President Muhammadu Buhari has assented the bill amending the Deep Offshore (and Inland Basin Production Sharing Contract) Act today, he announced in a post on social media.
“This afternoon I assented to the Bill amending the Deep Offshore (and Inland Basin Production Sharing Contract) Act. This is a landmark moment for Nigeria; let me use this opportunity to thank the National Assembly for the cooperation that produced this long-overdue amendment,” the president said on Twitter.
Recall that lawmakers passed the bill last month which amended amend the provisions of the Deep Offshore and Inland Basin Production Sharing Contract Act 2004 when passed by the House of Representatives, and after the President’s assent, aims to shore up Nigeria’s revenue earnings.
Under the law which regulates royalty payable on a field basis, oil companies will no longer pay graduated rates for deep offshore production sharing contracts but will now pay a flat rate of 10 percent for finds in fields deeper than 200meters.
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The new law also requires the Minister of Petroleum to call for a review of PSCs by the NNPC every 8 years and introduces offenses and penalties for violating the law such a minimum fine of N500million or minimum 5 years imprisonment or both upon conviction.
The amended law also introduces specific price reflective royalty rates. The previous law required a review of royalty rates where crude oil price exceeds $20 per barrel to ensure additional revenue for the government but this was not effected for over two decades.
Now the amended law provides for review of royalty rates where crude oil and condensate price exceeds $20 per barrel using different rates according to price benchmarks. For example, when oil prices rise to $60 a royalty rate of 2.5 percent will be charged and above $150, oil companies will fork over 10 percent as the royalty rate.
President, during the 2020 budget presentation to the National Assembly noted that amendment of the contracts law is one of the priorities of the Federal Government of Nigeria, as it has the capacity to generate additional revenue of at least $500million which will aid the government in achieving the proposed 2020 budgeted revenue.
However, International oil Companies have kicked against the amended law saying it will constrain new investment. Industry group Oil Producers Trade Section (OPTS), which represents oil companies responsible for 90% of Nigeria’s oil and gas, said this proposed law change, and the regulatory uncertainty it will create, could significantly undermine profitability for the projects, including large fields such as Shell-operated Bonga and Total’s Egina.
It expects the changes to the law to slash future offshore production by 27 percent to 2023, cut $55.5 billion from the investment over the lifetime of deepwater projects and remove some $10.4 billion in potential government revenue by 2030.
“This is not in line with FGN’s objective to grow the economy,” OPTS said in a detailed analysis of the measure sent to Nigerian lawmakers.
It added that the changes would be “almost equivalent to no new (deepwater) projects being viable.”
