Nigeria: Operators Demand Stable Fiscal Environment for Oil Sector

Nigeria’s traditional partners in the exploration and production of hydrocarbon resources are calling on the government to install fiscal regimes and congenial environment to ensure the continued survival of the joint ventures that sustain revenue inflow from the sector.

Chairman and managing director of ExxonMobil in Nigeria who spoke for the industry at a strategic conference in Abuja weekend said that only stable fiscal environment, sanctity of contracts, guaranteed returns on investment and securitization of payment would continue to incent investments from international oil companies.

He made it clear that the role of the private sector in the partnership to realize Nigeria’s economic goals through optimum valorization of her petroleum resources would anchor on commercial viability of investments in the local environment.

Business Champion reports that government activated a string of reforms in the industry that threaten to alter deepwater contracts signed on producing fields and commit operators to delivery of gas for the domestic market where prices are regulated.

Government and oil firms in the country have recently taken different positions on the new measures introduced by the state to earn maximum returns from exploitation of the nation’s petroleum resources.

Apart from the directive on oil firms to end routine flaring of associated gas by the end of the year, the industry is also under directives to ensure adequate supply of produced gas to the domestic market to ease out scarcity and enhance economic development of the country.

Also, there is an existing directive on the companies to refine 50 percent of their production locally and export white products from the country to reverse the current trend of massive export of crude oil and massive high cost importation of white products to fuel the domestic economy.

In his opening address at the just concluded Nigerian Oil and Gas conference in Abuja last week, President Umaru Yar’Adua said the industry reforms with associated changes in operating modalities would be enacted into law to give it permanent teeth.

He expressed dissatisfaction with the level of progress made by the industry in driving economic development of the nation in the last 50 years, pointing out that a lot of basic challenges still faced the nation despite hosting a robust oil and gas industry.

“Ours is a story of a nation with abundant oil and gas resources but has stunted growth,” he said, adding that Nigerian content of the industry has remained low while the country still depended on imported petroleum products when the country should meet its fuel needs and export to contiguous nations.

He made it clear that “this situation should not be allowed to continue.”

Similarly, while presenting the details of the reform programme to the conference, the honorary strategic adviser to the President on energy matters, Dr. Rilwanu Lukman, informed the oil companies that their commercial interests should be realigned to drive national aspirations in the industry.

On his own, the Director of Department of Petroleum Resources (DPR) Mr. Tony Chukwueke, made it clear that government would review a set of Production Sharing Contracts (PSCs) signed with the oil companies in the past to reflect the current market value of crude oil.

He said the review of the agreements would be urgent in order to avoid further revenue losses to government as production and export go on daily at offtake sites operated by the oil majors.

Earlier in a chat with newsmen in Lagos, the new managing director of Shell, Mr. Mutiu Sumonu, said most of the requirements on the operators were issue of investment decision rather than mandatory requirement.

In responding to issues on the radical reforms in the industry, Mr. Chaplin noted the reforms have posed an exciting and challenging time for the energy industry in the country, adding that what makes the transformation so important is the opportunity for economic growth for Nigeria that can be achieved by ‘getting this transformation right.’

He emphasised the need for government to recognise its roles in providing stable fiscal and regulatory frameworks, access to resources and allowing markets to operate freely.

“Countries that want to expand or develop their energy industry and compete globally for investment capital must have these elements in place to allow them to compete,” he maintained.

He added other congenial requirements to include non-discriminatory administration of laws and regulations; impartial dispute resolution; minimising obstacles to building or operating facilities; minimal import or export restrictions; freedom to negotiate commercial arrangements; and sanctity of contracts.

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