NG News: PSC Review - FG Issues Notice, to Withdraw All Oil, Gas Bills
Leadership (Abuja)
14 November 2007
Kayode Ekundayo
Abuja
The federal government is set on withdrawing all oil and gas bills related to gas exploration and production in the country which are currently before the National Assembly so as to give room for the review of Production Sharing Contracts (PSCs) with oil companies operating in the country.
Director of the Department of Petroleum Resources (DPR), Mr. Tony Chukwueke, who disclosed this at the 25th annual conference of the Nigerian Association of Petroleum Explorationists (NAPE) yesterday in Abuja, stated that all the blocks awarded under the 1993 PSC did not take gas production into consideration, adding that there was the need to review the contracts.
Already government had given notice to oil companies on the planned review of PSCs to ensure that government maximizes benefits from gas.
Chukwueke said the idea of reviewing the PSCs as part of the restructuring of the oil and gas sector was to provide more incentives to the operators.
PSC is a contractual relationship between a multinational oil company and the federal government through the Nigerian National Petroleum Corporation (NNPC), in which the company provides capital investment in exchange for control over an oilfield and access to a large share of the revenues from it.
Under the PSC arrangement, the company bears all costs of exploration and production and recoups its fund from crude oil produced from the field. However, such costs cannot be refunded if no oil is found in the field.
However, the cost of exploration and production is recovered from the sale of crude oil, after deducting tax, royalty and concession rentals, as well as capital investments and operating costs incurred by the company.
The profit is shared between the NNPC and the contractor in an agreed proportion.
Statoil, SNEPCO, Esso, Elf, Nigerian Agip Exploration Limited, Addax, and Conoco Philips are operating PSC in the country. Other companies include Petrobras, Star Deep Water, Chevron, and Oranto Phillips.
Chukwueke noted that as part of the new measure, offshore gas would target local market for power generation and other domestic uses, while offshore gas would be exported under the Liquefied Natural Gas (LNG) projects.
He also said that when withdrawn, all the gas bills which were before the National Assembly would be consolidated. One of them is the bill to provide for a separate legal and regulatory regime for the downstream gas sector, distinct from the upstream gas.
The bill will unbundle the Nigerian Gas Company (NGC) into the Nigerian Gas Transport Company and the Nigerian Gas Marketing Company.
The DPR boss observed that the absence of separate and distinct legal framework for the gas sector had discouraged investors from the sector.
Chukwueke also advised operators not to resist these new measures as they initially resisted government's alternate funding arrangement.
According to him, when the government introduced the alternative funding arrangements, the operators rejected it, but today this arrangement is helping the companies to source for funding, pending the release of cash calls by the NNPC.
On the January 2008 zero flare deadline, Chukwueke noted that it was oil companies that chose the date, and he maintained that there must be a penalty for failure to meet the deadline.
In his remarks, the minister of state for energy (gas), Chief Emmanuel Odusina, described the country as a gas province with little oil. He disclosed that the country's economy would be driven by gas in the next six years.
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