In the first three months of 2019, value-added tax contribution from offshore operations comprising exploration and production decreased by as much as 50 percent compared to the same timeframe last year showing a reduction in production activities.
Offshore operations contributed N797 million in the three months to March 2018 and in the first quarter of 2019 it remitted N529 million to the Federation Account, data published the National Bureau of Statistics (NBS), show. Three months to June 2018, the sector had contributed N547 million. In the third quarter, it contributed N549 million and in the three months to December 2018, it contributed N668 million.
Experts have continuously said that uncertainty over fiscal terms in the Petroleum Industry Governance Bill and volatility in oil prices contributed to the delay in final investment decisions (FID) by investors. This delay is rearing up its head in the falling VAT contribution of offshore operations to the basket. Decreasing offshore operations means Nigeria’s oil-driven economy is faced with a future of diminishing oil reserves and daily production.
Read Also: 36 states, FCT generate N612.87bn IGR in H1 2020; NBS
“Our oil reserves today are a thirty-year reserve so technically unless there are new serious finds, in 30 years your oil should be dwindling. Gas is in 60 years, although luckily it’s seen as a cleaner fuel. Our issues have been our ability to harness it quickly, put infrastructure and replicate its usage” Ibe Kachikwu, former Minister of State for Petroleum Resources said in a recent interview with BusinessDay and other journalists. “We need to quicken our ability to produce.”
Delay in reaching a final investment decision on $13.50 billion Zabazaba deepwater project, which was supposed to have happened in December 2018 has stalled the creation of 10, 000 jobs experts have estimated.
In February, Royal Dutch Shell said an outstanding tax claim of $20 billion by the Federal Government of Nigeria indicting some International Oil Companies operating in Nigeria (including Shell) will delay the final investment decision (FID) on developing Shell’s Bonga Southwest deepwater oil field, one of Nigeria’s largest with production expected to reach 180,000 barrels per day.
“It is something that has gone through the courts in Nigeria which relates to an original clause within the original PSCs (production sharing contracts),” Andy Brown, who steps down this year as head of Shell Upstream had told Reuters. “We will have to take it seriously but we think it has no merits.”
First quarter gross domestic product report had presented evidence that Nigeria’s oil sector is contracting and experts have blamed this on lack of new investments and capital inflows to the sector, slower growth challenges some assumptions underlying the country’s 2019 budget, such as daily oil production of 2.3 million barrels a day. Average daily production has hovered around 1.70 million barrels of oil a day.
Nigeria statistical agency’s report showed that in the three months ending March 2019 real GDP growth in the oil sector contracted by -2.40 percent (year-on-year) indicating a decrease by 16.43 percent points relative to the rate recorded in the corresponding quarter of 2018.
“An uncertain investment environment is a recipe for anarchy. The reason you find some countries doing very well is that they are predictable and things seem to happen fast. There are no political interferences as we have in Nigeria” Kachikwu said.
If a new upstream project is not quickly approved after the completion of the Egina Floating Production Storage Offloading (FPSO) vessel, ship repair and fabrication yards worth over $1.3 billion may remain idle, with about 20,000 workers risking job loss.
