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Nigeria’s Oil Industry Threatened by Petroleum Industry Bill

Nigeria’s Oil Industry Threatened by Petroleum Industry Bill

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
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

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  • Emmanuel Kuza on March 02 2015 said:
    Beside the fiscal interest that surround the proposal/opposition of this Bill, I am worried by the irreparable environmental damage done to the ecosystem by the activities of petroleum companies. Gas flaring have continued unabated over the years despite several legal frameworks to regulate oil exploitation in Nigeria. Today, we have oil spillages here and there and gas flaring in staggering proportion. I got scared when I discovered that Nigeria is the 2nd (with Russia as the 1st) largest contributor to the depletion of the ozone layer through emission of green House Gases. The fishing and farming occupation of the people of the Niger-Delta region are being destroyed in increasing proportions on daily basis. I feel that there is serious need for international cooperation in order to save our ecosystem. It is not all about the money that can be paid as revenue by the oil companies to the government of Nigeria or the host communities. The Federal Government and the Oil multinational companies should form a synergy to end this environmental terrorism. The other countries of the world must partner with Nigeria in this matter because the adverse effect will affect the other parts of world. This is a RED NOTICE to all environmental activists. Uncontrolled gas flaring is tantamount to ecocide.
  • Paula Igwe-Chinwo on March 19 2014 said:
    according to the minter of petroleum, the bill will help Nigeria have better control of its natural resources, get more benefit and help develop other parts of the economy.
    but from stating the obvious, the state of the economy in Nigeria is not as a result of low oil revenue profit or lack of fund, but rather of lack or proper management of the oil wealth, therefore regardless of an increased fiscal measures, the economy is neither here or there, until there is reform with the government monitoring scheme of the funds, restructure of governance, restructure of corporate governance in the NNPC, and yes it is necessary to ensure high profit from our natural resources, but when the Bill can potentially deter foreign investors,and not commercially viable, then there is need to ensure consistency in investment growth.
    the IOCs can restructure their funding method by alternative project finance, whereby they operate under an EPC/TURNKEY contract, and as sponsors, they need to align their interest with the state and its financial bodies, make a move for a none recourse loan whereby they can seek to incorporate the local banks as lenders to the project, the government as secured off-takers with guarantees, and then subsequent syndicate loans from other government agencies within the country in which the government still stands as guarantee to such loans. by doing this, they lower risk in investing in such hostile market with large uncertainty of payments from the state. the IOCs need to involve the state and its economical entities to reinvest in their own county, there is money in Nigeria to actually execute such project, but where they keep depending on multinationals to develop their resources, the development will continue to stagger as the IOCs are there for profit.
    Nigerian government need to engage its entrepreneurs, rich citizens who want to invest and have shares in the company, the IOCs should indigenous their companies, allowing Nigerians to have major share, that way, the wealth remains in the country, create more job opportunities, allow for small business to grow, train more people to be skilled enough to take over the oil industry after a while. we cannot depend on foreign investors when we do not bother to develop our human resources.
  • Andy on March 16 2014 said:
    With regard to the seemingly harsh fiscal aspects of the PIB I agree there is a strong need for development in all aspects of the country's infrastructure. From this perspective alone, these proposals appear positive. Nigeria desperately needs to diversify its economy and shift the focus from oil. If other sectors like solid minerals and agriculture got equal attention then it is possible that oil sector losses over time might not be felt. Nigeria is a large country with complex social political and economic issues. Billions of dollars have been earned since the 1950s yet poverty abounds throughout the country. In fact 62 percent of citizens in the country live below the poverty line. The retreat of multinationals might not be such a bad thing! There is nothing encouraging about the proposed power of the President to award licenses without competitive bidding...definitely a no! no!

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