International oil companies and their local counterparts under the aegis of the Oil Producers Trade Section have said the Federal Government’s planned increase in deepwater royalty will worsen Nigeria’s competitiveness and make its $15bn planned deepwater investments economically unviable.
The OPTS, a private industry group under the umbrella of the Lagos Chamber of Commerce and Industry, also said the move would result in an estimated 20 per cent decline in deepwater oil production by 2023.
The House of Representatives on Tuesday concurred with the Senate by passing a bill amending the Deep Offshore and Inland Basin Production Sharing Contract Act 2004.
The Federal Government, in its 2019 approved budget public presentation, had said it was targeting N320bn from the revision of the PSC legislation/terms this year.
The nation’s oil and gas production structure is majorly split between joint ventures onshore and in shallow water with foreign and local companies and the PSCs in deepwater offshore, to which many IOCs have shifted their focus in recent years.
Under the PSCs, the Nigerian National Petroleum Corporation holds the concessions, and the contractors fund the development of the deepwater offshore blocks and recover their costs from the production after royalty payments.
The NNPC had said in 2016 that it was reviewing existing PSCs “to negotiate more favourable terms and improve the revenue base of the federation.”
The OPTS, in its presentation to the Senate obtained by our correspondent, said the proposed unilateral change to the current terms would damage investor confidence and make the country’s deepwater and inland basin PSC less attractive in the wake of stiffening global competition for investable funds.
According to the group, the Deep Offshore and Inland Basin Production Sharing Contracts (Amendment) Bill seeks to introduce an additional price-based royalty on revenues above $35 per barrel, which ranges from 0.2 per cent to 29 per cent as the oil price increases.
It said, “This is in addition to the existing water depth-based royalty. Furthermore, the industry is burdened by a plethora of other taxes, fees, levies and other tariffs.
“This rate increase would result in future deepwater projects becoming economically unviable and leading to at least a $15bn reduction in planned near-term investments.”
According to the group, Nigeria has one of the least competitive deepwater fiscal terms in Africa and is currently losing substantial amount of potential investments in the oil and gas industry to other countries, particularly Mozambique, Angola and Ghana.
“In the last decade, the Nigerian oil industry has been able to start up production of only three new deepwater projects – Usan, Aje and Egina. Other African countries with less hydrocarbon potential have attracted significantly more investments than Nigeria because they offer more attractive deepwater fiscal terms that encourage investment,” it said.
The OPTS noted that deepwater PSC development had been a major contributor to the Nigerian petroleum industry, the economy and government revenue.
According to the group, deepwater PSCs currently account for about 40 per cent of Nigeria’s oil production, rising from zero in 2004 to about 780,000 barrels of oil equivalent per day.