Oil majors seek FG’s assurance on contract certainty in revised PIB

Major oil companies in the country are currently meeting with the Federal Government and the Nigerian National Petroleum Company to secure assurances that their investments in Nigeria would be protected as the country plans a new Petroleum Industry law.

This follows concerns raised by oil companies at the recent public hearing at the National Assembly over provisions of the bill that introduced new taxes, increased royalty rates in deepwater production areas, and heightened uncertainty over base businesses which could scuttle their investment interests in Africa’s largest economy.

“The new PIB is going to be out very soon. One of the things they are discussing with the government is about their ‘contract certainty,” Henry Ademola Adigun, an oil sector governance expert and consultant to oil majors, told BusinessDay.

“Oil companies are telling the government, under the new PIB, you have to guarantee us that our contracts won’t change,” Adigun said.

“The oil majors are asking the government, under the existing contract terms, can you guarantee us so that when the PIB is passed, it won’t affect our business?” he said.

Analysts say this conversation is critical to oil companies because it could determine the stability of their investments providing time to transit to new contract terms.

Oil majors have huge equity stakes in Nigeria’s national oil company, NNPC, at an average of 55 percent equity stake, which analysts say an assurance on contract certainty is a strategic move to preserve their investments.

Prior to this meeting, the group managing director of the NNPC had revealed that the corporation is renegotiating contract terms with major oil firms operating in the country.

At the public hearing in the National Assembly, Mike Sangster, on behalf of Total, Chevron, ExxonMobil, and Shell companies, said that the deepwater provisions in the PIB do not provide a favourable environment for future investments and the launching of new projects. He also called for reviewing some fiscal provisions including the Hydrocarbon Tax.

“OPTS recognises the government’s right to change laws. However, to maintain Nigeria reputation amongst investors, it is important for the PIB to explicitly preserve base businesses and rights for existing Joint venture licences and leases and Production Sharing Contracts, which form the basis for future growth,” Sangster said.

Adeola Adenikinju, a professor of Energy Economics at the University of Ibadan, told BusinessDay that the meeting of the federal government and the oil majors must has a mutually beneficial outcome since they have huge equity stake in Nigeria’s national oil company at an average of 55 percent.

He observed that the contract review shouldn’t be in abeyance of what the PIB is saying.

The target of the PIB is to maximise the benefits of Nigeria’s rich oil resources. As such, the contract review should seek a way of harmonising and getting the best for the country, he said.