International energy companies in Nigeria, Africa’s top producer, say higher taxes proposed under a new law risk cutting output by 25 percent by 2022.
“The fact is the Petroleum Industry Bill fiscal terms make projects uneconomic and therefore they will not happen, leading to significant contraction of the industry,” Mark Ward, managing director of Exxon Mobil Corp. (XOM)’s Nigerian unit told lawmakers at a hearing in the capital, Abuja. Under the proposed terms output will fall more than 500,000 barrels a day of oil. This compares with about 60 percent increase if the terms are favorable, said Ward, who spoke on behalf of the Oil Producers Trade Section, a group of energy companies in Nigeria, which he chairs.
The Petroleum Industry Bill, or PIB, is aimed at increasing the country’s share of profit from oil pumped off its shores. The bill to reform the way Nigeria’s oil and gas industry is regulated and funded proposes to boost the government’s share of revenue to at least 73 percent, from 61 percent currently, according to Petroleum Minister Diezani Alison-Madueke. Previous terms introduced in 1993 were based on an oil price of $20 a barrel, and are no longer realistic because crude has since stayed above the benchmark, she said.
“The PIB establishes a flexible fiscal regime that will increase government take and yet encourage investment,” Alison-Madueke told lawmakers at the hearing. The new law will take at least three years after it is passed by parliament before it becomes operational, she said.
The Oil Producers Trade Section, or OPTS, includes Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX), Exxon Mobil, Total SA (FP) and Eni SpA. (ENI) The companies pump more than 90 percent of Nigeria’s oil through ventures with state-owned Nigerian National Petroleum Corp. They said in a joint presentation to lawmakers in 2009 that proposed increased taxes in the legislation would make exploration “uneconomical”.
“Nigeria will have one of the harshest fiscal regimes in the world,” Ward said. The country will be uncompetitive and projects “uneconomic, meaning there is not an a eatable return on investments,” he said.
International energy companies shouldn’t “threaten” to stop investing in the West African nation’s oil industry because of the proposed structure of the PIB, Senate President David Mark told the hearing.
Lawmakers are “are conscious of the fact that there is frustration in the oil industry,” he said. The new law “must be a fair deal for everybody.”
The PIB was first sent to Parliament four years ago and wasn’t passed before the end of the last legislative session in May 2011. Under a revised bill sent to Parliament last July, royalties, rentals and penalties would be calculated on the basis of output and will be set by the petroleum minister, while the country’s president would be able to award licenses without competitive bidding.
Nigeria last held an oil licensing round in 2007. The major energy producers had backed away from that exercise because of political interference.
“The PIB does not provide any certainty on the timing and frequency of new bid rounds, which are critical for growth of all companies,” Ward said.
The OPTS advocates that oil licensing rounds be held every two years, including marginal fields wards, referring to areas producing volumes of crude too low to be profitable for bigger companies.
To contact the reporter on this story: Elisha Bala-Gbogbo in Abuja at email@example.com
To contact the editor responsible for this story: Dulue Mbachu at firstname.lastname@example.org