By MICHAEL EBOH

Oil majors under the aegis of the Oil Producers Trade Section, OPTS, of the Lagos Chamber of Commerce and Industry, LCCI, have denied claims that they arbitrary fix costs for their projects and deduct the value of the cost from earnings before profits are shared, under the Production Sharing Contract, without any input from the Federal Government.

Speaking during a visit to Vanguard Newspapers Headquarters last week, the oil majors insisted that all their projects, costs, contracts award and a host of others are vetted by the Nigerian National Petroleum Corporation, NNPC, and its subsidiary, National Petroleum Investments Management Services, NAPIMS .

According to the OPTS members, led by Mrs Lola Delano, before the Invitation for Tender or Bids are advertised, they are taken to the NNPC, which vets them and make inputs.

“In the area of costing, when we draw up our costs, the NNPC goes through them, striking out the ones it wants before a final cost is arrived at. In the area of contract awards also, the Nigerian Content Board, then a department in the NNPC, goes through the process with the oil majors to determine if Nigerian companies have the capacity to undertake such projects. It is when they are satisfied that no local company can carry out the project that we are allowed to award it to foreign firms,” they said.

In the past, the oil majors were allowed 100 percent cost recovery from projects before profits were shared, until with the advent of rising project costs, sometimes, considers outrageous, to review cost recovery downwards to about 90 percent.

The operators attributed the rising costs to exchange rate, cost of funds and oil prices at the international oil market and a host of others.

Besides, they noted that some of the projects, especially community related ones, which they felt necessary in other to progress with their operations, but which were not approved by the NNPC, were ultimately not approved for recovery and were therefore, solely borne by the operators.

“We have many of such costs classified as Category D. Once they (NNPC) looked at the costs and they see those for projects that were not approved, they simply cross it out. No amount of argument will convince them to approve for us to recover the costs as long as they did not give the initial approval. So in the end, we bear all such costs alone,” they bemoaned.

We can’t build refineries

Explaining their inability to build refineries in Nigeria, despite their long years of exploration in the country as well as government’s directive for them to refine half of their production output in-country to stem fuel shortages, the oil majors defended that this will not be economically wise under a regulated policy.

According to them, regulation, characterised by oil subsidy, is not cost effective, adding that the International Oil Companies, IOCs, operating in Nigeria are mainly exploration and production companies, which do not engage in refining activities.

They said, “The IOCs in Nigeria are mainly exploration and production companies, and these subsidiaries do not have the capacity to venture into building refineries. In some countries, the IOCs only have their refining subsidiaries and do not venture into oil exploration and production.

Blames FG for gas flaring

With regard to the continuous flaring of gas the oil IOCs maintained that the Federal Government was partly to blame for this by not meeting their part of the obligations.

They said, “We are in Joint Venture, JV partnership with government, as government owns majority stakes in the companies involved in gas flaring. But there are no infrastructures put in place to gather the gas. Besides, government cannot also meet up with its counterpart funding or cash calls for these projects, and so we cannot do it alone.”

They further stated that for gas flaring to end, government must provide the necessary infrastructure needed to contain it, adding that at present, they can only stop flaring if they shut down production, which has its own economic implications.