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FG plans increased revenue from deepwater oil production

By on February 26, 2016

There are strong indications that the Federal Government is looking to review the commercial terms of deep-water Production Sharing Contracts in order to increase its share of revenue from the PSC production.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, dropped the hint at the 45th Convocation Ceremony of the University of Nigeria, Nsukka, where he made a presentation on ‘Oil Resource Management and Implications on National Security and Economic Survival, a copy of which was obtained by our correspondent.

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 PSC in deepwater offshore.

Kachikwu, who is also the Group Managing Director of the Nigerian National Petroleum Corporation, said the government was getting low revenues from deep water PSC production due to its inability to effect review of the commercial terms.

According to him, the terms were supposed to have been reviewed in 2005 when oil price exceeded $20.

He noted that inefficient JV cash call management system resulting in underfunding of government equity interest and huge unpaid cash call arrears (estimated by the industry at over $5bn) remained an issue, “in addition to low government revenues from deep water PSC production due to government inability to effect review of commercial terms since the commencement of production from Bonga Oil field in 2005 when oil price exceeded the $20 per barrel review threshold.”

Highlighting the plan for the Nigerian oil and gas industry for the next three years, Kachikwu disclosed that there would be “adjusted government take in large deep offshore oil fields in line with the provisions of the Deep Offshore and Inland Basin Act.”

He added that the ambiguities and current impasse between PSC contractors and government in the interpretation of certain clauses of the Act would be addressed.

According to the minister, the nation’s current production level of about 2.2 million barrels per day comes from JVs with international oil companies which account for about 46 per cent of production; PSCs account for about 42 per cent of production, while independents and marginal field operators account for about 12 per cent.

He said the government would establish stable, simple to administer and competitive oil and gas fiscal framework that would encourage continuous investments by global industry players and deliver optimum royalties and taxes to government.

Kachikwu said significant improvements in governance, macroeconomic and fiscal policies were critical to harnessing oil and gas resources for the sustainable development of the country.

According to the minister, part of the three-year plan is to relieve government of monthly cash call funding and create a sustainable self-funding arrangement for government equity in existing JVs where operating costs and capital allowances are retained to maintain current production while capital requirements for growth in oil and gas production are sourced through part of generated profits and external loans.
[Punch]