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Nigeria may have just shot itself in the foot with its proposed Petroleum Industry Bill (PIB).
The bill would boost industry taxes enough to deter further investment in oil exploration and development, and rather than boost revenue, could actually cause Nigeria to potentially lose $185 billion over the next ten years.
Mark Ward, the managing director of ExxonMobil’s Nigerian unit, spoke at a Nigerian energy conference on behalf of the Oil Producers Trade Section: a group of companies including, Royal Dutch Shell, Chevron Corp., Exxon Mobil Corp., Total SA, and Eni SpA, who produce around 90% of Nigeria’s oil through several joint ventures with the Nigerian National Petroleum Corp.
He argued that the proposed taxes could cause a 25% drop in oil production from 2.4 million barrels, as the lack of new investment would mean that new wells would be too few to tackle the declining production from old wells.
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Nigeria’s oil output could fall 25% if the PIB is approved. (WSJ)
Ward explained that “the terms proposed increase royalties, increase taxes, and lower allowances or incentives all at the same time.” Turning Nigeria into what he described as “one of the world’s harshest fiscal regimes.”
Petroleum Minister Diezani Alison-Madueke claimed that the new law is just intended to help reform the way that Nigeria’s oil and gas industry is regulated, and provide the government with a larger share of the profits (from 61% to at least 73%) in order to help with the economic development of the country.
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Ward argued that the PIB has the potential to increase the government’s share of oil profits to as much as 96%, and that its share in natural gas profits will increase from 30% to 80%, making further exploration uneconomical.
Ward also stated that the energy companies were worried by the fact that under the new laws all penalties would be set by the Petroleum Minister, and the President would have the power to award licenses personally, without the need of competitive bidding. They claim that under this system there is no security for existing contracts, and no independent, unbiased arbitration if any disputes arise.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com