Nigeria’s petroleum Industry Reforms Bill just sent to the legislature proposes a number of strategic changes to structure of the oil and gas sector including a requirement for the NNPC to transform into a limited liability company to be registered within a period of six months.
In two years, there must be a determination of the assets, interests and liabilities of the successor company and it will have a board as prescribed under CAMA with executive appointments to be made by the president. All assets with NNPC are to be liquidated and thereafter NNPC as we know it today shall cease to exist, according to the long-awaited bill.
The Bill prescribes that NNPC Limited shall own, operate and manage assets responsibly and commercially. It shall maintain a profit-oriented management of government assets, self-fund itself and operate a transparent system that is accountable and free from public burden.
On fiscal terms, the bill says “in order for the Nigerian oil industry to survive facing this challenging future, the PIB has to create an environment in which Nigerian oil companies will continue to invest and proper.
“This means that the fiscal terms for oil have to be based on a conservative framework of the future. This framework is based on a long-term oil price of $50/bbl in real terms.
“Fiscal terms for new development investments based on a 45% cost/price ration,, which means costing $22.50/bbl, need to be marginally economic, while lower cost projects should be economically attractive.
“If future prices turn out to be higher, the benefits should be shared between the investors and the Federal government.”
The new bill permits a wide range of petroleum development arrangements including concession agreement, production sharing contracts, profit sharing contracts, risk service contract and any accepted international petroleum arrangement.
Under the arrangement, joint ventures with the NNPC will no longer be required and NNPC will no longer play the role of concessionaire under PSCs.
The bill permits current holders of OPLs and OMLs to voluntarily convert to the new terms prescribed in the law and if companies wish they can maintain their current terms until the renewal of their leases.
The industry shall only two independent regulators one for upstream and the other for midstream and the bill offers a strong rationale for this choice.
The bill said the industry is currently defined by divestments by majors, deferment of core investments, lack of focus on the midstream part of the sector, inadequate funding for JV operations, lack of funding for decommissioning and abandonment as well as insignificant direct social and economic benefits accruing to host communities.
