Deepwater Oil Project Is Uncertain As FG Reviews Contracts

Deepwater Oil Project Is Uncertain As FG Reviews Contracts

The ongoing review of the existing Production Sharing Contracts by the Nigerian National Petroleum Corporation may have added to the uncertainty over proposed deepwater oil projects in the country amid the global drop in crude prices.

Globally, many oil and gas companies have been forced to slash capital spending and suspend some projects as a result of the low oil price environment since 2014.

International Oil Companies including Shell, ExxonMobil and Chevron had, prior to the steep fall in crude oil prices, planned to develop deepwater projects in Nigeria, with Final Investment Decision yet to be taken on many of them.

The nation’s oil and gas production structure is majorly split between joint ventures onshore and in shallow water with foreign and local companies and PSC in deepwater offshore, to which many IOCs have shifted their focus in recent years.

The Energy Information Administration, the statistical arm of the US Energy Department, noted that several planned deepwater projects in Nigeria had been repeatedly pushed back because of regulatory uncertainty.

It said some draft versions of the Petroleum Industry Bill, which suffered setback in two consecutive legislative tenures, had prompted questions about the commercial viability of deepwater projects under the proposed changes to fiscal terms.

The EIA said, “Deepwater projects have typically included more favourable fiscal terms than onshore/shallow water projects, but the PIB, if passed into law, is expected to increase the government’s share of production revenue coming from deepwater projects. As a result of the uncertainty, IOCs have sanctioned (reached a final investment decision) on only one of eight planned deepwater oil projects.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, in a telephone interview with our correspondent, said, “I get where Nigeria is coming from. We need to get more revenue from oil. It depends on how they go about it. If they do it in such a way that the higher payments only kick in when there are higher prices, then it is possible.

“But if we do it in such a way as what is contained in the current PIB, where we just slam a flat rate across all fields, it may not work. If they include some sorts of flexibility in the review, I think it might work. We will get our higher revenue, but not when we want it. But at least, we know that we are going to get it when there are higher oil prices. But then again, those projects will still be able to carry out FID and go ahead.”

According to Oni, the IOCs may push the FID again if they realise that the prices are still not comfortable because some of those fields require above $50 oil for them to break even.

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