Nigeria waking up to moves to incentivize its deep-water, signs deal with PSC partners

…12-yr dispute cost parties $9bn in contingent liabilities

…Kyari says deal to yield $780m in immediate revenues to government

…Unlock $10bn investment

Ben Eguzozie, in Port Harcourt

After a 12-year dispute that had marred business relationship and affected trust and investment in Nigeria’s oil industry, Nigeria is waking up to moves to incentivize the deep-water segment of its oil industry, as the Nigerian National Petroleum Corporation (NNPC) and its production sharing contract (PSC) partners – Shell Nigeria Exploration and Production Company (SNEPCo), Total Exploration and Production Nigeria Limited (TEPNG), Esso Exploration and Production Nigeria Limited (EEPNL) and Nigerian Agip Exploration (NAE) – executed agreements to renew Oil Mining Lease (OML) 118 for another 20 years.

The five agreements signed include: dispute settlement agreement, settlement agreement, historical gas agreement, escrow agreement and renewed PSC agreement.

While the disputes lasted, parties lost $9 billion in contingent liabilities, whereas business relationships were wastefully marred; trust and investment were sorely affected.

The PSC disputes are like the much-vaunted Petroleum Industry Bill (PIB), which has taken nearly 20 years for Nigeria to enact – which should liberalize its oil industry. The absence of the PIB means no new investments from operators till then.

For more than a decade, the Nigerian oil industry was tottering – investments were rapidly diminishing – as the International Oil Companies (IOCs) preferred other countries like Angola, Gabon, Ghana, Mozambique, Equatorial Guinea, among others. Only last week, Shell Petroleum Development Company, with the largest footprint in Nigeria, announced to the Nigerian government it was divesting from its operations in the oil-rich Niger Delta, a region the Anglo-Dutch oil giant has pulled trillions of dollars oil business for more than half-a-century.

Experts believe the new deal will unlock over $10 billion of investment, signaling the end of the long-standing disputes over the interpretation of the fiscal terms of the Production Sharing Contracts (PSC) and the emplacement of a clear and fair framework for the development of the huge deep-water assets in Nigeria.

Oil industry watchers believe Nigeria, after over a decade of poor policy direction, is about waking up to realities other commodity countries have embraced several years ago to incentivize, with outstanding results on their economies. “It’s an indication of a renewed confidence between the NNPC and its partners; and between the Nigerian federal government and the investing communities,” said one oil experts.

Mele Kyari, NNPC’s Group Managing Director says, “It produces value for all of us by providing a clear line of sight for investment in the Bonga bloc of around $10 billion.” He informed that the deal would yield over $780 million in immediate revenues to the Federal Government; while it would also free the parties from over $9 billion in contingent liabilities.

“Ultimately, these agreements will engender growth in our country where investment will come in for other assets, not just in the deep-water, but even for new investors. It is an opportunity for them to see that this country is ready for business,” he said.

Osagie Osunbor, the Country Chair of Shell Companies in Nigeria, said OML 118 renewal agreement would remain a watershed in the history of deep-water investments in Nigeria, assuring that the giant stride would further bolster investor confidence in the country.  For Bayo Ojulari, Managing Director of SNEPCo, the agreements marked the end of a twelve-year dispute that had marred business relationship and affected trust and investment.

“Today, we have signed agreements that define the future of deep-water for Nigeria. This is the first deep-water block that was developed in Nigeria, and it is also the first one that we are resolving all the disputes that will lay the foundation for the resolution of other PSCs,” the SNEPCo helmsman said.

On their parts, the managing directors of Total E&P, Mike Sangster; ExxonMobil, Richard Laing and NAOC, Roberto Danielle, lauded the NNPC’s boss for providing leadership that engendered the resolution of the disputes. They assured that the agreements would attract more of their investments into the Nigerian oil and gas industry.