Western oil executives have warned Nigeria against sweeping changes to commercial contracts that could lead to the government taking a bigger share of revenues from the country’s vast deepwater fields.
As Africa’s leading crude producer begins a clean-up of the industry that is its economic lifeblood, the state-owned Nigerian National Petroleum Corporation has said it plans to renegotiate production-sharing agreements with oil majors.
The decision, which NNPC says will affect companies such as Royal Dutch Shell, Chevron, Eni and ExxonMobil “in the weeks and months ahead”, has stoked concern among western industry officials. Several said they knew nothing of the details, others that they had not been contacted, and one executive, who declined to be named, said: “Don’t mess with the fiscal terms.”
Stephane Foucaud, analyst at First Energy Capital, said: “If the PSCs [production-sharing contracts] start changing, that might seriously make people rethink their investment exposure to Nigeria. Companies don’t like uncertainty. In the context of the majors cutting capital spending, there are many more opportunities for capital deployment.”
The scale of changes planned by NNPC, under new leadership following the election of presidentMuhammadu Buhari this year, remains uncertain. However, the state oil company has made it clear that it wants to review all its production sharing contracts with the majors, the aim being to boost government revenues after the collapse in crude prices.
Western companies would be almost certain to resist changes to the terms of existing agreements, many of which date back to the 1990s, while the development of eight planned deepwater projects, due by 2020, could be put back. The new projects would contribute 1m barrels a day of output.
“With oil prices being about half what they were a year ago, there is less capital to go around. I think Nigeria is focused in the right place. Let’s make sure we have a stable environment, so when we do have a project that is competitive, those funds go to those projects,” said another executive.
Osagie Okunbor, chairman of Shell Nigeria, said neither NNPC nor the international oil groups wanted the negotiations “to have an adverse impact on investment in the country”. He added: “We’ll have to look at several clauses and then take a position.”
Shell has deferred until next year a final investment decision on its multibillion-dollar Bonga South West project in light of the oil price collapse and has said it will approve only two developments globally this year.
Industry insiders believe Nigeria would find it difficult to agree a bigger government revenue take at a time when the big oil and gas groups are slashing spending in an effort to shore up cash flow and protect dividends.
Felicia Kemi Segun, a solicitor with Nigeria-based ACAS-Law, said NNPC was entitled to broach a review of existing PSCs, but warned: “There will no doubt be great resistance from the international oil companies to a renegotiation of fiscal terms that see their profits further shaved to the extent that the government is able to extract any additional commercial benefit.”