The Nigerian Government plans to rake in N1.03 trillion this year from the sale of some of its stakes in Joint Venture (JV) oil assets and the review of production sharing contracts with private firms, mostly international oil companies operating in the country.The Nigerian Punch newspaper report on Tuesday said that the 2019 approved budget revealed that President Muhammadu Buhari had directed that immediate action be commenced to restructure the joint venture oil assets “so as to reduce government shareholding to not less than 40 percent and that this exercise should be completed within the 2019 fiscal year”.
It added that the proceeds of the oil assets ownership (JV equity) restructuring would constitute 10.1 percent of expected Federal Government’s revenue this year.
“The overall revenue performance in 2018 is only 55 percent of the target in the 2018 Budget partly because some one-off items such as the N710 billion from Oil Joint Venture Asset restructuring and N320 billion from revision of the Oil Production Sharing Contract legislation/terms have yet to be actualised and have thus been rolled over to 2019.
“We have again reflected projected proceeds from oil assets ownership restructuring as revenues for transparency and monitoring. Expected funds have been earmarked to fund critical capital projects as this was not achieved in 2018,” the document said.
The Nigerian oil and gas production structure is majorly split between JV onshore and in shallow water with foreign and local companies and Production Sharing Contract (PSC) in deepwater offshore, to which many IOCs have shifted their focus in recent years.
The Nigerian National Petroleum Corporation (NNPC) owns 55 percent stake in its JV with Shell and 60 percent stakes with others, including Chevron and ExxonMobil.
Under the JV arrangement, both the NNPC and private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.
Under the PSCs, the NNPC holds the concessions, and the contractors fund the development of the deepwater offshore blocks and recover their costs from the production after royalty payments.
The NNPC said in 2016 that it was reviewing existing PSCs “to negotiate more favourable terms and improve the revenue base to the Federation”.
Among the key initiatives aimed at improving the Federal Government revenues is the collection of past-due oil licence and royalty charges which the Department of Petroleum Resources is “now concluding efforts on, according to the budget document”.
It said that given the improved oil prices and production levels, the NNPC “is to immediately commence the recovery of all outstanding obligations, including those due from the Nigerian Petroleum Development Company (a subsidiary of NNPC), which it had agreed to pay since 2017.”
“Mr. President has directed the NNPC to take all possible measures to achieve the targeted oil production of 2.3 million barrels per day,” the document said.
Faced with declining oil revenue, the Federal Government announced in 2015 that it planned to review the PSCs with foreign companies, proposing an increase in royalty rates for terrains beyond 1,000 meters, from zero to three percent, and a royalty rate of eight percent for output of up to 50,000 bpd.
In September 2015, the then Group Managing Director of the NNPC, Dr. Ibe Kachikwu, said the Corporation was set to revisit the fiscal terms of the existing PSCs entered into by the Corporation with some IOCs with a view to seeking favourable benefits for the country based on prevailing realities in the industry.
“We intend to begin the process of the re-negotiation of the PSCs to see what value chain and improvements we can have from these contracts. Some of the contracts were negotiated over 20 years ago and they have since been overtaken by new realities in the industry,” he said.