30 September 2015, Sweetcrude, Lagos – Nigeria’s plans to review existing production sharing contracts, PSCc, with foreign oil producers to help stem the impact of a slump in global oil prices could prove a counter-productive quick-fix, adding to uncertainties that have pinned down the county’s oil sector growth, a report by Platts has revealed.
This is mainly because Nigeria’s latest push to revisit PSC terms comes at a painful time for oil companies which are slashing spending budgets to shore up their balance sheets in the face of low oil prices outlook.
In less than a month, the new group managing director of the Nigerian National Petroleum Corporation, Dr. Emmanuel Ibe Kachikwu has twice highlighted Nigeria’s plans to revisit the fiscal terms in the existing PSCs.
He was quoted to have said during a recent visit to France that NNPC would be re-negotiating the contracts with some IOCs in “the weeks and months ahead” to extract as much benefit as possible for Nigeria.
But speaking last week in Lagos, the NNPC boss said he was quoted out of context on the matter, maintaining that what the corporation is doing is to rather look into the PSC with a view to improving on some areas for the benefit of the country.
According to Kachikwu, renegotiating the contracts, first signed with the oil companies more than 20 years ago, will allow Nigeria to rehash generous terms that are sapping the country’s earnings from oil produced under the PSC deals.
Many of the deals with Africa’s biggest oil producer – which were signed at sub-$20/barrel prices and during the relative infancy of deepwater activity — have been “overtaken by new realities in the industry, Kachikwu said.
Under the PSC agreement, NNPC holds the concessions while the oil companies fund development of the mostly deepwater offshore blocks and recover their costs from the production after royalty payments.
Nigeria first introduced the PSC agreement, a form of operating arrangement with foreign oil companies, in 1993 to help solve NNPC’s inability to fund its share in joint venture oil operations.