With the finalising of new terms for deep-water oil production in Africa’s biggest oil-producing country 10 days ago, BusinessDay’s investigations have uncovered how ExxonMobil, Shell, and two other multinationals settled their $8 billion lawsuit against the Nigerian National Petroleum Company Limited.
On Wednesday, court letters showed ExxonMobil, Shell, Chevron, and Equinor agreed to an out-of-court settlement with NNPC Limited and will terminate ongoing litigation once the new arrangements take effect.
The oil majors had sued NNPC Limited in a United States’ court in 2017, demanding the latter to pay out $6 billion in alleged overpayments on OML 128 where the prolific Agbami field is located.
“Lawyers for Equinor and Chevron asked the judge to suspend the case until the end of October to allow sufficient time for the conditions to be satisfied and for the settlement agreement to become effective,” letters to two New York federal judges showed.
Narrating how the brawl between the oil major and NNPC transpired, sources familiar with the issue said arbitration courts had ruled against the NNPC, however, a short call from Nigeria’s late chief of staff Abba Kyari to the oil executives insisting the oil majors will have to take a 50 percent cut led the oil companies back to the negotiation table.
“This development transited to the coming of the Petroleum Industry Act (PIA) which mandated the oil majors and NNPC Limited to resolve conflicts within one year,” a senior oil executive said.
He added, “The government did nothing throughout one year until the final month allowed by the PIA. In the final month, everyone scrambled to get the issue resolved”.
The source also explained how Mele Kyari, the group chief executive officer of the Nigerian National Petroleum Company Limited was instrumental to the success of the deal and also made sure the IOC increased its operations in Nigeria’s offshore region which accounts for more than half of Nigeria’s total production.
Once that happens, the companies “expect to withdraw this action,” the letter said. Exxon and Shell anticipate being able to do the same after 60 days, they said in a separate letter.
How it all started
Statoil and Chevron’s Nigeria branches had in mid-March 2017, requested a federal court in New York to uphold an arbitral decision ruled in their favour in March 2015 over their dispute with NNPC.
At the time, an arbitral court based in Nigeria had asked NNPC to pay nearly $6 billion to the majors to cover the excess amount it had earned when redistributing revenue from OML 128, which encloses the giant Agbami field (240,000 bpd), Africa Energy Intelligence reported.
It added that the NNPC motioned an appeal to the Federal High Court in Lagos which issued a counter-ruling in May 2015 stating that Statoil had to pay $1.1 billion to NNPC.
According to Africa Energy Intelligence, Statoil and Chevron didn’t accept the verdict and proceeded to take the battle to the New York court where they are claiming for NNPC to promptly pay the same amount as the March 2015 sentence, namely $1 billion.
In 2012, a Federal High Court in Abuja had voided two separate arbitration awards worth $5.25 billion (about N840 billion) against the NNPC in favour of some oil exploration companies in the country.
Read also: NNPC renews five oil bloc licenses, expects to unlock $500bn
In the first case, the court voided the arbitration award of $3.45 billion and $1.8 billion award in the second suit.
Trial judge, Justice Adamu Bello, in the two judgments that lasted over three hours, held that the subject matter of the arbitration, the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act and Company Income Tax Act were functions solely to be carried out by Federal Inland Revenue Service (FIRS), and not the oil companies as they had done and had wanted to continue doing.
The Federal Inland Revenue Service (FIRS) had filed the action to impeach the arbitral proceedings initiated against NNPC by oil majors in the country outside the country, on the grounds that the tax issues raised in the arbitration proceedings were not resolvable by arbitration.
Shell, Esso, Nigerian Agip, Total Exploration had, following a dispute over the production sharing contract entered into on April 19, 1993, over Oil Mining Lease (OML) 118, in Bonga oil field, dragged NNPC before an arbitration panel that sat in South Africa and another European country and awarded costs against Nigeria.
