Issues, Politics and Commercial Consequences

A Presentation by: Tolulope Aderemi

Table of Content

General Comments.

The 3 ‘W’s of the delayed passage.

What does the Investor really want?

The Politics of its delayed enactment.

Commercial consequences of the delayed passage.

Q & A

General Comments The consolidation of several (sixteen) existing

Legislations;

Philophy was to increase productivity/efficiency in the Industry:

Encourage Deepwater exploration;

Deepening Nigeria’s Reserve base;

Encourage local participation/technical knowledge growth;

Environmental damage compensation;

Promotion of accountability, transparency and building Institutions.

Where are we today? 15 years after the OGIC

conceptualised the PIB, it is still at Committee Stage;

No less that $278 Million spent on acquiring technical expertise to ‘put a Bill together’

No investment (Last oil well was dug in 2011 (3) and 2005 (5)

Increased agitation of statutory ownership of oil (Host Community Fund issues);

Inability to have an increased OPEC quota due to lack of investment fuelled by persistent infrastructural damage to pipelines.

Why are we ‘where we are’?

Personal Interest V. Public Interest;

Change in Strategic assumptions of bargaining (no oil theft, stable price of oil, seeming stability in government);

Change in Political assumptions: Nigerian Parliament now controlled by Two parties, crack within the ruling PDP party etc;

Change in government Personalities (all Presidents, Ministers, Technocrats, Legislators have changed).

What are the issues anyway?

Fiscal Concerns

Introduction of 10% Host Community Fund

Increase in gas tax rates (30%-80%)

Increase in Deepwater Taxes ( from 50%-55%)

Stabilization Clause not protected by the PIB

(e.g. entitlement to ITC)

What are the issues anyway? Cont’d

Non-Fiscals

Early relinquishment of 100% of acreage does not allow for sufficient exploration

Provision for a One-Term Lease renewal of 10 years

Govt Agencies’ ability to resolve disputes (not in line with International Standards)

Domestic Gas Obligations not supported by supply infrastructure and market maturity

Provisions relevant to an Investor

S/N Relevant Provisions

Petroleum Act. Petroleum Industry Bill Comments

1. Oil Exploration License

Licensee has the right to carry out geographical survey and shallow drilling alone and license granted is for 1 year renewable for

another 1 year.

Right to carry out geological, geophysical and geochemical exploration within licensed area to drill core holes not deeper than 150 meters. The license is

for a period of 3 years. Section 175

Oil exploration for a period of 3 years for (geological,geochemical and geohysical) is an improvement from the 2 yrs term under the present Act.

2. Oil prospective License

Provides for Oil prospecting license for a period of 5 years.

Provides for a duration of not more than 5 years (3 initial years, renewable after 2 years) with respect to onshore and shallow waters areas. Then not more 8 years (5 initial, 3 renewal) for deep water areas and frontier acreages. See Section 177

This is an improvement from the present terms. A seperation of Offshore & Onshore terms

Provisions relevant to an Investor. Cont’d…

S/N Relevant Provisions

Petroleum Act Petroleum Industry Bill

Comments

3. Oil Mining Lease Under the Petroleum Act Oil mining leases are granted for a period of 20 years lease.

Under PIB Mining leases is for 20 years. However, there is only one single opportunity to renew for a period of 10 years. Section 184

The Act did not limit the amount of renewals (left at Minister’s discretion). PIB limits number of renewals to 1 yr term of 10 yrs.

4. Relinquishment

The Act provides for a 50% relinquishment after 10yrs of the OML

The Bill provides for 50% relinquishment after conversion to OML, another 50% after 10 years of OML, recovery renewal of 20 years of OML.

There is a justification for the 1st relinquishment.

Provisions relevant to an Investor. Cont’d….

S/N Relevant Provisions

Petroleum Act Petroleum Industry Bill Comments

5. Dispute resolutions

The Petroleum Act made provisions for Submission to arbitration and conciliation act

Inspectorate can make final determination in certain disputes . The bill is silent on referrals to independent entities. See Section 293 (3).

The Inspectorate is not a Tribunal. It further simply raises further complexities.

6. Stabilization clauses.

Clause 19 of the PSC makes provision for the same.

Limited to licenses, leases, and permits which can be retained until expiry. Hence it does not include investment incentives already earned and capital allowance on investments

The reason for industry concern is a little unclear here. The PIB preserves current

Political Considerations

Take note, the Bill CANNOT

be passed before March 28, 2015;

If GEJ returns, Why the rush, anyway?

If GMB emerges new President (possible violence/ further decline in oil prices will drive investors away);

If GMB emerges new President (and no violence),GEJ may hurriedly sign into law the PIB (benefit of the Host Community Fund)

Commercial Consequence(s) of delayed passage

Little or no capital Investment (last 3 drills was drilled about 4 years ago);

Reduced re-current expenditure (facility (ies) maintenance (more Onshore divestments);

Inability to grow production capacity (maintain our 3.2million reserve;both OPEC and Non OPEC quota);

Inability to fully energise the Power Sector;

Decreasing investor confidence in the Power Sector;

Recommendation: A plea to pass the Bill!!!

Pass the Bill in the form that it presently is; Let there be a clearly defined Regulator and Institutions

overseeing the Oil & Gas Sector; Let there be a clarity in the role of government in the

Joint Ventures (whether it remains a JV or an IJV); Let the Niger Deltans know exactly what to expect as

compensation for environmental degradation; Let Businessmen be in a position to take investment

decisions on where to invest in the value chain; IOCs and Government will iron out the insignificant

difference in the tax regime; It is time for potential investors to invest now in Nigeria’s

Oil & Gas Sector now that the assets appear unattractive (oil price decline).

THANK YOU!!