After 29 Years, NNPC Renews Production Contracts with Partners, May Unlock $500bn Revenue, $4bn FDI for Nigeria

Emmanuel Addeh in Abuja

The Nigerian National Petroleum Company Limited (NNPCL) and its partners yesterday signed renewed Production Sharing Contracts (PSCs), in a deal that could potentially boost Nigeria’s oil production substantially.

Aside from the PSCs, other subcontracts at the event, which took place at the NNPCL headquarters in Abuja, included Dispute Settlement Agreements (DSAs), Settlement Repayment Agreement (SRAs), as well as Escrow Agreements.

Parties to the contracts, which saw the Group Chief Executive Officer, Mallam Mele Kyari, sign on behalf of the NNPCL, were: Total Energy, Chevron, Shell Nigeria Exploration and Production Company (SNEPCO), Esso Exploration and Production Nigeria Limited, China’s Sinopec, Equinor, Sapetro, among others.
The hitherto disputed five Oil Mining Leases (OMLs) which had lingered for almost 30 years, included 128, 130, 132, 133, and 138. But with the resolution of all pending issues, the assets are expected to unlock over $500 billion in revenue for the country, attract Direct Foreign Investment of around $4 billion and put an end to a continent liability of about $9 billion.

At the official signing ceremony, Kyari underscored the enormous losses, both in cash and goodwill that had ensued in the course of the dispute, but noted that with the matters finally settled, there would now be a boost in production.
“As you all know that in businesses, disputes are inevitable, disagreements always come when there’s no clarity of understanding of the agreements that businesses go into.

“Very often this is also complicated by laws that may not carry the necessary clarity that is required for businesses to go into contracts. And that’s how we landed in the 1993 PSC debacle. It became a major issue for all of us in the space leading to arbitration and all forms of litigation.
“And of course, as you do this, it does two things. It damages relationships, and more than anything, it stifles investment. That’s exactly what that situation brought to the table,” Kyari said.

With the signing of the Petroleum Industry Act (PIA), Kyari stated that the right environment now exists for all parties, noting that the PSCs have better clarity with minimum ambiguities.

“We will have clearer agreements in a new PSC that must have recognised all issues that we have in the 1993 PSCs, and those clarities are there. All ambiguities have been reduced to a minimum. Of course, you can never take out ambiguities from the contacts,” he added.

During the second leg of the event, which was the launch of an application to monitor Nigeria’s oil assets real time, Kyari stated that he was personally overseeing a new approach to curbing oil theft which will also see the NNPCL reward in cash persons who report cases of oil theft and sabotage through a new platform created by the national oil firm.

He vowed that the confidentiality of such persons would be kept under wraps, stressing that he was superintending over the process in person to ensure that things are done in full confidence.

“What you have learned within the last four years is consistent underinvestment by partners, including us, leading to where we are today. No doubt that issues around vandal actions on our infrastructure, particularly our pipelines, have become a very difficult thing to deal with.

“But we’re not helpless. As an industry, we are collaborating to ensure that we respond to the situation and this also we cannot do without the government’s involvement, particularly the security agencies, and also members of the communities.

“We have put up a robust framework for ensuring that we contain this menace and we’re already seeing the results. Needless to say that there are still ongoing activities of vandals and oil thieves on our assets in the form of illegal refineries that are visibly put up in some locations,” he stated.
Kyari stressed that the TNP, one of the most vulnerable assets in the Niger Delta, was being pulled back, explaining that Nigeria’s crude is being refined illegally outside the country.

He noted that henceforth, any nation that buys illegal crude from Nigeria will be treated as crime collaborators, maintaining that action will be taken appropriately.
“We have created a platform where members of the communities and other Nigerians can report whenever instances of theft occur. We will also reward them. We’ll also keep it confidential and private.

“And I am guaranteeing absolute privacy of any such report that comes and I am directly managing this process and no one will be exposed,” he assured.
Also speaking, the Group General Manager, National Petroleum Investment Management Services (NAPIMS), Bala Wunti, recalled that PSCs started in Nigeria in 1993 and were subsequently followed by the ones in 2000, 2004, 2005, 2007 and 2010.

He stressed that the PSC in Nigeria was mainly motivated by funding challenges faced by the joint venture arrangements that led to reduction in production and revenue.  
“Since the introduction of the PSC into Nigeria’s hydrocarbon production algorithm, over 5.9 billion barrels of oil equivalent has so far been produced and monetised by the various PSCs arrangements. Over the last two decades, the PSCs have cumulatively accounted for about 40 per cent of Nigeria’s oil production,” he stated.

However, he said the implementation of the PSCs in Nigeria was characterised by disputes over the years between the contractors/operators and the concessionaire (NNPCL).

“The execution of the revised PSCs today will deepen investment and development of Nigeria’s rich petroleum resources and ensure that the trifold mandate of the NNPC Ltd to ensure security of energy supply, sustainability of energy supply, and accessibility is achieved,” he stressed.
Cumulatively, he said that the brownfield projects would bring about $4 billion in Foreign Direct Investment (FDI), as well as bring additional volume of 170kbbls/d of oil and 560MSFD of gas.

“Today, we are on the verge of making history, the history to resolve all pending disputes in our PSCs with a 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,” Wunti added.

Also speaking, the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Mr. Gbenga Komolafe, expressed his support for the efforts by the NNPCL, stressing that the goal was to ensure the NNPCL competes favourably with the best-run oil firms worldwide.
“The nation looks up to the NNPCL and the NNPCL should lead in turning our weaknesses into strengths and we are very confident that as a regulator, the NNPCL is fully prepared to lead operators.

“With the reports that we see happening with the new NNPC, in no time, it will have a presence expanding its portfolios like Petrobas and Aramco,” he noted.
Chief Executive of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Mr Farouk Ahmed, in his comments, stressed the need to devote more attention to the exploration of Nigeria’s gas resources.

Key government officials who attended the event included the Chairman of the NNPCL Board, Margery Okadigbo; 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, among several others.
PSCs are contracts between E&P and the government concerning how much of the resource extracted from the country each will receive and how much each will contribute to production.