* Law change could shave more than $50 billion in
investments
* Royalty added even after hours-long meeting with oil
companies
* Required review every 5 years injects uncertainty
By Libby George
LAGOS, Oct 30 (Reuters) - The Nigerian government has
fast-tracked a law that would render billions in planned
offshore oil investments unprofitable and cut nearly 30% from
potential offshore output, an industry group said.
The measure, which aims to add some $1.5 billion to
government coffers in just two years, is the latest to target
additional cash from offshore oil and comes as the government
pursues a record $34 billion 2020 budget. Oil company representatives fought aggressively to soften
the changes; but after an hours-long closed door meeting with
Nigerian lawmakers, they added an extra royalty, an industry
source told Reuters, making it even more damaging for companies.
The measure passed through the legislature in a matter of
weeks, an unusually quick pace for a country that has had a
petroleum industry bill pending for more than a decade.
The House of Representatives this week signed off on the
bill the Senate sent, and it is now on its way to President
Muhammadu Buhari for signature.
The president's office declined to comment. A bill signing
could be delayed as Buhari is out of the country for the next
several weeks.
Majors are already fighting a surprise $62 billion bill for
offshore oil projects that the government delivered early this
year. Industry group Oil Producers Trade Section (OPTS), which
represents oil companies that produce 90% of Nigeria's oil and
gas, said this proposed law change, and the regulatory
uncertainty it will create, could significantly undermine
profitability for the projects, including behemoth fields such
as Shell-operated Bonga and Total's Egina.
It expects the changes to the law to slash future offshore
production by 27% to 2023, cut $55.5 billion from investment
over the lifetime of deepwater projects and remove some $10.4
billion in potential government revenue by 2030.
"This is not in line with FGN's objective to grow the
economy," OPTS said in a detailed analysis of the measure sent
to Nigerian lawmakers.
It added that the changes would be "almost equivalent to no
new (deepwater) projects being viable."
The president's office declined to comment, saying it was
for the legislature to weigh in. None of the senators or house
members contacted by Reuters would comment on the oil companies'
concerns.
TAX NOW, OR 'GROW THE PIE'?
Offshore oil projects are among the most expensive,
difficult and time-consuming for companies to develop. They have
also added significant amounts of much-needed oil output in
Nigeria in recent years - with Egina alone adding 200,000
barrels per day (bpd). Nigeria's deepwater output has grown from nothing at the
beginning of the century to 780,000 bpd in 2019, a significant
chunk of Nigeria's roughly 2 million bpd of total production.
The now-approved bill would change the 1993 Deep Offshore
and Inland Basin Production Sharing Contract to add two new
revenue streams. One is a flat 10% royalty on for all projects
over 200 meters deep, and a 7.5% royalty on frontier and inland
basins.
The second is a price-based royalty that would kick in when
oil prices went above $35 per barrel and increase as prices
rose.
The bill also would require the underlying law to be
reviewed every five years. Offshore projects typically require a
minimum of 20-year life span in order for the investment to make
sense for companies.
OPTS said potential changes to terms in the middle of
contracts makes it incredibly difficult, if not impossible, to
assess profitability and make investment decisions, advocating
for stable terms for the life of each project.
"The proposed unilateral change to current terms would
damage investor confidence and make Nigeria's Deepwater and
Inland Basin PSC significantly less attractive in the wake of
stiffening global competition for investable funds," the OPTS
analysis said.
It encouraged the government to address all fiscal terms in
the long-awaited petroleum industry bill, and to increase
revenue by efforts to "grow the pie", rather than heavily tax
existing production.
President Buhari, in a speech outlining a record budget
earlier this month, pressed lawmakers to move quickly to pass a
bill to change this law so the contracts would "reflect the
current realities and for more revenue to accrue to the
government."
In a separate statement, senate president Ahmad Lawan said
they passed the bill "consciously" to raise revenue while
allowing companies to make money.
"We want them to stay here but it should be a win-win
situation," Lawan said in the statement. "Much as we want
(International Oil Companies) to make profits from their
businesses, we also want to get revenues from our resources."
He said the senate would pass a holistic petroleum industry
bill next year that would not "put any business in Nigeria in
jeopardy or disadvantage."
Still, oil sources and industry watchers said the short-term
rush for cash could ultimately sabotage long-term oil
development and revenue.
Shell has already said it will not make a final investment
decision in its offshore Bonga SW project until the tax bill
dispute was settled.
"Once the real-world impact of this legislation become
clear, the government may need to repeal or soft-pedal it or
else new offshore projects may evaporate," said Matthew Page, an
associate fellow with the Africa Programme at Britain's Chatham
House.