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allAfrica.com: Nigeria: Oil Blocks – FG to Review PSC With Shell, Exxonmobil, Others

This Day (Lagos)
20 February 2008
Chika Amanze-Nwachuku And Fidelia Okwuonu
Abuja

The Federal Government yesterday gave more insight into the planned review of existing joint venture agreements with foreign oil companies, saying only the offshore Provision Sharing Contracts (PSCs) signed in 1993 would be revisited.

However, that of the Agbami oil field, operated by Chevron Nigeria Limited (CNL) will be excluded.
 
Fielding questions from newsmen at the International Conference Centre, Abuja, the venue of the ongoing 8th Nigerian Oil and Gas Conference, the Director of Petroleum Resources, Mr. Tony Chukwueke explained that the PSCs to be reviewed were principally those of offshore blocks signed in 1993, which have provisions in them that authorise the Federal Government to renegotiate them if the oil price exceeded $20 per barrel.

He said it was based on that provision that the PSCs relating to those affected blocks will be reviewed. Specifically, Chukwueke said the PSCs relating to those blocks awarded in 1993, including those of Shell’s Bonga oil field, ExxonMobil’s Erha field as well as Abo field (operated by Agip) are all subject to review. According to him, the review became necessary because some of the blocks were not given out by the government through the bidding process, but through all kinds of agreements, adding that a thorough compilation had to be done to ensure that those PSC of blocks that fall into the categories that needed to be renegotiated were not left out.

He argued that the 1993 PSC provided for $2.50 per barrel guarantee of margin paid to oil companies if oil prices fall below $22 per barrel, but that this was stopped in 2000 when the MOUs which was signed by state owned Nigerian National Petroleum Corporation (on behalf of the federal government) and the joint venture partners came into force.

Chukwueke explained that in 2000 when the additional bonus introduced to encourage exploration was stopped, the government retained the guarantee of margin paid to oil companies at below $42 per barrel, noting that the oil companies decided to abandon the protection because in 2005, oil prices rose steadily above $42 per barrel. “The guarantee of margin was a downslide protection for the industry but in 2005 the oil prices went up steadily above the $42 mark and the industry itself decided to abandon that protection. This is because at $50 per barrel, it was better for the industry to pay 85 percent tax and enjoy higher margin than they would get from the guarantee of margin paid to them.

That was why it was abandoned”, Chukwueke said, insisting that there is no going back on the planned review of the 1993 MoU .On the clamour for cancellation of the MOU, the DPR boss stated that the companies had been enjoying certain incentives in the MOU, even when they had abandoned the MOU and were paying tax.

“There are certain things in the MOU which they had continued to use. The MOU defines realisable price and is calculated from the basket of prices. What made this price realizable is unfavourable to the government but favourable to oil companies. The MOU defines how the companies can deduct the cost of production. This is an issue to be considered under this new arrangement. We have to determine deductible price. What is the actual cost of oil production? What is the technical cost of operation?. Who determines technical cost.

“The MOUs give the companies powers to decide that and they have been using it,” he added. He confirmed that the renegotiation process will commence in a couple of days and would be completed in three months. “We are just at the threshold of beginning that process. When we talk about offshore contracts, it is not all the offshore contracts because the contracts have been varied from the time they started in 1993. What we are referring to are those initial contracts that were purely frontier in nature and the law that put those contracts in place has provisions in them that allow us to renegotiate or review them if the oil price exceeded $20.

“We are looking principally at the PSCs signed in 1993. I do not think that Agbami will be affected. In the case of Agbami, we all know the history. Agbami was a sole risk block given to an indigenous company who they farmed out to Chevron a part of it and then entered into contract with Chevron. So it is not one of the 1993 PSCs to be reviewed. The PSCs of 1993 relate to those blocks awarded in 1993, they are Bongas (Shell), Erhas (Exxonmobil) and Abo (operated by Agip).” he stated further.

We are looking in terms of batches of contract, so that a company those not say because we did not mention his block, that block is not included. “We are looking at all issues because like you know the government gave these blocks out not through a bidding process but through all kinds of agreements. So we just have to compile to make sure we are correct. So if the PSC you have is a 1993 PSC, it is subject to review” the DPR boss said, assuring that the review will be done as soon as possible. “We are starting the process now. We want to do it quickly as possible. Because as you know every second counts for us. We are starting the process; I think in a couple of days, we are trying to complete it within three months”.

He confirmed that the Federal Government is currently looking into the decision by the immediate past administration to return the Oil Prospecting License (OPL 245) to Malabu Oil, a company owned by the former Minister of Petroleum Resources, Chief Dan Etete, six years after it was revoked. This he said was sequel to the protest that greeted that decision by Shell said to have paid the Signature bonus for the block.Presidential Adviser on Energy, Dr. Rilwanu Lukman had last year hinted of the plan to revisist the MoU signed by NNPC with the international oil companies which were overdue for review.The renegotiation, it was learnt will give the country upper hand in its oil resourcesand would be done in line with the terms of agreements.

However THISDAY learnt that the government is not in a hurry to fix another bidding round, until the issues of the review of the PSCs, as well as the investigations into the allegation of irregularities at the 2007 bid round was trashed out.

http://allafrica.com/stories/200802200358.html

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