The implementation of the Petroleum Industry Act (PIA) 2021 gained a new milestone at the weekend as the federal government activated new Production Sharing Contracts (PSCs) between NNPC Limited and its partners.
This will fetch the government about 10 billion barrels (bbls) of crude oil and over $500 billion (N209.6 trillion) in monetization over the contracts’ duration across the six Oil Mining Leases (OMLs) the government renewed for 20 years, recently.
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At the initialling of the renegotiated Production Sharing Contract (PSC), Dispute Settlement Agreement (DSA), Escrow Agreement (EA), and Settlement Agreement (SA) in Abuja, the Group General Manager, National Petroleum Investment Management Services (NAPIMS), Bala Wunti, whose subsidiary manages the NNPC oil assets stakes, said: “Today, we are at the verge of making history, the history to resolve all pending disputes in our PSCs with a potential to develop and monetize over 10 billion bbls and potential generate revenue in excess $500bn to stakeholders, and attainment of energy security for the country.”
N148trn earned from oil contracts in 30 years
Since 1993 when the first PSC was initiated, Nigeria has earned over N148trn for major oil fields operating with OMLs from the government; that is nearly 30 years.
According to Wunti, the PSC model was introduced in Indonesia in 1960 for the agriculture sector, but then adopted for the petroleum extraction industry across jurisdictions and countries like Malaysia, Philippines, Libya, Egypt etc. The PSC has now become a major global practice in resource exploitation. The latest countries include Guyana, Mozambique, Mauritania etc.
In Nigeria, the PSCs commenced with the 1993 PSCs, subsequently followed by PSCs in 2000, 2004, 2005, 2007, 2010 etc. According to NNPC Ltd, the PSC in Nigeria was mainly motivated by funding challenges faced by the joint venture arrangements that led to reduction in production and revenue.
“Since its introduction of the PSC into Nigeria’s hydrocarbon production algorithm, over 5.9 billion barrels of oil equivalent has so far been produced and monetized by the various PSCs arrangements. Over the last two decades, the PSCs have commutatively accounted for about 40 per cent of Nigeria’s oil production,” noted Mr Wunti.
At an average of $60 per barrel of crude of oil, Daily Trust on Sunday estimates that the country and its partners could have earned $354bn within 29 years, equivalent to N148.4trn from the monetization of the 5.9bn barrels of oil.
6 oil well leases renewed for 20 years
In furtherance of earnings from fossil fuel for the largely oil-dependent country, the federal government led by President Muhammadu Buhari recently renewed six oil wells leases, known as OMLs. These oilfields which are in the deep waters of the Niger Delta, are OML 125, 128, 130, 132, 133, and 138. Each lease is valid for 20 years and NNPC Ltd along with its contractors renegotiated the PSCs which they signed with three other agreements last Friday in line with the provisions of the Petroleum Industry Act (PIA) 2021 Section 311.
The partners who signed the agreements with NNPC Ltd include, ESSO, Chevron and Total for OML138 (Usan field); ESSO E&P, SNEPCO (Shell) for OML 133 (Erha field); Texaco Nigeria, Equinox Nigeria for OML 128 (Agbami field).
The rest are, Texaco signed a PSC agreement of 20 years with NNPC for OML 132 (Bonga field extension); CNOOC and SAPETRO signed PSC, DSA, EA and SA with NNPC for OML 130 (Akpo and Egina fields) while Agip, Oando signed with NNPC for OML 125 (Abo).
N3.7trn contingency, disputes cleared with new PSCs – Kyari
The implementation of the PSCs in Nigeria was characterized by disputes over the years between the Contractors/Operators and the Concessionaire (NNPC). The disputes stifled investment in major Brownfield and Greenfield Deepwater projects.
However, under the leadership of Group Chief Executive Officer (GCEO) of NNPC Ltd, Malam Mele Kyari, major PSC assets were renegotiated including those of OMLs 119, 125, 128, 130 ,132, 133 and OML 138.
