Performance Assessment of Nigeria E&P Operators Using Data Envelopment Analysis DEA

Abstract

Abstract The paper aims to; estimate relative technical efficiency (RTE) for each of the Nigeria 32 active Operators using vDEA model, rank the performance of the Operators considering output orientation, categorize each of the Operators into its respective return to scale (RTS) group using Non-Increasing Return to Scale model (NIRTSM) and suggest necessary policies that could improve the performance of the Operators. The approach is based on variable return to scale assumption of DEA model framework (vDEA). Based on this, four variables were considered; two inputs, petroleum reserves in million BOE and Number of producing Wells and two outputs; total annual oil production in million BBLS, total annual gas production in million SCF. vDEA model assumes operational variability due to constraints such as: projects financing, competition, government policies, operational terrains, etc. A dual linear programming model (DLPM) is formulated and a Microsoft excel solver aided with a visual basic application (VBA) is used to generate RTE for each Operator simultaneously. RTS indexes are estimated using output oriented NIRTSM. The relationship between the two models' results is used to categorize each Operator into different production scale group. The empirical results reveal a decreasing trend in the Operators' RTEs from 2010 to 2016. Twelve (12) of the Operators were operating on efficient production frontier within the period under investigation. Based on this, Operators were classified into three different production scale group. Eight (8 or 25%) were operating on decreasing return to scale (DRTS), Six (6 or 19%) on constant return to scale (CRTS) while the remaining Eighteen (18 or 56%) were on increasing return to scale (IRTS). Significantly, it is discovered that more than 80% of the JV Operators have been operating on DRTS. Consequently, the paper provides information on RTEs of the 32 active upstream Operators in Nigeria considering more realistic assumptions as recommended, (Idowu and Iledare, 2018). Operators performance is ranked based on estimated RTE indexes as well as production maximization consideration. The paper proposes policies such as: splitting of JVs companies into two or more to minimize bureaucracies and facilitate new efficiency-oriented ideas, merging of companies under IRTS to enhance internal growth and embarking on aggressive reserves growth policy to increase the reserves base of the 6 Operators on CRTS.