Oil Companies Enjoy Undue Advantage Over Nigeria- NEITI


The Nigeria Extractive Industries Transparency Initiative, NEITI, Sunday, stated that oil and gas companies are enjoying an unfair advantage over the country’s failure to review the Deep Offshore and Inland Basin Production Sharing Agreement, also known as Production Sharing Contracts, PSC, between Nigeria and the oil companies.

NEITI, in a statement in Abuja, stated that in the early years after the signing of the agreement, PSCs were contributing less than one per cent of the country’s crude oil production, but from 2012 till date, companies under the PSCs, sensing the Federal Government’s reluctance to review the agreements, had stepped up production to over 40 per cent of Nigeria’s output.

NEITI said its major concern was that now that the PSCs account for about 50 per cent of total oil production and major source of revenues, the delay or failure to review and renew the agreement means that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.

It said, “In an Occasional Paper released by NEITI which reviewed three years of NNPC’s financial and operations reports, NEITI has noted that crude oil production under the Production Sharing Contracts (PSCs) has since overtaken production under the Joint Venture arrangements.

“A careful look shows that Production Sharing Contracts (PSCs) accounted for 44.8 per cent of total oil production while the Joint Ventures (JVs) contributed 31.35 per cent.

A historical analysis of this development by NEITI shows that JV Companies accounted for over 97 per cent of Production in 1998 while PSCs contributed only 0.50 per cent. This trend continued until 2012 when PSCs accounted for 37.58 per cent while JVs contributed 36.91 per cent.

“From the publication  in 2013, PSCs contributed 39.22 per cent while JVs contributed 36.65 per cent, 2014: PSCs; 40.10 per cent and JVs 32.10 per cent; 2015: PSCs 41.45 per cent and JVs 31.99 per cent while in 2017 the contributions stood at PSCs 44.32 per cent and 30.85 per cent respectively.”

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In addition, NEITI stated that “Other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/ Marginal Fields contributed 2.39 per cent to total production in 1998 and by 2017 this had risen to 24.83 per cent.

“This figure clearly shows the changing structure of oil production in Nigeria, where PSCs, which contributed a mere 0.5 per cent to total production 20 years ago, have dramatically overtaken JVs, which contributed 97 per cent to total production 20 years ago.”

To this end, NEITI declared that the urgency to review the obsolete legislation without further delay was in view of the revenue losses to the federation by the use of the old agreement in computation of revenues to be shared between the government and oil companies.

NEITI recalls that the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1993 provides for ‘a review of the terms when prices of oil crosses $20 in real term; and a review of the terms 15 years after operation of the agreement and five years subsequently.’

NEITI, however, observed with concern that Nigeria was yet to adhere to this important provision even now that the price of oil is revolving around $70 per barrel.

The transparency agency added that between 2015 and 2017, the period covered by its Occasional Paper review of NNPC Report, Nigeria produced 2.126 billion barrels of crude oil and condensate.

It noted that a further review of the NNPC Report showed that production was highest in 2015 with 775.6 million barrels produced.

It also maintained that production was lowest in 2016 with 661.1 million barrels produced, while production in 2017 was 690 million barrels, adding that 2016 was a difficult year for oil production because production was shut in a number of oil terminals”.