International Oil Companies (IOCs) also called big oil (companies) operating in Nigeria may be considering legal options available to them after federal government announced plans to recover as much as $62 billion due to unchanged 26 year old Production-Sharing Contracts (PSC) laws that has hurt Africa’s biggest oil-producing country, analysts say.
“The IOCs will definitely go to court for arbitration, which will drag for a long time. The Federal Government cannot blame the oil companies for exploiting a weakness in Nigeria’s legislative structure,” Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), told BusinessDay.
Bamidele Odugbesan, media relations manager of Shell Nigeria, one of the major IOCs affected told BusinessDay that Shell does not agree with the legal basis for the claim that it owed outstanding revenues and the matter is pending before the court.
Read also: Aramco’s stalling IPO exposes oil market risks
In Nigeria, PSCs are used on over 70 blocks, which were signed with IOCs and independents, such as Addax, Shell, ExxonMobil, Total and Chevron, several national oil companies including CNODC, KNOC and Statoil, and a number of indigenous companies.
According to the Natural Resource Governance Institute (NRGI), Nigeria has lost an estimated $60 billion in royalty payments and nearly $2 billion in extra government revenue due to the non-implementation of the 1993 Production Sharing Contract (PSC) provisions that permit royalty payments according to the Deep Offshore Act.
Early this Month, Nigeria’s Senate took the first reading of the bill to amend the Production Sharing Contract (PSC) Act of 1993 as lawmakers emphasised the need to review the bill in order to enhance earnings for Nigeria.
Ifeanyi Ubah, senator representing Anambra South said the non-review and amendment of the PSC Act had cost the federal government about $21 billion (about N7 trillion) in the last 20 years.
“Nigeria, haven lost trillions of naira due to non-review of the PSA Act, stands to gain an additional sum above N30 billion naira monthly if the Act is reviewed and amended,” Ubah said at the upper chamber meeting last week.
Also, George Sekibo, senator representing Rivers East frowned upon the attitude of the executive, the operators of the law, saying it was agreed that the sharing formula be reviewed when the price of crude oil moved to $20.
Latest Nigeria National Petroleum Corporation (NNPC) financials showed PSCs had the highest production with 45.40 percent over the three year period while Joint Ventures (JVs) came second with 28.99 percent, Alternative Financing (AFs) had the third highest production with 10.77 percent, Nigerian Petroleum Development Company (NPDC), the upstream company owned 100 percent by NNPC, had the fourth highest with 8.12 percent production while Marginal Fields (Independents) had the lowest production contributing just 6.71 percent to total production.
Read also: NNPC, NLNG seal $2.5bn gas supply deal
Under the PSC arrangement, the contracted company does not own any petroleum until it is taken out of the ground. Royalties and certain taxes are then paid, after which the company is allowed to recoup certain costs in oil. The remaining production is then shared between the company and Nigeria National Petroleum Corporation (NNPC) on the basis of an agreed production share.
The government, however, now wants to get the oil companies to honour the long-standing contract and remit funds that have gone unremitted since crude crossed the $20 per barrel mark.
