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Nigeria Losing Revenue To Obsolete Crude Oil Production Sharing Laws – NEITI

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The Nigeria Extractive Industries Transparency Initiative (NEITI) yesterday called on the federal government to review the Production Sharing Agreement between Nigeria and oil companies operating in the country.

According to NEITI, the call became necessary in view of the revenue loss to the federation by the use of the old agreement in computation of revenues to be shared between the government and oil companies.

Describing the legislations currently governing the nation’s crude oil production sharing as obsolete, NEITI in an Occasional Paper released yesterday, said the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1993 provides for: “A review of the terms when prices of oil crosses $20 in real term; and a review of the terms 15 years after operation of the agreement and five years subsequently”.

NEITI however expressed concern that the country is yet to adhere to this important provision even now that the price of oil is revolving around $70 per barrel.

According to the report the Production Sharing Contracts (PSCs) currently accounted for 44.8 per cent of total oil production while the Joint Ventures (JVs) contributed 31.35 per cent.

Reviewing three years of financial and operations reports of the Nigerian National Petroleum Corporation (NNPC), NEITI said it noted that crude oil production under the PSCs has since overtaken production under the Joint Venture arrangements.

According to NEITI, the period between 2015 and 2017 covered by Occasional Paper review of NNPC Report, Nigeria produced 2.126 billion barrels of crude oil and condensate.

The report shows that: “Production was highest in 2015 with 775.6million barrels produced. Production was lowest in 2016 with 661.1million barrels produced, while production in 2017 was 690 million barrels. 2016 was a difficult year for oil production because production was shut in a number of oil terminals.”

NEITI said its major concern is that now that the PSCs account for about 50 per cent 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.

On lifting of crude oil, NEITI said the NNPC Monthly Financial and Operations Report reveals that, “International oil companies (IOCs) lifted more crude oil than the government. Total lifting of crude oil and condensates was 2.135 billion barrels. Of this sum, IOCs and independents lifted a total of 1.367 billion barrels, while government’s lifting by NNPC was 721.16 million barrels. This means that the operators lifted 64.01 per cent of total crude lifting’s, while government through NNPC lifted 33.76 per cent. When expressed in monetary terms, total government lifting of oil amounted to $35.893 billion while the figure for IOCs and Independents was $68.591 billion.”

Meanwhile, a historical analysis of production sharing by NEITI shows that JV companies accounted for over 97 per cent of production in 1998 while PSCs contributed only 0.50 per cent. This trend continued until 2012 when PSCs accounted for 37.58 per cent while JVs contributed 36.91 per cent. From the publication  in 2013, PSCs contributed 39.22 per cent while JVs contributed 36.65 per cent, 2014: PSCs; 40.10 per cent and JVs 32.10 per cent; 2015: PSCs 41.45 per cent and JVs 31.99 per cent while in 2017 the contributions stood at PSCs 44.32 per cent and 30.85 per cent respectively.

The NEITI Occasional Paper further explained that: “Other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/ Marginal Fields contributed 2.39 per cent to total production in 1998 and by 2017 this had risen to 24.83 per cent. This figure clearly shows the changing structure of oil production in Nigeria, where PSCs (which contributed a mere 0.5 per cent to total production 20 years ago) have dramatically overtaken JVs (which contributed 97 per cent to total production 20 years ago)”.



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