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Oil firms to sue FG over PIB

By Hector Igbikiowubo

HOUSTON, TEXAS —    INDICATIONS are that Shell Petroleum Development Company, SPDC, and other international oil companies, IOCs, have concluded arrangements to sue the Federal Government if it goes ahead to review existing production sharing contract, PSCs, agreement guiding the operations of deepwater oil blocs.

Vanguard gathered that the move was a direct response to plans by the National Assembly to fast-track the enactment of new laws for the Nigerian oil and gas industry from the Petroleum Industry Bill, PIB.

PIB seeks to review existing agreements affecting exploration and production activities in the onshore and offshore terrain.

It was gathered that IOCs decided to sue the government so that existing PSCs governing oil and gas operations, particularly in the offshore terrain would not be reviewed until they expire.

From left: General Manager, Publications and Editor in Chief, Vanguard Newspapers, Mr. Gbenga Adefaye, Mr. Shawley Coker, President of Petroleum Techonology Association of Nigeria, PETAN, Minister of Petroleum Resources, Mrs. Diezani Alison Madueke, and Editor of Vanguard's Sweet Crude newspaper, Mr. Hector Igbikiowubo, at the just concluded Offshore Technology Conference, OTC 2010, in Houston, Texas, USA, Thursday. Vanguard's Sweet Crude, being displayed by the minister, is the official newspaper of the confab

Some of the PSCs signed between 1999 and 2007 contain fiscal incentives which the government is reviewing to improve the country’s share of revenue from a barrel of oil produced by IOCs.

Affected fields include Bonga of Shell Nigeria Exploration and Production Company, Snepco, Abo of Nigeria Agip Energy, NAE, Agbami of Chevron Nigeria and Okwori of Addax Petroleum.
An official of the Ministry of Petroleum Resources told Vanguard, weekend, in Houston, Texas that “some of the oil majors have threatened to sue the Federal Government and we are doing everything possible to ensure we resolve outstanding issues on the PIB with them.”

Many of the PSCs are yet to expire, but the government is seeking to raise PSCs’ taxes and royalty in the new law.

The government is proposing to raise taxes payable by oil companies in the PIB and the oil companies have been warning that such an action will discourage further investments.
The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, is already working hard to ensure the passage of a PIB that will be acceptable to government and oil players.

Meanwhile,  IOCs have suspended further investments in the upstream sub-sector pending the conclusion of the passage of PIB.

Legal action by the IOCs

Indications are that such a legal action by IOCs will affect annual industry expenditure of over $12 billion and frustrate plans of the government to increase revenue from the oil and gas industry as well as promote the relevance of other oil-producing countries such as Angola and Ghana as the hub of investment by foreign companies in the Gulf of Guinea.

The other IOCs include Mobil Producing Nigeria Unlimited, Chevron Nigeria Limited, Nigeria Agip Oil Company, Addax Petroleum and Total Upstream Companies in Nigeria.

The PSC arrangement is signed between the Nigerian National Petroleum Corporation and a company willing to undertake exploration and production of hydrocarbon in the offshore terrain. Its main features include the contractor (oil company) bearing all the cost of exploration and production without such costs being reimbursable if no oil is discovered in the acreage.

Cost is recoverable with crude oil in the event of commercial discovery with provisions made for tax oil, for payment of petroleum profit tax, royalty and concession rentals. There is also the cost oil (that is, amount of money expended on the project) which the oil companies (operator) gets reimbursed. Also, there is profit oil, which is the balance after deduction of profit and cost oil, which is to be shared between NNPC and the operator.


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