- OLUTAYO OLUBI
INTERNATIONAL Oil Companies (IOCs) operating in the country are no longer happy with the obtainable operating environment, and they have not hide their displeasure. The multinationals are actually miffed by two unexpected steps recently taken by the Federal Government, anew master plan aimed at ensuring accurate metering and accountability in the oil and gas export, and the tax terms in the latest draft of the Petroleum Industry Bill (PIB).
National Daily gathered that President Goodluck Jonathan recently ordered that the accurate metering plan should be strictly adhered to. The policy, sources informed, requires the stationing of Weights and Measures Department at platforms of oil majors to ensure accurate production and export statistics. The president, reports had it, directed the Minister of Trade and Investment, Mr. Olusegun Aganga, in a letter last August to expedite the implementation of the plan, noting that it is embarrassing that after more than 50 years of oil production, the country did not have reliable records of oil export.
Following Jonathan's directive, Aganga reportedly held a meeting with oil companies in his office in August.
But it was gathered that many of the companies complained about the cost implication of having additional government agency on their platforms for the purpose of measuring production, and export, as the Department of Petroleum Resources (DPR) was already doing so.
However, the minister countered that the DPR as a regulator was not empowered by law to discharge that responsibility.
“How will Weight and Measures being at the oil platforms result in more costs?” Aganga reportedly asked.
But the oil majors stressed that it would involve spending more on security.
National Daily confirmed that Weights and Measures had written to the oil companies but none has complied.
Protest
Till date, chiefs of two of the country's leading oil producers, Royal Dutch Shell and ExxonMobil, have been the most vociferous on the tax terms, claiming that it is uncompetitive, and risk rendering offshore oil and gas projects unviable.
Shell Nigeria Managing Director, Mutiu Sunmonu speaking recently warned it may stifle investment if its terms are not improved.
“A balanced PIB is what is required - one that will provide optimal revenue to the government, whilst providing sufficient incentives for new investment to fuel growth,” Sunmonu said, adding that it must also “take local business challenges into consideration, as well as the impact on existing investments.”
“What we have seen of the draft PIB to date, does not indicate a bill that fits these criteria.”
The PIB is meant to change everything, from fiscal terms, to overhauling the state-owned
“The current draft PIB requires significant improvement to secure Nigeria's competitiveness,” Sunmonu warned. “As it stands right now, the PIB will render all deepwater projects and all dry gas projects ... non-viable.”
On the current draft, oil companies will pay 50 percent profit tax for onshore and shallow water areas and a 25 percent one, for frontier acreage and deep water areas.
An industry source disclosed that the deep water profit tax was a worse deal than most oil majors were getting on existing deep water projects.
Since the PIB is supposed to govern these retrospectively, the companies would lose earnings on these existing investments, he said, although there was no disagreement over onshore.
Sunmonu also expressed concern over the terms on projects to unlock Nigeria's huge latent gas potential for domestic use in power plants. The country has 187 trillion cubic feet of proven gas reserves, he said.
“A bad PIB will deter investment ... Nigeria needs to compete - and the PIB will either enable or strangle that competitiveness,” Sunmonu said.
Analysts say the terms for onshore are way more favourable than the deals in existence now.
“All of this has had a huge impact on both cost and revenues, but we can live with them ... provided the underlying fiscal regime is positive,” Sunmonu said.
ExxonMobil's chief executive in Nigeria, Mark Ward, said industry players shared the view that the current bill jeopardises Nigeria's bid to boost new investment and output.
“Quite frankly, the extremely large investments that are needed are seriously at risk under the proposed PIB terms,” he told a forum on the bill in Lagos.
If the bill passes without significant changes, “the government's aspirations to grow the business and the industry will not be met,” he said.
Ward argued that the new bill could push the government's take from oil revenue to above 90 per cent of all revenue.
“Nigeria is already one of the most onerous fiscal regimes and now the government wants to make it tougher? That is something we don't understand,” Ward said.
Any hopes of expanding lucrative offshore production would be quashed if the bill passes unchanged, Ward said.
“For deep water, we're done. There are no investments that can be supported under the current terms of the PIB,” he said.
