FG Demands $62bn PSC Arrears from Oil Majors - THISDAY
Alike Ejiofor with agency report
The federal government has begun moves to recover as much as $62 billion from international oil companies, being backlog of its share of income from Production Sharing Contract (PSC).
It is basing its action on a 2018 Supreme Court judgment that would enable the country to increase its share of income from PSC. The government accused the energy companies of failing to comply with a 1993 contract-law requirement that the state receives a greater share of revenue when the oil price exceeds $20 per barrel, according to a document prepared by the attorney-general’s office and the Justice Ministry.
The document, seen by Bloomberg, was verified by the ministry, the agency reported wednesday. Another report wednesday by Reuters also said the Organisation of Petroleum Exporting Countries (OPEC) has granted Nigeria a higher oil output target under an OPEC-led deal to limit oil supply in a move unannounced by the group, following efforts by Africa’s largest exporter to tweak the agreement to accommodate its expanding oil industry.
Under the PSC law, companies including Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA and Eni SpA agreed to fund the exploration and production of deep-offshore oil fields on the basis that they would share profit with the government after recovering their costs.
Bloomberg reported that when the law came into effect 26 years ago, crude was selling for $9.50 per barrel. The oil companies currently take 80 per cent of the profit from these deep-offshore fields, while the government receives 20 per cent, according to the document.
Representatives of the oil companies were said to have met with the Attorney General of the Federation and Minister of Justice, Abubakar Malami, on October 3.
Malami told them that while no hostility is intended toward investors, the government will ensure all the country’s laws are respected.
However, the oil companies including Shell have gone to the Federal High Court to challenge the government’s claim that they owe the state any money, arguing that the Supreme Court ruling doesn’t allow the government to collect arrears.
“We do not agree with the legal basis for the claim that we owe outstanding revenues,” Shell’s Nigerian unit said in an emailed response to questions.
Chevron spokesman, Ray Fohr, told Bloomberg that the company doesn’t comment on matters before the court. Meanwhile, OPEC has raised Nigeria’s oil production quota target under a deal to limit oil supply in a move unannounced by the group.
A report yesterday by Reuters quoted sources it identified as OPEC delegates as saying that the country’s allocation was increased to 1.774 million barrels per day (bpd) from 1.685 million bpd at the last OPEC meeting in July.
However, the newly approved quota fell short of the 2.3 million bpd projection on which oil revenue for the 2019 budget was anchored and also below the 2.18 million bpd that the revenue to fund the 2020 budget, which President Muhammadu Buhari presented to the National Assembly on Tuesday was based.
The quota increase will mean Nigeria will see an improvement in its compliance with the supply cut accord, but it is still pumping more crude than the new target according to OPEC’s own figures and industry surveys.
“It’s happened,” one of the delegates said. “I’ve not heard of any other changes to the agreement.”
Nigeria has had a dismal record in delivering its share of the cut, overshooting by 400 per cent in August according to the International Energy Agency. OPEC put Nigerian production at 1.866 million bpd in August – far above the new quota.
One of the OPEC delegates said OPEC granted Nigeria the target revision because of the new Total-operated Egina oilfield, which started production in January and had not been factored in when the initial quota was calculated. Some of the Egina production will also classify as condensates, meaning even more of Nigeria’s output would not count towards the new cap.
While OPEC has not formally announced the change, Minister of State for Petroleum Resources, Mr. Timipre Sylva, mentioned the new target in a Bloomberg interview last week.
He did not elaborate on circumstances leading to the new target.
The 14-nation OPEC agreed in December with non-OPEC partners, including Russia to curb crude production by 1.2 million bpd from the start of this year.
OPEC’s share of the cut is 800,000 bpd, with Venezuela, Iran and Libya exempt.
It is not clear whether this figure, or any other countries’ targets, have been adjusted to accommodate Nigeria’s increased quota. Nigeria only started participating in the deal in January, having been granted an exemption in previous OPEC+ cuts due to militant attacks that reduced its output.