Foreign firms reject reforms in Nigeria's oil sector

Nigeria's plans to reform its oil industry could threaten billions of dollars of investment if they go ahead in their current form, foreign oil firms in Africa's top energy exporter warned.
Nigeria wants to drastically overhaul its oil sector with legislation to restructure state-run Nigerian National Petroleum Corporation (NNPC) into a profit-driven firm like those in Brazil, Malaysia and Saudi Arabia. In its present draft, the legislation could allow the government to renegotiate old contracts, impose higher costs on oil companies and retake acreage that firms have yet to explore. Two parliamentary panels are holding separate hearings on the bill, giving foreign oil firms their first, and probably last, chance to publicly challenge it.

Basil Omiyi, the head of Royal Dutch Shell in Nigeria and chairman of the Oil Producers Trade Section which represents foreign oil firms, said the industry needed more time to present economic analysis and lay out its case.
"The aggregate impact of multiple taxes, high royalties, loss of incentives under the Petroleum Industry Bill as currently proposed will have a significant negative impact," he told a Senate joint committee.

Mark Ward, managing director of ExxonMobil in Nigeria, said the bill in its current form would mean "all new planned (upstream) projects would be uneconomical", adding Exxon plans to invest $ 60 bn in Nigeria over several years.
Mutiu Sunmonu, Managing Director of the Shell's SPDC unit, said the business regime being proposed would make "future capital investment in deepwater" projects uneconomic.

The far-reaching bill, which has been in planning in some form for more than a decade, has been promoted by the presidency as the answer to problems including funding shortfalls, domestic gas shortages and budget-debilitating fuel subsidies.
Nigeria wants to double its oil output to around 4 mm bpd in the coming years but is struggling to make any headway partly because of financing problems at NNPC's joint ventures with foreign oil firms. Foreign firms can only invest in new projects in proportion with their equity stakes in the joint ventures, meaning that if NNPC fails to come up with its share of the financing, their operations are left woefully underfunded.

Sunmonu said Shell's SPDC joint venture was producing at less than 30 % of its capacity, partly due to unrest in the Niger Delta but also because of the financing problems, and estimated Nigeria had lost $ 47 bn in revenues since 2006 as a result of the shut-in SPDC output alone.
Industry executives say foreign oil firms operating in Nigeria -- which include Shell, Exxon, Chevron and Total -- support the broad aims of the reforms, pointing out that inefficiencies at NNPC limit Nigeria's potential to boost oil output and exploit gas reserves. But they say the legislation was drafted in a hurry without proper consultation and are concerned about the impact the reforms could have on their existing operations, arguing that there needs to be a gradual transition from the current system.