24 June 2018, Sweetcrude, Abuja — The Nigeria Extractive Industries Transparency Initiative (NEITI), has demanded an immediate review of the Deep Offshore and Inland Basin Production Sharing Agreement between Nigeria and oil companies, stating that the country was losing billions of dollars over failure to review the obsolete agreement.
NEITI, in a statement in Abuja, disclosed that its call for a review of the law without further delay was in view of the revenue losses to the federation by the use of the old agreement in the computation of revenues to be shared between the government and oil companies.
NEITI noted that the Deep Offshore and Inland Basin Production Sharing Contracts Act of 1993 provides for: “ a review of the terms when prices of oil cross $20 in the real term; and a review of the terms 15 years after operation of the agreement and five years subsequently”.
It, however, observed with concern that Nigeria is yet to adhere to this important provision even now that the price of oil is revolving around $70 per barrel.
It said, “In an Occasional Paper released by NEITI which reviewed three years of NNPC’s financial and operations reports, NEITI has noted that crude oil production under the Production Sharing Contracts (PSCs) has since overtaken production under the Joint Venture arrangements.
“A careful look shows that Production Sharing Contracts (PSCs) accounted for 44.8% of total oil production while the Joint Ventures (JVs) contributed 31.35%.
“A historical analysis of this development by NEITI shows that JV Companies accounted for over 97% of Production in 1998 while PSCs contributed only 0.50%. This trend continued until 2012 when PSCs accounted for 37.58% while JVs contributed 36.91%. From the publication in 2013, PSCs contributed 39.22% while JVs contributed 36.65%, 2014: PSCs; 40.10% and JVs 32.10%; 2015: PSCs 41.45% and JVs 31.99% while in 2017 the contributions stood at PSCs 44.32% and 30.85% respectively.
NEITI noted that other companies, comprising Nigerian Petroleum Development Company (NPDC), Alternative Financing (AF), and Independent/ Marginal Fields contributed 2.39% to total production in 1998 and by 2017 this had risen to 24.83%.
This figure, NEITI said, clearly shows the changing structure of oil production in Nigeria, where PSCs, which contributed a mere 0.5% to total production 20 years ago, has dramatically overtaken JVs, which contributed 97% to total production 20 years ago.
Between 2015 and 2017 covered by the review of NNPC Report, NEITI explained that Nigeria produced 2.126 billion barrels of crude oil and condensate.
It said, “Further review of the NNPC Report shows that production was highest in 2015 with 775.6million barrels produced. Production was lowest in 2016 with 661.1million barrels produced, while production in 2017 was 690 million barrels. 2016 was a difficult year for oil production because production was shut in a number of oil terminals.”
NEITI said its major concern was that now that the PSCs account for about 50% of total oil production and major source of revenues, the delay or failure to review and renew the agreement means that payment of royalty on oil production under PSCs would not be made while computation of taxes would be based on the old rates.