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FG Retains Existing PSC Terms in New PIB

FG Retains Existing PSC Terms in New PIB

 
 

Emmanuel Addeh in Abuja

The federal government is seeking to retain the same Production Sharing Contract (PSC) terms, signed into law in 2019 by President Muhammadu Buhari, in the new Petroleum Industry Bill (PIB) before the National Assembly.

The PSC Amendment Act christened “Deep offshore and Inland Basin PSC Amendment Act, 2019,” introduced a combined production and price-based royalty system to replace the production-based royalty system, which varies according to areas of operations.
Like the existing law, the new proposed royalty regime in the PIB specifies a baseline royalty of 10 per cent for crude oil and condensates produced in the deep offshore (greater than 200 meters of water depth) and 7.5 per cent for the frontier and inland basin.

 

On royalties based on production, the bill pegged it per centum of the chargeable volume of the crude oil and condensates produced from the field area in the relevant month on a terrain basis.

The PIB indicated that for onshore areas, it will be 18 per cent, shallow water-up to 200-meter water depth (16 per cent), deep offshore (greater than 200 metres water depth- (10 per cent) and frontier basins were put at 7.5 per cent .

For royalties for onshore fields and shallow water fields, including marginal fields, with crude oil and condensate production not more than 10,000 barrels oil equivalent per day (Bopd), the bill noted that for the first 5,000 bopd , it will be five cent while for the next 5,000 bopd will be 7.5 per cent.

Aside from the baseline royalty arrangement, a royalty based on the applicable price of crude oil, condensate, and natural gas will apply, when the price exceeds $20 per barrel.
It said: “There shall be payable, in addition to the royalty set out in paragraph 10 of this schedule, for onshore, shallow water and deep offshore a royalty by price with respect to crude oil and condensates at the rates set out – from $0 up to $20 per barrel (0 per cent), above $20 and up to $60 (2.5per cent), above $60 and up to $100 (four per cent), above $100 and up to $150 (8.0 per cent) and above $150 (10 per cent)

It continued: “Below $ 50 per barrel (0 per cent), at $ 100 per barrel ( five per cent) , above $ 150 per barrel (10 per cent).
“Between $50 and $100 per barrel and between $100 and $150 per barrel the royalty by price shall be determined based on linear interpolation. As an example if in 2020 the price is $ 75/bbl, the royalty by price shall be 2.5 per cent)

 

It added that at the beginning of 2021 and of each succeeding calendar year, these price levels shall be increased by two per cent relative to the values of the previous year, stressing that: “There shall be no royalty by price for frontier acreages”.
However, in contrast to the framework currently in operation in the industry, the new Petroleum Industry Bill (PIB), when passed, will introduce a new model which will involve the establishment of Incorporated Joint Ventures (IJV), in oil exploration and production in Nigeria.

The IJV model which is expected to encourage healthy growth in the energy sector will replace the extant JV agreements, which are merely basic contracts between the Nigerian National Petroleum Corporation (NNPC) and the privately-owned oil companies.
It involves both the corporation and the oil companies contributing to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.

But, the PIB’s incorporated joint ventures will see the creation of a new company through which the venture will be operated, while the parties involved will be shareholders of the new company as well as appoint its directors.
Generally, the IJV model will provide better asset protection to the parties concerned as the liabilities of the venture will usually be contained in, and limited to, the JV company, rather than being borne directly by the parties directly.

As an unincorporated arrangement, each co-venturer has an undivided interest in the lease as well as all oil produced and the assets employed in oil production and currently account for more an estimated 90 per cent of the country’s daily oil production.
According to the general provisions of the second Schedule (sections 54(7) and 65(1) of the new PIB currently before the national assembly, under the principles of negotiating IJVs, each incorporated joint venture company shall be formed under the Companies and Allied Matters Act (CAMA).

It stated that all NNPC Limited ( the company to be formed from the existing one), shall enter into negotiations with the other parties to such existing joint operating agreements with a view to, among other things, agreeing and executing a shareholders’ agreement in respect of the applicable incorporated joint venture company to carry out upstream, midstream and downstream petroleum operations.

While the IJV shall at all times be the operator of petroleum operations under each petroleum prospecting licence and petroleum mining lease that it holds, however, the PIB indicated that it may not enter into any contract or group of contracts which would have the effect of transferring, directly or indirectly, any of the functions as operator except with the approval of the commission.

On special provisions relating to IJV, the PIB stated: “No incorporated joint venture company shall be subject to the provisions of the Fiscal Responsibility Act and the Public Procurement Act.

“Once incorporated, the following provisions shall apply to each Incorporated joint venture company-prior to any sale of shares in an incorporated joint venture company by any shareholder (other than NNPC Limited) of such incorporated joint venture company, such shareholder shall first offer such shares for sale to NNPC Limited at fair market value and on commercially reasonable terms.

“Each incorporated joint venture company shall have its head office and main operational offices in Nigeria. Each incorporated joint venture company shall have a board of directors to be appointed by the shareholders of the incorporated joint venture company,” it stated.

Source:- https://www.thisdaylive.com/index.php/2020/10/12/fg-retains-existing-psc-terms-in-new-pib/