By Oluwatosin Maliki
The Federal Government of Nigeria has announced that 23 oil blocs governed by both international and local oil companies, which are under crude oil Production Sharing Contracts (PSC) with the Nigerian National Petroleum Company Limited, were totally inactive in 2021.
This was revealed in the latest Oil and Gas Industry Report for 2021 issued by the Nigeria Extractive Industries Transparency Initiative, an agency of the Federal Government. It noted that the blocks failed to produce crude in the year under review.
Production Sharing Contract is an agreement where the contracted oil company takes up the responsibility of funding operations to explore, develop, and produce petroleum within a concession area, under an Oil Prospecting License for an agreed number of years.
Afterward, if the operation is successful, the company will be mandated to pay Petroleum Profit Tax, royalty, and other bonuses/levies to the government. Also, the company is entitled to recover its costs, in-kind, through what is known as ‘Cost Oil’.
In addition, the company also pays PPT and royalty in-kind, through the NNPC’s arrangement of lifting crude oil and gas for tax, royalty, and share of profit oil (usually shared in a predetermined ratio), for sale and remittance to designated accounts.
The payments are made either to the account of Federal Inland Revenue Service (tax) account or the DPR (now NUPRC) account (royalty).
Meanwhile, proceeds from the sale of profit oil are remitted directly to the Federation Account.
Therefore, the Production Sharing Contract frees the Federal Government from financial burden since the company bears all the cost of exploration and production.
According to the latest analysis issued by NEITI, the report indicated that in 2021, 12 of the Production Sharing Contract oil blocs were able to make production, while 17 blocs did not produce.
Similarly, the analysis showed that there were six inactive blocks, thereby bringing the total number of both inactive oil blocks and those that did not produce crude during the review period to 23.
Some of the Production Sharing Contract contractors who did not produce crude from selected blocs are; Esso E&P, Nigerian Agip Exploration, Shell Nigeria Exploration and Production Company, Texaco Nigeria Outer Shelf Limited, Star Deep Water Petroleum Limited, and Statoil Nigeria Limited.
Others included Newcross Petroleum Limited, Sahara Energy Exploration and Production Limited, Conoil Producing Limited, Continental Oil and Gas Limited, Enageed Resources Limited, Nig-Del United OIl Company Limited, Sterling Oil Exploration and Energy Production Company Limited, among others.
Furthermore, the contractors managing the six inactive Production Sharing Contract blocks included GEC Petroleum Development Company Limited, Nigerian Agip Oil Company, Monipulo Limited, and Esso Exploration and Production Limited.
Reacting to this new development, NEITI said, “The following were the observations on production from PSC blocks In 2021: Only 12 (34 per cent) of the PSC blocks recorded production, while 23 other blocks, representing 66 per cent of total numbers of PSC blocks, did not produce”.
“Total production from the PSCs, which was 242.96 million barrels, represents 42.92 per cent of total production of the 566.13 million barrels.”
NEITI noted the implication of this, the agency said, “The PSC arrangements, which contributed highest to the total production volumes, operated only 34 per cent of the total allocated blocks.”
Consequently, it recommended that there was the need for the Nigeria Upstream Petroleum Regulatory Commission, and NNPC Ltd to immediately review the technical, operational, and other constraints hindering production from the inactive PSC blocks with the aim of optimising production from the PSC arrangements.
The Federal Government agency stated, “Where these issues cannot be resolved, consider revocation of licenses and subsequent allocation to other interested parties”.
However, NEITI captured the responses from NNPCL as regards the development, as it stated that the national oil firm explained that “PSC blocks transit from exploration/appraisal phase to production overtime.”
Also, it said that the oil firm also noted that “some of the blocks are still at award status as some contractors may not have come forward for budget/work programmes due to various reasons from regulatory to business operations’ considerations”.
“We (NNPCL) are hopeful that about two to three blocks will soon attain production status.”
As a result of the high technicality involved in oil exploration, the Federal Government collaborates with indigenous and foreign oil firms to explore and produce Nigeria’s crude, which makes the Production Sharing Contract one of such major partnerships.