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Nigerian President doing the biggest oil reform of all.

Discussion in 'International Forum' started by Richard, Nov 23, 2009.

  1. Richard

    Richard JF-Expert Member

    Nov 23, 2009
    Joined: Oct 23, 2006
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    President Umaru Musa Yar'Adua's government is trying to win support for its new oil law by offering Delta communities a stake in the business.

    The Petroleum Industry Bill (PIB), which President Umaru Musa Yar'Adua's supporters are trying to steer through the National Assembly, is meeting massive opposition from the major oil companies, their political lobbyists and the Niger Delta militants who resent the lack of concessions offered. Efforts to make the oil business more market-oriented and to free it from political manipulation have been going for more than a decade; they won't end soon.

    On 16 October, the presidency announced a reorganisation of the Ministry of Petroleum Resourecs. A few days before, it had offered to hand over 10% of the equity in oil joint ventures (JVs) to communities in the Niger Delta, a move intended to reinforce the recent amnesty deal and efforts to bring peace in the region, and to boost support for the new bill there (AC Vol 50 No 22).

    The bill was first introduced to the National Assembly in December 2008, when its tax implications encountered fierce resistance from international oil companies (IOCs). The first public hearing in a parliamentary committee took place in July. The bill seeks to resolve chronic shortfalls in funding for JVs between oil majors and the Nigerian National Petroleum Corporation, which holds 51-60% stakes in the ventures. It also aims to open up the notoriously opaque NNPC to commercial competition.

    The PIB will affect all Nigeria's existing agreements with foreign oil companies, through JVs onshore or production-sharing contracts (PSCs) offshore. In its present form, the bill allows the government to renegotiate existing contracts, revise fiscal terms and repossess unexplored oil blocks.
    The international companies complain that the NNPC has failed to produce its share of the finance for onshore JVs, to the tune of US$7 billion by 2008. The companies, the government and international organisations, including the Organisation of Petroleum Exporting Countries (OPEC), agree that these financing arrangements need altering.

    The PIB proposes that existing joint ventures be incorporated to allow them to raise funds independently on international capital markets. The companies have so far enjoyed highly preferential terms in the deep water offshore PSCs, paying no royalties and very low taxes. They baulk at the bill's proposed fiscal terms, which would increase government's take of revenue from 82% to 91%, according to the consultants KPMG.

    Projects impracticable

    A Chevron executive said his company could handle high taxation but not the uncertainty, particularly in projects that take over ten years to bring on line. The industry claims that big deep-water projects, such as Shell's Bonga and Chevron's Agbami fields, would be impracticable under the proposed fiscal terms. Mark Ward, Managing Director of ExxonMobil-NNPC JV, known as Mobil Producing Nigeria Unlimited, told the July public hearings the new terms could render planned upstream projects uneconomic and would affect his company's medium-term $60 bn. investment plans in Nigeria.

    The Senate committee on oil and gas was due to finalise an amended version of the bill by late September but disagreements have put it off to the end of the year. A team from the International Monetary Fund is independently evaluating the bill, in hope of breaking the deadlock. Vice-President Goodluck Jonathan was dispatched in late October to discuss details with the companies. ‘There is a certain level of tension between the operators and government, which I think is natural,' says Minister of State Henry Odein Ajumogobia. ‘But I am confident that we will resolve any difficulties, as we have done in the past.'

    It seems the Senate was riled when the Petroleum Resources Minister, Rilwanu Lukman, tried to forestall the passage of the bill by appointing Bello Gusau substantive Director General of the Nigerian Petroleum Directorate – a body which has as yet no legal existence. The Senate wanted the appointment revoked. Senators were also displeased by Lukman's ambivalence about the companies' concerns regarding royalties, taxes and unused acreage. The bill would vest all unallocated acreages of crude oil and natural gas in the NPD, inappropriately giving the industry's policy-making body a major stake in the business. It is intended that the NPD ‘take over any functions previously undertaken by the Ministry of Petroleum Resources', with the minister responsible for ‘overall supervisory functions', including powers to revoke licences and leases. Significant changes are also proposed to the incorporated JVs, upstream licences and ownership of a new National Oil Company (NAOC), which would replace the NNPC. The international companies have asked for time to unwind investments, incorporate the JVs, draw up business plans and transfer JV assets.

