Threaten to cancel $202bn investment
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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