In a bid to attract more investment, Nigeria is renegotiating commercial contract terms in its proposed oil reform bill in a move it hopes will keep investment flowing into a sector crucial for its economy at a time spending is being slashed.
This development showed a shift by Africa’s largest oil producer, who is getting more concerned about growing competition from other Africa countries making exploration terms more attractive as they compete for a limited pool of capital. Lower oil prices and concerns about the future of fossil fuel because of climate change are curbing the desire to invest by oil majors.
Some of the changes to Nigeria’s Petroleum Industry Bill (PIB) include the reduction of royalties for new production from deep water oil-fields to 5 percent from 7.5 percent and boosting the production level that triggers higher royalties from 15,000 barrels per day (bpd) to 50,000bpd, according to Reuters, who cited people close to drafting the bill and revealed a letter from interested oil companies.
It also involves the reduction of hydrocarbon tax to 30 percent for converted leases, down from 42.5 percent in its original bill plan, in a bid to attract more investors to Nigeria’s oil and gas sector.
The report added that the changes would also guarantee that the state oil company, the Nigerian National Petroleum Corporation’s (NNPC) assets and liabilities would be transferred to a limited liability corporation. This will help oil companies to collect money owed by the NNPC.
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“The changes should give green light to IOCs who are getting weary of Nigeria’s oil and gas sector,” Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, said.
Africa’s largest oil-exporting nation has not carried out a full revamp of the law underpinning its oil and gas sector since the 1960s. Piecemeal tax hikes, and a growing lack of certainty around terms, have made companies wary.
Chevron is selling assets in Nigeria. Total’s stake in the profitable Bonga offshore field is also on the block, while ExxonMobil is looking to shed Nigerian fields as part of a global retrenchment strategy.
“The latest changes may allow some IOCs to change their minds and invest more in Nigeria,” Atafiri said.
Over the years, Nigeria lures just a tiny fraction of oil and gas investment in Africa, even though it is the continent’s largest crude producer and has significant untapped reserves.
The sector has a reputation for corruption, inefficiency and problems ranging from high production cost to unrest sparked by environmental damage and lack of development for local communities where oil is extracted.
Oil majors such as Royal Dutch Shell, Chevron, ExxonMobil, Eni, Total and Equinor have hinged their investment decisions on the outcome of the PIB, and other fiscal frameworks by the Federal Government.
According to them, the country did not take any major investment decision in deepwater between 2015 and 2019, despite a number of available potentially viable projects.
The African Energy Chamber (AEC), in its African Energy Outlook 2021, disclosed that with the $24 billion loss of investments in the oil and gas sector, Nigeria would account for 30 percent of the total of $80 billion loss of investments that would be recorded in the petroleum industry across Africa.
To address these and maximise oil revenues for an OPEC-member country that records among the world’s highest poverty rates, the Nigerian government has been working for 15 years on new regulations.
The 239-page PIB, which is an oil reform bill, was submitted to the National Assembly by President Muhammadu Buhari in September 2020, is key to the repositioning of Nigeria’s oil and gas industry, especially under its post-Covid-19 agenda.
Nigeria has repeatedly failed to pass the PIB, which is considered relevant to the country’s quest to make its oil industry regain its competitiveness, attract investments, 20 years after it was initially conceived.
For most experts, passing the bill will certainly remove uncertainty that has discouraged investments for years.
But the answer to whether the PIB will make Nigeria’s oil and gas industry more competitive remains to be seen, as most stakeholders expect the country to continue being a high-cost location for energy investments due to insecurity off the coast and across the country.
