The yet-to-be resolved disagreements between the Federal Government and international oil companies (IOCs) operating in the country over the terms around Production Sharing Contracts (PSCs) entered into in 1993 and the delay in the passage of the Petroleum Industry Bill (PIB) are hindering over $40 billion worth of deepwater investments in the country.
Nigeria’s oil production structure is majorly split between joint ventures (JV) with state-owned Nigerian National Petroleum Corporation (NNPC) onshore and in shallow-water and PSCs in deepwater offshore. Under PSCs, NNPC is the oil licence holder, but engages oil firms as contractors that bear all risk and recover costs through a share of production at a tax rate of 50 percent.
In 1993, PSC was widely adopted to address some of the issues faced by the joint operating agreement (JOA) and also to provide a suitable agreement structure for encouraging foreign investment in offshore acreage. The contracts are said to have favoured the IOCs, whose take is more than government’s.
In 1975, the first PSCs were introduced basically to curtail the amount of obligations that the government was entering into, Timothy Okon, group coordinator, corporate planning and strategy, NNPC, said on Wednesday at the ongoing 38th Nigerian Annual International Conference and Exhibition (NAICE) in Lagos.
“PSCs are not particularly well-thought out. So, we need to understand that there will be a resistance to continue a PSC that in the minds of people reflects this low government take when you look at the split of the barrel. I want to also add that one of the things that are hindering funding is the continued disagreement between ourselves especially with the 1993 PSCs.”
Mutiu Sunmonu, managing director, Shell Petroleum Development Company (SPDC), speaking at a panel session on ‘Funding Africa’s Oil and Gas Production Growth Aspiration: Challenges and Solution’ at the event, said the country needs $100 billion investment to achieve 4 million barrels per day (bpd) of oil production by 2020, adding that several huge projects were put on hold by oil majors as a result of the non-passage of the PIB.
He said the IOCs are ready to invest money first into gas development. “Nigeria needs power. Once we can generate power through gas development, the Nigeria economy will multiply itself. Second is oil development but mostly in the offshore side of things, because it is PSC and the contract issue around the PSCs needs to be resolved, because that issue has been affecting us since 2008. Since 2008, there have been hardly any major commitments in deepwater despite all the discoveries.
“For us we have several projects. We have Bonga South-West. We have OPL 245, we call it Zabazaba. ExxonMobil Bosi, which is a huge oil and gas project, is also waiting and we have several other developments like Nwa/Doro, which is a gas development that is also waiting. I can tell you there are so many, that is just the few I can number now,” Sunmonu, who was represented by Bayo Ojulari, general manager, development, told BusinessDay on the sidelines of the event, adding that “Total investments that are ready to go in the deep water space in Nigeria is up to $40 billion.”
