Petroleum explorationists seek review of Production Sharing Contracts

22 December 2015, Abuja – Geologists and geophysicists under the aegis of the Nigerian Association of Petroleum Explorationists (NAPE) have asked the Federal Government to review the fiscal terms of Production Sharing Contracts (PSCs) for the mutual benefit of both the government and the operators.

oil workersThis recommendation was part of the communiqué of NAPE’s pre-conference workshop held recently in Lagos with the theme “Survival Strategies for Petroleum Exploration and Exploitation in a Challenging Environment”The objectives of the pre-conference include; to identify the challenges facing the Nigerian oil industry in the light of the current regime of falling oil prices and to propose to the Federal Government  strategies that will ensure survival of the Nigerian oil industry in the wake of those challenges for both operators and the government.

The communiqué, which was released at the weekend, also recommended that the oil and gas industry needs to evolve new strategies and tactics to better fund joint ventures, particularly the creation of independent IJVs

The geologists and geophysicists noted that low oil prices have resulted in significant slow-down in projects and sometimes stopping of exploration and exploitation activities.

According to them, there has been a sharp cut-back in upstream investment, with companies instead focusing on short-term production.

They also observed that the exploration and production companies are sceptical of government’s willingness to honour JV cash-call obligations with the consequence of low exploration activities.

“Upstream companies are subjected to over-taxation. Militancy, oil theft, infrastructure vandalism and   overall poor security have impacted on the investment climate. The unprecedented increase in security cost however has not yielded desired results. Reduced exploration activities have resulted in a declining oil and gas reserve base. There is only a limited role for Marginal Field operators within the context of the current Act. Increased competition from emerging African frontier plays is impacting on Nigeria’s position in the industry,” they noted.

To address these challenges, the pre-conference workshop recommended a review and re-negotiation of contracts; re-evaluation of portfolio to understand why a portfolio is dormant or underperforming and take steps to guarantee reasonable return.

According to the operators, the industry should focus on operational optimisation to drive efficiency.

They also called for the modification of the Marginal Field Act to enable exploration and not just production.

NAPE also stressed that fiscal regimes should be structured to encourage exploration in the frontier basins in order to replace reserves.

To reduce costs, they also stressed the need to encourage facility sharing and tie-back to existing   infrastructure.

“Develop a robust down-stream industry and improve refining capacity to generate revenue by giving green field refineries some form of take-off tax breaks. No new upstream development project should be sanctioned without it being an integrated oil and gas focused project. Serious and meaningful engagement of members of host communities to foster security and sense of belonging as stated in GMOUs,” the communiqué added.

The communiqué, which was signed by the President-elect of the association, Mr. Nosa Omorodion and the President, Mr. Chikwendu Edoziem, also called for the strengthening of Nigerian oil industry database repositories in order to benefit E & P activities.

NAPE also called for the creation of incentives that are “similar to ‘Reserve Addition Bonus’ concept to become applicable strictly for reserves addition derived only from wild cat exploration wells and not field extension appraisals and field review/reservoir engineering studies.”

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