Ward, identified ongoing projects which may be jeopardised if the fiscal terms were not revised as: $104 billion for oil production between 2012 and 2015; $30 billion for gas development in the next five years; $29 billion on the Production Sharing Contracts, PSCs and $39 billion on the Joint Venture, JV projects over the next five years
Accordingly, he warned: “Most of the projects will not go ahead due to the onerous fiscal terms. It will render all deep water projects uneconomic and it will not meet the Federal Government's aspirations, as the cumulative effect leads to unattractive economic environment.”
He warned that the bill, if not thoroughly reviewed, could jeopardise the multi-billion dollars investment plan for oil production between 2012 and 2017.
Huge loss
But the delay in the passage of the controversial bill is already taking its toll. Sources revealed that the inability to secure the passage of the bill has forced the Federal Government to change its target date for the achievement of 40billion crude oil reserves and production targets to the year 2020.
The initial date was 2010 but for series of events bordering on the lack of the ability of the National Assembly to pass the PIB that would have enhanced improved production level in the country, with the stiff opposition from major stakeholder in the oil and gas industries and coupled with the issue of insecurity in the Niger Delta made its mission impossible.
The government under the administration of former president Olusegun Obasanjo targeted for 2010 was to have attained 40 billion barrels (bbls) reserves of crude oil and 4million barrels per day (mbpd).
The shift was disclosed by Osten Olorunisola, director of the DPR.
Olorunisola disclosed that as at January 2, 2012, the nation's estimate of oil and condensate reserves was 36.2bbl. Also, at the end of the second quarter of this year, he added that Nigeria was producing 2.53mbpd of crude oil from oil fields located onshore, shallow offshore and deep offshore terrains by the International Oil Companies, Independents and Marginal Field producers.
“At the moment, deep offshore mega fields are contributing about 1mbpd to Nigeria's daily crude oil production output from Abo, Usan, Bonga, Akpo and Era among others,” he said.
He added that only 70 percent of oil fields developed by 85 companies operating 173 blocks awarded are producing out of 380 exploration blocks in Nigeria. This production level and reserves, according to him, is being monitored by the National Data Repository (NDR) unit of the DPR.
Despite the aspiration of the Federal Government to achieve zero flare by 2010, Olorunisola lamented that Nigeria remains the second country flaring the highest volume of natural gas after Russia.
According to him, oil firms operating in the country are flaring 1.4 billion cubic feet per day (Bcfd) out of 8.0Bcfd. The breakdown shows that 5.20Bcfd of Associated Gas (AG) is produced and the balance of 5.20Bcfd as Non Associated Gas (NAG).
“We are only utilising 6.6Bcfd of the total volume of gas as a result of the inability of Nigeria to realise very early that gas has very high value,” he pointed out.
FG adamant
The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, threw more light on why the Federal Government is proposing a review of the fiscal terms covering the Production Sharing Contracts (PSCs) for deep water fields in the draft PIB.
Speaking at the third Nigeria Investment Summit held in New York under the auspices of the African Business Roundtable, Alison-Madueke noted that the increase in government take in the deep offshore blocks from the current 61 per cent to 73 per cent was necessitated by prevailing realities in the global oil and gas industry.
“I like to state once again that the proposed increase of government's take to about 73 per cent is not only competitive but considerate when we look at the scale of other entities around the world like Norway, Indonesia and even Angola with even higher government take,” the minister said.
Alison-Madueke added that based on the prevailing realities in the global oil industry, it was only natural to review the terms of the PSC to reflect the current trend.
The 1993 PSCs were based on $20 per barrel as the price of crude oil but since the start of production from the PSC fields, crude prices have risen multiple-fold, thus the need to review the terms.
The minister also stated that the new PIB provides for a refreshing fiscal regime, which has strong incentives for enhanced exploration of new frontiers, especially in the inland sedimentary basins as well as providing a strong support base for the complete activation of the Gas Master Plan.
Under the new arrangement, the fiscal regime is anchored on royalties and taxes, which will now be predicated on production as opposed to terrain and investment, as had obtained in the past.
Alison-Madueke called on investors across the world to embrace the various business opportunities that the oil reform law would offer.
NationalDaily
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