LAGOS — Oil majors have said Nigeria’s plan to achieve four million barrels of daily oil production and 40 billion barrels in reserves by 2020, are not feasible under the new fiscal terms being proposed by the Federal Government in the Petroleum Industry Bill, PIB.
The International Oil Companies, IOCs, under the auspices of Oil Producers Trade Section, OPTS, of Lagos Chamber of Commerce and Industry, LCCI, said the suspension and lack of new investments in the oil sector were negatively affecting the planned production increases.
During a visit to Vanguard Newspapers, led by Mrs. Lola Delano, the oil companies noted that for Nigeria to achieve the target of four million barrels of daily oil, it has to produce about 260,000 barrels daily or the equivalent of one new deepwater field every year for the next eight years.
The fact that there is no deepwater field with a capacity of 260,000/bpd and no new fields are coming on stream, make achieving the target more difficult and now compounded by the “harsh fiscal terms in the new PIB.”
She said the old fields were facing constraints under current fiscal terms and might discontinue production if the PIB currently before the National Assembly is not restructured and is passed as it is.
Specifically, in the onshore arena, the team said current projects are experiencing more than 33 percent rate of decline, with about 30 percent of them or $10 billion worth of investments at risk.
They argued that the PIB terms will not enable the investments needed to sustain Joint Venture, JV, oil production, due to bunkering and insecurity, adding that the new bill will make JV fiscals extremely uncompetitive.
In other countries
In comparison with some oil producing countries, they said in Equatorial Guinea, government’s stake in the onshore/shallow water oil is 44 percent; Ghana, Kazakhstan, Russia and United Kingdom, it is 52 percent, 61 percent, 65 percent and 68 percent, respectively.
Trinidad, UAE, Norway, Venezuela and Angola, is 73, 77, 80, 82 and 83 percent, respectively.
They argued that without new investments, production will decline by 40 percent, while production with new investments will increase by 44 percent.
On investments in deepwater, the oil majors said it could attract $66 billion worth of investments up to 2025, and add 900,000bpd, which they argued, will impact on the broader economy in terms of Gross Domestic Product, GDP, growth and job creation.
However, with the PIB frustrating new investments, deepwater production will decline by 82 percent, they added.
They equally expressed concern about their inability to fully explore and prospect for oil compounded by inadequate duration for frontier and deepwater exploration, stringent work commitments and multiple rounds of relinquishments.
They are also worried about uncertainty sorrounding renewal of current leases, non-protection of investments, no deepwater gas terms and the absence of royalty from the PIB.
According to them, some disputes are settled unilaterally by agencies, thereby preventing access to judicial or independent arbitration.
The OPTS team, represented by Shell, Total, Chevron and Mobil, argued that most of the incentives being touted in the gas sector were only meant for companies producing solely for the domestic market.
“When people hear about five or 10 years tax holidays for gas, they ask, ‘So why are they complaining?’ But none of us gets any tax holidays because we are not producing solely for the Dom market,” they noted.
They added that the PIB will make the sector extremely uncompetitive, significantly reduce the number of viable gas projects and therefore, negatively affect the planned increase in gas production, especially in its contribution to boosting Nigeria’s power situation.
Aside from the absence of incentives, Delano said about $10 billion gas development projects are at risk, adding that Nigeria required between $50 and $60 billion to achieve 40 Giga watts by 2020, while about 16GW are currently available.
The IOCs said lack of infrastructure and inadequate pricing are two major challenges facing development of Nigeria’s gas sector.
They said: “Gas cannot be stored. Infrastructure chain needs to be in place and customers need to be able to utilise the gas immediately. Gas to power infrastructure development is still in its infancy.
“Power prices are still too low to make projects economically viable to raise the required funds for infrastructure chain. A system that incentivises investment in gas and transportation infrastructure is required.
“Imposition of Domestic Gas Supply Obligation, DGSOs, without addressing key issues such as infrastructural deficit and low pricing will not increase gas supply needed for power generation.
“To address these issues and deliver sufficient gas for power generation, a balanced set of fiscals and prices are required.
“Government has laid out bold aspirations to optimise gas supplies, particularly for power supply and industrialisation.”
Breaking the silence
The oil majors accused the Federal Government of double standards as regards its attempt to reform the petroleum industry, alleging that all the fiscal proposals government is bandying about were not in the PIB.
When challenged to name their terms, the oil majors explained that it would be difficult for them to dictate the terms, as this would be unethical and anti-competitive, but insisted that “we have made our positions on the fiscal terms known to government, and government knows exactly what to do if they really wanted to make the environment more investment friendly.”
They maintained that the OPTS is not against reform in itself, as this is absolutely necessary from time to time, but that all interests must be taken into consideration in the implementation of such reforms.
Furthermore, they said the group was not consulted before the Bill was drafted and that they did not make any input.
“What we are saying is that there should have been negotiations between the oil majors and the Federal Government before the Bill was drafted and submitted to the National Assembly,” they said.
Other knotty issues they pointed out include increase royalties from between five and seven percent to a production-based rate of between five and 12.5 percent; price-based rate of between zero to 21 percent and tax increased to 80 percent from 30 percent.
Against this backdrop, the oil majors called for independent analyses of the PIB, while urging government to dialogue with them on the issues raised before the bill is passed.