Oil & Energy
NNPC, Oil Firms’ Feud Hampers Investment
The ongoing disputes between the Nigerian National Petroleum Corporation and international oil companies over Production Sharing Contracts (PSCs) is hampering further investment, even as funding challenges have led to a significant decline in joint venture oil and gas production.
Under the PSCs, the NNPC holds the concessions, and the contractors (mostly the IOCs) fund development of the deepwater offshore blocks and recover their costs from the production after royalty payments.
Faced with declining oil revenue, Nigeria announced in 2015 that it planned to review the PSCs with foreign companies, proposing an increase in royalty rates for terrains beyond 1,000 meters, from zero to three per cent, and a royalty rate of eight per cent for output of up to 50,000 bpd.
“Negotiations between the NNPC and the PSC contractors [are] ongoing to resolve all PSC disputes. The goal is to ensure continuous investment by the IOCs while maintaining a competitive share of 47 per cent,” the Group Managing Director, NNPC, Dr Maikanti Baru, said in his presentation at an industry conference in Lagos last week, a copy of which was obtained by our correspondent.
Under the JV regime, both the NNPC and the IOCs fund field development capital expenditure through cash calls and receive prorate share of crude oil produced in the proportion of their JV equity holdings.
The Chief Executive Officer, Stanbic IBTC Bank, Mr Demola Sogunle, in his presentation at the Nigerian Annual International Conference and Exhibition of the Society of Petroleum Engineers, said the JV model had been challenged in recent years, majorly due to funding challenges, which had negatively impacted on growth of JV oil and gas production.
“The JV oil production has been on the downward trend since 2010. The trend is attributable to the reduced investment in the JV assets by the IOCs,” he said.
In December 2016, the NNPC exited the cash call agreement and opted for alternative financing arrangement.
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In the bid to revitalise the gas industry and stabilise power generation, President Bola Ahmed Tinubu has authorised the settlement of N185 billion in long-standing debts owed to natural gas producers.
The payment, to be executed through a royalty-offset arrangement, is expected to restore confidence among domestic and international gas suppliers who have long expressed concern about persistent indebtedness in the sector.
According to him, settling the debts is crucial to rebuilding trust between the government and gas producers, many of whom have withheld or slowed new investments due to uncertainty over payments.
Ekpo explained that improved financial stability would help revive upstream activity by accelerating exploration and production, ultimately boosting Nigeria’s gas output adding that Increased gas supply would also boost power generation and ease the long-standing electricity shortages that continue to hinder businesses across the country.
The minister noted that these gains were expected to stimulate broader economic growth, as reliable energy underpins industrialisation, job creation and competitiveness.
In his intervention, Coordinating Director of the Decade of Gas Secretariat, Ed Ubong, said the approved plan to clear gas-to-power debts sends a powerful signal of commitment from the President to address structural weaknesses across the value chain.
“This decision underlines the federal government’s determination to clear legacy liabilities and give gas producers the confidence that supplies to power generation will be honoured. It could unlock stalled projects, revive investor interest and rebuild momentum behind Nigeria’s transition to a gas-driven economy,” Ubong said.
