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NNPCL and Its Partners Renew Production Sharing Contracts After Almost 3 Decades

by admin
August 13, 2022
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In a contract that has the potential to greatly increase Nigeria’s oil production, the Nigerian National Petroleum Company Limited (NNPCL) and its partners recently renewed Production Sharing Contracts (PSCs).

Subcontracts such as Dispute Settlement Agreements (DSAs), Settlement Repayment Agreements (SRAs), and Escrow Agreements were also signed at the ceremony, which took place at the NNPCL headquarters in Abuja.

Total Energy, Chevron, Shell Nigeria Exploration and Production Company (SNEPCO), Esso Exploration and Production Nigeria Limited, China’s Sinopec, Equinor, Sapetro, and many more were all signatories on contracts that NNPCL Group Chief Executive Officer Mallam Mele Kyari signed on the company’s behalf.
The disagreements over Oil Mining Leases (OMLs) 128, 130, 132, 133, and 138 have been going on for nearly 30 years. Nevertheless, if all outstanding concerns are resolved, the assets are forecasted to release over $500 billion in revenue for the country, draw Direct Foreign Investment of roughly $4 billion, and end a continent-wide liability of about $9 billion.

At the signing ceremony, Kyari emphasized the huge financial and reputational losses that had occurred throughout the disagreement, but he also underlined that now that everything was settled, output will increase.
“As you are all aware, conflicts arise in business and disagreements occur whenever there is a lack of clarity in the agreements entered into by businesses.

When it comes to firms entering into contracts, “very often this is additionally complicated by regulations that may not convey the necessary clarity that is required. Hence, the PSC fiasco of 1993 occurred. It escalated into a serious problem for everyone in the sector, leading to widespread litigation and arbitration.
You’re accomplishing a double effect with this action, by the way. It’s detrimental to relationships, and it discourages investment more than anything else. Kyari explained that this was the result of the circumstances.

Kyari said that the PSCs have better clarity with few uncertainties thanks to the signing of the Petroleum Industry Act (PIA).

A new PSC must have recognized all of the problems that have arisen since the 1993 PSCs, but the solutions are already included into the document. Almost all of the gray areas have been eliminated. No matter how carefully you read the contacts, there will always be room for interpretation, he said.

At the event’s second part, the unveiling of an app to monitor Nigeria’s oil assets in real time, Kyari announced that he was personally overseeing a new method to preventing oil theft, in which the NNPCL would financially reward citizens who reported instances of oil theft and sabotage using the app.

He assured them that their privacy would be respected, and he emphasized that he would be personally supervising the process to guarantee its secrecy.

Over the past four years, you have learnt that partners, including ourselves, have consistently underinvested, which has led us to our current state. It’s undeniable that vandalism against our infrastructure, and especially our pipelines, has become a major problem.

We aren’t completely helpless, though. We need the help of the government, notably the security authorities, and members of the communities to respond effectively, and thus businesses across the country are working together to that end.

We have a solid system in place to keep this threat at bay, and it’s beginning to pay off. Vandals and oil thieves are still actively targeting our assets, he said, adding that illegal refineries can be easily spotted in some areas.
Kyari emphasized that the TNP was being withdrawn, calling it one of the Niger Delta’s most vulnerable assets, and he explained that Nigeria’s petroleum was being refined illegally outside the nation.

He warned that from now on, any country that purchases illegal crude oil from Nigeria would be considered a criminal ally, and that necessary action would be taken against such a country.
Communities and other Nigerians now have a central location to report theft incidents. We’ll provide them incentives as well. The information will be treated as strictly private and confidential by us.

Since he was in charge of the entire operation, he could promise that no one would be revealed even if they came forward with a tip.
Bala Wunti, group general manager of NAPIMS (National Petroleum Investment Management Services), also spoke, noting that PSCs in Nigeria began in 1993 and were followed by additional ones in 2000, 2004, 2005, 2007, and 2010.

He emphasized that the primary impetus behind the PSC in Nigeria was the decrease in output and revenue that resulted from the finance difficulties experienced by the joint venture arrangements.
Over 5.9 billion barrels of oil equivalent has been produced and monetised under the various Production Sharing Contracts (PSCs) arrangements in Nigeria since the PSC was included into the country’s hydrocarbon production algorithm. “The PSCs have been responsible for roughly 40% of Nigeria’s oil production over the past two decades,” he said.

But he also noted that disagreements between contractors/operators and the concessionaire had plagued Production Sharing Contracts (PSCs) implementation in Nigeria (NNPCL).

The NNPC Ltd’s threefold objective of ensuring security of energy supply, sustainability of energy supply, and accessibility will be realized with the execution of the updated PSCs today, he emphasized.
He estimated that the brownfield projects would bring in an additional 170 kbbls/d of oil and 560 MMscf/d of gas, as well as an accumulated FDI of almost $4 billion.

Wunti continued, “Today, we are on the brink of making history, the history to resolve all pending disputes in our PSCs with the potential to develop and monetise over 10 billion bbls and potentially generate revenue in excess of $500 billion to stakeholders, and attainment of energy security for the country.”

Mr. Gbenga Komolafe, CEO of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), also spoke, lending his support to the NNPCL’s efforts and reiterating the aim of bringing the NNPCL into competitive parity with the world’s best-run oil companies.
We are extremely certain that the NNPCL is well qualified to lead operators in its role as a regulator, and the nation looks to the NNPCL to set the example.

It won’t be long before the new NNPC joins the ranks of Petrobas and Aramco in terms of global influence, he said.
In his remarks, Mr. Farouk Ahmed, chief executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), emphasized the importance of investing more time and money into exploring Nigeria’s gas potential.

Attendees included several high-ranking government officials, such as the Executive Chairman of the Federal Inland Revenue Service (FIRS), Mohammed Nami, and the Chief Financial Officer (CFO) of the National Oil Company, Umar Ajiya.
Production Sharing Contracts (PSCs) are agreements between E&P companies and governments specifying the percentages of extracted resources that will be shared between the parties.

Tags: Production Sharing Contracts
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