Kyari noted that the new PIA re-engineered the reforms. “The DSA has put aside all contingent liabilities of about $9bn (N3.7trn) reduced to a bottom line that all of us can accept but this wouldn’t have happened if our partners didn’t give us certain rights and obligations.
“With the signing of the DSA and the new PSC, investments will come back,” and there will be more expansion for the petroleum industry.
He also said government is taking massive action on crude oil theft with the security agencies to ensure investments are secured
“As you invest, there is also the guarantee of evacuation,” Kyari assured the investors.
“The execution of the revised PSCs today will deepen investment and development of Nigeria’s rich petroleum resources and ensure that the trifold mandate of the NNPC Ltd to ensure security of energy supply, sustainability of energy supply, and accessibility is achieved,” Wunti added.
Chairman of the NNPC Ltd board, Sen. Margery Chuba Okadigbo, lauded the partners for ending the disputes.
The Commission Chief Executive, Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Engr. Gbenga Komolafe, said, “The nation looks up to the NNPC to lead other indigenous operators, turning our weakness into strength. With the reforms in the new NNPC, it will assume envious positions like Petrobras, Petronas and Saudi Aramco,” as he assured of the regulator’s support.”
The Authority Chief Executive, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, also said the government was addressing crude oil theft issues noting that, “It is one thing to produce and it is another thing to monetize it.”
Also commenting, the Executive Chairman, Federal Inland Revenue Service (FIRS), Mohammed Nami, said: “It is in our interest that this dispute is over. When we have a peaceful atmosphere, we have a conducive environment to collect revenue for the government.”
NNPC Ltd finalizing N1.7tr investments
In anticipation of this history signing of the PSC, NAPIMS, the NNPC Ltd subsidiary managing the oil assets said it has been actively working in collaboration with PSC Contractors to emplace essential Final Investment Decision (FID) parameters for major Deepwater projects including Chevron operated Agbami gas projects, Owowo and Bosi development by ExxonMobil, SNEPCO’s Bonga North and Bonga Southwest Aparo, Bolia-Chota, the Preowei project being operated by TotalEnergies.
NAPIMS said, together with its partners, they are aligned on 2022 as target FID window for the Bonga New oil projects, Bonga North project and the Agbami gas projects.
Cumulatively these brownfield projects will bring FDI of $4bn (N1.7trn) as well as bring additional volume of 170,000 barrels of oil daily and 560 million Squeeze film damping (SFD) of gas. And that is not all, major greenfield projects on BSWA, Owowo, Preowei, and BOAI, among others are targeted to reach FID between 2023 and 2024, noted NAPIMS.
Oil theft: NNPC launches tracker, to reward whistle-blowers
The GCEO of NNPC Ltd, Kyari, also launched a crude oil monitoring system and platform, to enable citizens to contact the company on cases of suspected oil theft and vandal activities around oil communities.
Kyari said crude oil theft has become a critical thing to deal with but that the government is not helpless. He noted that there are still illegal activities in our oil assets like illegal refineries, insertion on oil pipelines, among others though arrests have been made, vessels have been arrested by the Nigerian navy, the armed forces are destroying the illegal refineries.
Kyari also said the government is collaborating with the partners, communities and international sources including countries receiving stolen crude.
“We have created a platform where citizens can report issues of crude oil theft and we will also reward them and protect them,” he stated.
Kyari also stated that the NUPRC is creating a unique identification for all crude being shipped from Nigeria while flagging countries and partners to report crude that they do not know the source. “It is their duty for them to ensure they validate the crude shipment, if not we will believe that their international partners are aiding it and we will take decisive action.”
He further said the platform can track all movement of vessels with navigation tools. “We have curtailed marine oil theft to a large extent but we are still having issues with barges because they do not have the navigation system.”
NNPC Ltd is also working with the Economic and Financial Crimes Commission (EFCC) to follow the cash where there is suspected massive cash flow in the petroleum industry.
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