Upstream Petroleum Industry Performance Evaluation using Data Envelopment Analytic Approach

Abstract

Nigeria ranks among the top ten petroleum producers in the world with over eighty petroleum Investors in its upstream sector. This creates an enormous challenge for the upstream institutions’ managers especially in the evaluation of technical performance of the sector. One major problem is that there is hardly any quantitative empirical information on technical efficiency of the sector for effective performance evaluation and strategic policy formulation. It is this identified knowledge and information gap that this study aimed to fulfill by estimating the needed relative technical efficiency for each of the 32 selected upstream industry operators in Nigeria. The study adopts an output-oriented data envelopment analysis framework considering a constant return to scale, variable return to scale and non-increasing return to scale. Consequently, an economic analysis was carried out using a panel data econometrics model to establish the determinants of technical efficiency in the Nigerian upstream sector. The results of the analysis revealed decreasing trends in the upstream sector operators’ technical efficiencies from 2010 to 2016. Additionally, the panel data econometrics model revealed that four of the selected independent variables were statistically significant determinants of the upstream technical efficiency in Nigeria within the period of the study. In conclusion, this study recommends strategic policies towards minimizing bureaucracies and enabling new efficiency-oriented ideas for operators on decreasing return to scale frontier. It also recommends the formation of alliance among the operators on increasing return to scale frontier to boost internal growth and unlock significant values. As regards the six operators on a constant return to scale production frontier, it is specifically recommended that they should embark on serious reserves growth’s strategy to increase their reserves base.