Shell Petroleum Development Company (SPDC)has faulted the recent decision of the Federal Government to demand a refund of about $1.9billion from it and ExxobMobil subsidiary, Esso Exploration and Production Nigeria (EEPN)over the execution of two deepwater projects in Nigeria.
President Umaru Yar’Adua recently directed that the relevant government agencies in charge of collection of revenues from oil operators in the nation’s oil and gas industry should take steps to recover the money from the two being revenues and taxes from two deepwater projects, Bonga and Erha executed by them respectively. But, Shell at the weekend faulted the directive, arguing that the decision to retroactively recoup revenues from oil and gas companies may deter investments in the nation’s petroleum industry.
Under production sharing contracts (PSCs)signed between the Nigerian National Petroleum Corporation (NNPC), which represents the Federal Government’s interest in all the joint venture operations in the nation’s oil and gas industry, the companies were exempted from sharing revenue until the full cost of investment was recovered.
“We would like to reinforce that following recent statements relating to retroactive changes to fiscal terms, we are very concerned about the future potential implications for investor confidence in Nigeria. We operate our business in full compliance with the laws and regulations of the country,” Shell said in a statement to Bloomberg news service, though it denied receiving any official information about the directive.
Part of the dispute centres on the development of the Bonga oil field, which Shell estimated in 2005 had a recovery cost of $3.6 billion, though government believes the company has already recovered the full cost of its investment on the project, which began production in 2005. The field is forecast to export almost 200,000 barrels per day in June.
The Federal Government has been under pressure to fund investments in the nation’s oil and gas industry over the last decade, with the present administration considering fresh strategies to take care of the short fall in funding of joint venture upstream operations.
Recently, it unfolded a plan to get review the terms on deepwater production contracts, many of which were signed during the 1990s when oil prices were below $20 per barrel.
Unlike agreements involving onshore projects, oil companies were not expected to go into joint venture operations with the government.
Crude oil for July delivery rose as much as $1.46 per barrel, or 1.1 percent, to $133.65 a barrel on the New York Mercantile Exchange (NYME)at the weekend. Prices have more than doubled over the past year and last week breached $135 a barrel.
An analyst, who observed that the present price level was not what anyone envisaged when the PSCs were signed, noted: “This is very symptomatic of the times, with Nigeria trying to get a bigger slice of
Shell Chief Executive Officer, Jeroen van der Veer said in January that the company must cope with producing nations’ demand for enhanced terms when negotiating energy deals.
The Shell/NNPC joint venture has been the worse hit by high incidence of production shut-in as a result of the growing activities of armed militant groups that have been attacking oil installations in the Niger Delta.
Output of about 496,000 barrels per day has been cut from the joint ventures operations since February 2006 when the Movement for the Emancipation of Niger Delta (MEND)launched its campaign to drive away multinational oil companies from the oil rich region.