Nigeria Extractive Industries Transparency Initiative (NEITI) has alerted the nation on the urgent need to review the Deep Offshore and Inland Basin Production Sharing Agreement between Nigeria and oil companies.
This was part of the statement made available to the media yesterday by the agency.
NEITI said that the urgency to review the obsolete legislation without further delay was in view of the revenue losses to the federation by the use of the old agreement in the computation of revenues to be shared between the government and oil companies.
NEITI said the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1993 provides for “a review of the terms when prices of oil cross $20 in the real term; and a review of the terms 15 years after operation of the agreement and five years subsequently.”
NEITI, however, observed with concern that Nigeria is yet to adhere to this important provision even now that the price of oil is revolving around $70 per barrel. In an Occasional Paper released by NEITI which reviewed three years of NNPC’s financial and operations reports, NEITI has noted that crude oil production under the Production Sharing Contracts PSCs has since overtaken production under the Joint Venture arrangements.
A careful look shows that Production Sharing Contracts PSCs accounted for 44.8 percent of total oil production while the Joint Ventures JVs contributed 31.35 percent. A historical analysis of this development by NEITI shows that JV Companies accounted for over 97 percent of Production in 1998 while PSCs contributed only 0.50 percent.
This trend continued until 2012 when PSCs accounted for 37.58 percent while JVs contributed 36.91 percent. From the publication in 2013, PSCs contributed 39.22 percent while JVs contributed 36.65 percent, 2014: PSCs; 40.10 percent and JVs 32.10 percent; 2015: PSCs 41.45 percent and JVs 31.99 percent while in 2017 the contributions stood at PSCs 44.32 percent and 30.85 percent respectively.
The NEITI Occasional Paper further explained, “Other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/Marginal Fields contributed 2.39 percent to total production in 1998 and by 2017. This had risen to 24.83 percent. This figure clearly shows the changing structure of oil production in Nigeria, where PSCs which contributed a mere 0.5 percent to total production 20 years ago have dramatically overtaken JVs (which contributed 97 percent to total production 20 years ago.”
Between 2015 and 2017 covered by NEITI’s Occasional Paper review of NNPC Report, Nigeria produced 2.126 billion barrels of crude oil and condensate.
A further review of the NNPC Report shows that production was highest in 2015 with 775.6 million barrels produced. Production was lowest in 2016 with 661.1 million barrels produced while production in 2017 was 690 million barrels. The year 2016 was a difficult year for oil production because production was shut in a number of oil terminals.
“NEITI’s major concern is that now that the PSCs account for about 50 percent of total oil production and major source of revenues, the delay or failure to review and renew the agreement means that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.”