.

http://finance.yahoo.com/q/co?s=XOM+Competitors


For my analysis i assume  80 %    NET  for the government. what is clear is that it is not 100 % because you must deduct costs  and whatever it is the oil companies are taking

what i have done is provide a model and stated the assumptions.
i did not climb mount Sinai and come down with tablets of stone
let us keep it simple and use language everyone can understand.

my analysis is based of several EXPLICIT assumptions which are quite generous on the side of the nigerian government.

one can accept the assumptions or NOT. alternatively one can extrapolate them in any direction
oil exploration in nigeria involving the majors; SHELL,MOBIL, etc is run using a legal entity(COMPANY) known as a JOINT VENTURE on a 70/30 basis . the company is known as THE OPERATOR

this means the government provides  70 and the OPERATOR of the venture 30 % respectively of the costs.


cost include capital e.g looking for viable wells and recurrent;i.e operational.
when they find oil they share the proceeds according to the same proportion.

it is a VERY SIMPLE formula

REVENUE-EXPENSES( Costs)= profit

now we do not know what the figures are in Nigeria but for my analysis i assumed EXPENSES is  20% of REVENUE i.e an 80 % profit.
personally i do not believe the government gets that much but i have chosen for bias in favour of the government
compared to e.g mobil with a net worldwide operating margin of less than 10% people can believe,if they want that it is 8 times more profitable for government

i went further to assert that i do not know of any business where there is an 80% profit margin certainly NOT a multi-billion dollar business.

please if you know of any let us know.


the fact of the matter is that for every dollar the JOINT VENTURE spends the Government have to put up 70 cents . more often than not the nigerian government does not meet their cash call obligations and the operator puts this up. again their are interest charges and default penalties for this.