President Muhammadu Buhari’s administration has tried to tackle some long unresolved problems with partnerships between the government and international oil companies as part of its attempts to reform the energy sector. Although western energy companies recently reached a $5bn settlement to resolve a protracted dispute with Nigeria’s government over its share of historic exploration and production costs, executives are only cautiously optimistic about their relationships with the government.
Warnings issued by company executives, industry analysts and government representatives comes as capital expenditure in Nigeria’s oil and gas sector is expected to drop by at least 40 per cent from 2015-2025, according to consultancy Wood Mackenzie. Flagship projects such as Shell’s Bonga South West-Aparo, Chevron’s Nsiko and ExxonMobil’s Bosi developments have been deferred as energy companies do not see them as viable with oil prices around $50 a barrel.
“This is significant” because such developments account for “much of the pipeline of deep-water projects that are expected to be the engine of oil production growth, especially given the [security] risks of operating onshore,” says Gail Anderson, lead Nigeria analyst at consultancy Wood Mackenzie.
Abuja understands that settling these disputes with western companies over owed payments known as “cash calls” and working on a new financing model for joint ventures are just two steps towards boosting investor confidence. Drafts of the legislation propose increasing the royalty rate in a per barrel payment to the government from zero to as much as 50 per cent, depending on the price of oil and level of production.
Dr. Emmanuel Kachikwu, minister of state for petroleum resources and Mr Buhari’s deputy on the oil portfolio, says shrinking the government’s funding obligations in exploration and production were vital to “reduce the strain on government”. “Why would you want to sink more money into Nigeria when you can go elsewhere: Ghana, Angola, eastern Africa, there are too many other options,” says Aderonke Onadeko, chief executive of DeltR Energy, a Nigerian oil and gas consultancy.