Shell’s $10bn Bonga project to proceed in N320bn boost to govt revenue

The long-delayed $10billion Shell Bonga South West project is likely to commence soon as partners resolve a lingering dispute over terms and ink a deal that will restart the project.

This development could create jobs, boost Nigeria’s revenue, and prompt other operators whose projects have also been suspended due to contract disputes with the Nigerian government to resolution so that operations can restart in the profitable offshore production

Shell subsidiary, SNEPCO, on May 25, signed an agreement with the Nigerian National Petroleum Company (NNPC) and other partners that may unlock about $700m revenue to the Federal Government following an agreement to restart operations.

“The revenue is expected to be generated by way of gas revenue and lease renewal fees,” the NNPC said in a release.

Under the arrangement, the NNPC and Bonga PSC partners will be executing five agreements that will deliver about $700million of immediate benefit to the Federal Government, the NNPC said.

“It will also help to ensure $6billion savings of arbitral liability on the Federal government and unlock 10,000 direct and indirect employment opportunities to Nigeria. This new agreement will also help to re-balance fiscal terms and address global competition in prioritization of investments by key players.

The OML 118 with its straddle fields boast of the presence of the five Major Players in the deepwater space not only in Nigeria but also globally.

OML 118 is the first major deepwater development in Nigeria in the deepwater Niger Delta 75 kilometres from shore containing the Bonga fields at water depts over 1000m.

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The fields are one of the most prolific deep-water assets in Nigeria, boosting of almost 2 billion barrels of crude oil, up to 1TCF of gas, modest cost of operations and delivers a significantly level of profit for the investors with a sizeable take for the State. The field also supplies gas to NLNG another strategically important asset to NNPC and its partners.

However, the field has suffered setbacks. Shell had in 2016, announced the first setback due to a crash in oil prices from over $100 per barrel to below $30 per barrel. There were also disputes about taxation and gas commercialisation terms.

This seems to have been resolved. The key feature of the terms of the settlement includes clear terms on block ring-fencing, gas commercialization terms, replacement of disputed tax credits for clearer investment allowances, trade-offs on in-block consolidation and cost limits, early lease renewals, assurance of fiscal stability for investors, protection of profit-sharing schemes and settlement of disputed past, among others.

Analysts say the resolution may not necessarily translate to huge investor confidence in the country’s oil sector but that the project which was stalled can now go on.

“The challenges with the sector are still there but as for this project it can now proceed and this will mean more jobs and more revenue to Nigeria,” said Ayodele Oni, energy lawyer, and partner at Bloomfield law firm.

The NNPC had in February 2019 signed Heads of Terms (HoT) with the OML 118 PSC contractors which formed the commercial framework for parties to settle their differences, create a pathway for a sustainable brighter future, and a reference point for resolving the industry-wide PSC disputes.

The objective was that the HoT will translate to fully termed agreements including the Dispute Resolution Agreement and a new PSC Agreement for the OML 118 Contract Area.

After two years, the parties today have been able to agree to the anticipated full terms agreement including the new PSC and the Dispute Settlement agreement reflecting the major agreed terms of the HoT which finally creates certainty for the desired brighter future.

When a final investment decision is announced and the field fully developed, it would be the biggest deal in the oil and gas sector since the FID on Nigeria LNG Train 7 deal and signal more towards the deep offshore exploration which holds the key to profitability in the oil sector.