Govt Owes Multinationals $10b in Crude Oil Over-lift

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  • Govt Owes Multinationals $10b in Crude Oil Over-lift

The Federal Government through the Nigerian National Petroleum Corporation (NNPC), is owing International Oil Companies (IOCs) about $10 billion in unpaid crude oil over-lift bills, The Nation has learnt.

The huge debts build-up in the last few years, were as a result of over-lifting of crude oil due to the government as royalty from the oil fields. It was learnt that the NNPC that superintends government’s interests in these oil acreages, often comes to these facilities with vessels to lift crude with a promise to reconcile the transactions with the operating companies, but in most cases, it never did.

A source who spoke on condition of anonymity, said the oil majors in Nigeria have been battling this problem over the years, saying the worrisome aspect of the issue is that the crude oil being lifted comes from oil fields developed under the Production Sharing Contracts (PSCs) arrangement.

Under this arrangement, the oil firms bear the total risk of exploration and development. When the field begins production the oil firm, depending on agreed terms, pays royalty to the government with oil. The royalty oil is the quantum of oil allocated to the NNPC that will generate proceeds equal to the actual royalty payable each month and the concession rent payable each year.

The source stated that in the PSC arrangement, government and operating companies committed to settling any issue that may arise through an arbitration panel where three lawyers would be present each representing the government or NNPC, the oil firm and, the remaining, an independent lawyer.

He said the government always abandons the decision of the arbitration panel and goes to a local high court to get judgment in its favour. “This is bare-faced bullying. How can the government flagrantly disregard contractual agreements, send a vessel to lift oil without considering the operator of the asset. They (government) will ask you to go to arbitration and will refuse to abide by the judgment of the arbitration panel.

“This attitude of the government is a major disincentive to investment in the oil and gas industry. Imagine where a company sources funds, takes the entire risk of exploration and if eventually oil is found, takes the entire risk of developing the field in challenging environments such as deepwater. This happens only in this country and I must let you know it is a major constraint to attracting global investible funds into this country.

“We all know other existing challenges in operating in this environment such as militancy, joint venture funding issues and the current state of the global oil industry. We hope this administration will address this issue of crude over-lift, among other problems,” the source said.

When The Nation contacted the Group General Manager, Group Public Affairs Division of NNPC, Mr Ndu Ughamadu, for comments, he said the issue was channelled to the appropriate department of NNPC for response and the division said it is untrue. He said: “The appropriate unit said it is not true.”

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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