Fears Nigeria bill could stifle plans: Concern new planned legislation could harm bid to revive oil and gas sector
(Interview granted to Uptream - International Oil & Gas Newspaper 26 November '10)
Concern is mounting among Nigerian professionals that the proposed Petroleum Industry Bill could obstruct government plans to increase deep-water production and revive onshore investments in the Niger Delta.
Royalties in the deep-water
sector are currently non-existent, but as the bill stands they will start at 5% after 25,000 barrels per day and 25% after 50,000 bpd, said Humphrey Onyeukwu, an oil attorney advising the industry and an associate of Lagos law firm Aelex.
“This envisaged price-based royalty increases incrementally from 0% to 25% starting at $70 per barrel with a price cap of $150, so that when you combine deep-water fields with high oil prices the maximum royalty accruing to the state will be 50%,” he added.
“That’s a clear way of capturing windfall profits and increasing government take upfront on profitable new fields.”
Calculations derived from projections of medium-sized deep-water oilfields with oil prices about $75 per barrel reveal that under fiscal changes proposed under the bill, the government take would increase from an average of 73% presently to closer to 82%.
The bill also foresees separate production sharing contracts for condensate development and also gas PSCs which, despite supposed deep-water incentives, may deter major companies that do not want to apply for a new gas licence, arguing that overall costs will increase substantially due to new bureaucratic processes.
No major oil company has signed the Sharers’ Agreement, which must be in place to activiate the Gas Aggregator, designed to pool gas resources for the domestic consumer.
“It’s a worry... because of the obligation to earmark an ascribed portion of gas reserves for domestic consumption and if they cannot meet that obligation then they cannot export,” said Onyeukwu.
Another concern is how replacing investment tax credits with production allowances limited to marginal oilfields
and new gas developments will hit finances.
Lagos-based Schlumberger consultant Mobola Oke suggested these are primarily meant to support anti-gas flaring initiatives.
The tax credit issue is especially controversial because it underpins ongoing disputes over unpaid back taxes, for which several major companies are in contention, said Onyeukwu
The new rules would also ostensibly disallow financing charges and impose an 80%
cap on expenses that are incurred outside Nigeria for tax deductions.
HUMPHREY ONYEUKWU: A BRIEF PROFILE
Humphrey Onyeukwu is an associate at AELEX- a full service commercial and litigation law firm with a presence across West Africa. He works as a corporate lawyer with substantial legal experience and a bias for taxation and corporate fraud detection and focuses his work on oil and gas, strategy and planning, contract drafting and tax managment. Humphrey is also the President of The Lagos Oil Club- an association for the advocacy of views on all aspects of petroleum and other energy resources relating to Nigeria and the world in general. In his spare time, Humphrey volunteers ass a Consultant for The Cranfield Trust- a nationally respected charity in the UK providing free management consultancy for charities and social enterprise groups. An alumni of the Centre for Energy, Petroleum, Mineral Law and Policy (CEPMLP) LL.M. Petroleum Taxation & Finance- University of Dundee- Scotland, Humphrey is poised to be a voice to reckon with and an authority in Petroleum taxation. His dissertation work focused on :"Fiscal regimes in a volatile price era: What options exist for balancing the interest of the Resource Country and Investor Company" and his research outcome was selected for presentation at the International Oil & Gas Conference and Exhibition in China (IOGEC) 2010.
Ladies and Gentlemen, doff your hats to the man of the moment; Mr. Humphrey Onyeukwu!!!
Congratulations to this CEPMLP Alumni who is going places. It was a pleasure to have interacted with Humphrey...his intellect is wide. May he continue to grow from strength to strength.
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