    The new NAOC would be a limited liability company, wholly owned by the Federal Government, although the law that regulates limited liability companies requires at least two shareholders. Where NAOC is a major shareholder, it is empowered to appoint half of the board members, of whom eight out of ten must be Nigerian. This risks giving politicians an even greater say in the business. The new JVs are meant to be financially self-sufficient but the bill limits their financing options and shareholders cannot transfer shares without written consent.

    A new petroleum exploration licence (PEL) would replace the present oil exploration licence (OEL) under the Petroleum Act 1969, to permit exploration by companies that explore and sell data. That is in addition to the petroleum prospecting licence (PPL), which permits prospecting for crude oil and gas, and the petroleum mining licence (PML) which grants the right ‘to search for, win, work, carry away and dispose of crude'. PPLs and PMLs would be granted after a bidding process conducted by the NPD, according to a combination of signature bonus, royalty percentage, work commitment in terms of number of wells to a specified minimum depth and work units. NAOC would enjoy some privileges, giving it ‘a significant advantage over other companies'.

    As the negotiations proceed, the presidency has announced a reorganisation of the Petroleum Ministry. Minister Lukman, who also founded the fast growing Afren Energy, has been given broad oversight of NNPC and the PIB negotiations. Ajumogobia gets responsibility for natural gas, alternative fuels and regulatory agencies for downstream and upstream activities. Lukman has not been sidelined, yet rumours circulate that he is on his way out and he has handed over all day-to-day tasks to his junior minister.

    Separating the operational and regulatory functions of NNPC (which shares its Abuja headquarters with the Petroleum and the Power ministries) will allow it to evolve into a commercial company along the lines of Malaysia's Petronas or Brazil's Petrobras. On a visit, OPEC Secretary General Abdalla el Badr said on 18 October: ‘I know that a national oil company cannot effectively regulate the industry where it operates in joint ventures with IOCs. It cannot function as a ministry within a ministry.'

    Ten percent for the Delta

    The presidency wants a new clause in the PIB providing 10% of the equity in all oil and gas operations in the Niger Delta to host communities, a plan first voiced by the President's Advisor on Petroleum Affairs, Emmanuel Egbogah, founder of Emerald Energy Resources. The move will be opposed by politicians from the north and west but could shore up the amnesty deal. Violence in the Delta severely disrupted production in the first half of 2009. Production capacity on paper stands at 2.6 mn. barrels per day and Nigeria's OPEC quota is 1.67 mn. bpd but actual production sank to 1.2 mn. bpd, then to below 1 mn. bpd in July, Lukman told Africa Confidential.

    Since the amnesty offer and the ceasefire by the Movement for Emancipation of the Niger Delta (MEND) in July, Lukman says production has recovered to between 1.6 mn. and 1.7 mn. bpd since August. Contradictory figures are quoted: Central Bank of Nigeria Governor Lamido Sanusi says production rose from 1 mn. bpd in early August to 2 mn. bpd in late September. Government ministers have admitted since 2008 that the target of 4 mn. bpd (as planned in 2007) is unrealistic. Oil services companies say that 200 operational rigs would be needed to reach this target; 30 are now in operation.

    Offering a stake to the Delta is meant to assure stability in the oil-producing region. Several MEND leaders have benefited from the two-month amnesty but rumours of post-MEND militancy are already spreading. There is bound to be opposition from northern states and it is not clear how the additional 10% stake will be managed alongside the 13% derivation of oil revenue earmarked for oil-producing states.

    International oil companies are undergoing their own restructuring. Shell, the largest onshore operator, saw its production drop from 1 mn. bpd in 2008 to 300,000 bpd in June 2009. Ann Pickard, Shell Africa's Executive Vice-President, based in Lagos, is being transferred to head Shell's Australia operation. Her successor is Ian Craig, who proved his toughness in negotiations in Russia as head of Sakhalin Energy. Basil Omiyi, who is Ogoni, Chairman of Shell Nigeria and President of the Oil Producing Trade Section lobby group, retires this year.

    Chevron, ConocoPhilips and Italy's Ente Nazionale Idrocarburi were all disrupted by this year's attacks but Total has stayed relatively insulated in its offshore operations – and enjoyed some welcome goodwill in July when French Prime Minister Fran├žois Fillon headed a business delegation to Nigeria.

    Source: AC