Evaluating Technical Efficiency of Firms of Different Sizes: A Case Study of Nigerian Upstream Players

Summary Technological advancements in the exploration and production (E&P) of oil and gas have been on the increase worldwide in recent decades. Nigeria, being one of the major oil and gas producers in the world, has become a hub of international oil and gas investors since the early 1960s. Nigeria hosts more than 80 oil and gas companies in its upstream sector, including international oil companies (IOCs), indigenous oil companies (IndOCs), marginal-field operators (MFOs). and a national oil company (NOC). However, there is an increasing concern from policy makers over scanty quantitative information on the relative technical efficiency (RTE) of these operators for effective upstream performance analysis. This paper attempts to cover this gap by providing estimates of the RTE index for upstream operators in Nigeria from 2010 to 2016. An output-oriented data-envelopment-analysis (DEA) framework is adopted that is based on constant-return-to-scale (CRTS) assumptions. For a CRTS-DEA model (cDEA model), three input and two output variables were considered. Empirical results show that approximately 19% of the operators perform along the CRTS efficient-production frontier. Consequently, it is recommended that policy makers formulate upstream policies that encourage aggressive reserves growth and ensure an optimal reserves/production ratio.