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Nigeria Demands $62B from Oil Majors

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Nigeria Demands $62B from Oil Majors

 

(Bloomberg) -- Nigeria is seeking to recover as much as $62 billion from international oil companies, using a 2018 Supreme Court ruling the state says enables it to increase its share of income from production-sharing contracts.

The proposal comes as President Muhammadu Buhari tries to bolster revenue after a drop in the output and price of oil, Nigeria’s main export. It’s previously targeted foreign companies, fining mobile operator MTN Group Ltd. almost $1 billion for failing to disconnect undocumented SIM-card users, and suing firms including JPMorgan Chase & Co. in a corruption scandal.

In the latest plan, the government says energy companies failed to comply with a 1993 contract-law requirement that the state receive a greater share of revenue when the oil price exceeds $20 per barrel, according to a document prepared by the attorney-general’s office and the Justice Ministry. The document, seen by Bloomberg, was verified by the ministry.

While the government hasn’t said how it will recover the money, it has said it wants to negotiate with the companies. In its battle with MTN, the fine imposed on the company was negotiated down from an initial penalty of $5.2 billion.

Nigerian presidency spokesman Garba Shehu didn’t answer three phone calls or respond to a text message requesting comment.

Under the production-sharing contract law, companies including Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA and Eni SpA agreed to fund the exploration and production of deep-offshore oil fields on the basis that they would share profit with the government after recovering their costs.

When the law came into effect 26 years ago, crude was selling for $9.50 per barrel. The oil companies currently take 80% of the profit from these deep-offshore fields, while the government receives 20%, according to the document. Oil traded at $58.29 a barrel on the London-based ICE Futures Europe Exchange.

Most of Nigeria’s crude is pumped by the five oil companies, which operate joint ventures and partnerships with the state-owned Nigerian National Petroleum Corp.

Representatives of the oil companies met Justice Minister Abubakar Malami Oct. 3 in the capital, Abuja, according to two people familiar with the discussions who asked not to be identified because the meeting wasn’t public. Malami told them that while no hostility is intended toward investors, the government will ensure all the country’s laws are respected, the people said.

Ruling Challenged

Oil companies including Shell have gone to the Federal High Court to challenge the government’s claim that they owe the state any money, arguing that the Supreme Court ruling doesn’t allow the government to collect arrears. They also contend that because the companies weren’t party to the 2018 case, they shouldn’t be subject to the ruling.

“We do not agree with the legal basis for the claim that we owe outstanding revenues,” Shell’s Nigerian unit said in an emailed response to questions.

Chevron spokesman Ray Fohr said the company doesn’t comment on matters before the court. Its units in Nigeria “comply with all applicable laws and regulations,” he said by email.

Exxon and Total declined to comment, while Eni officials didn’t immediately respond to requests for comment.

The Supreme Court ruling followed a lawsuit by states in Nigeria’s oil-producing region seeking interpretation of the nation’s production-sharing law. The states argued that they weren’t receiving their full due. The court ruled in their favor and asked the attorney general and justice minister to take steps to recover the outstanding revenue.

The 1993 law required that its provisions be reviewed after 15 years and subsequently every five years. The attorney-general’s office insists that the provision for a higher share of revenue doesn’t require legislative action to take effect, according to the document.

“Instead it imposes a duty on the oil companies and contracting parties, being NNPC, to by themselves review the sharing formula,” the ministry said.

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8 minutes ago, ceo_energemsier said:

When the law came into effect 26 years ago, crude was selling for $9.50 per barrel.

Seriously? I just looked up an oil price chart.. unless I'm missing something, and that is always possible, then oil prices might have briefly touched $10, nominal as opposed to inflation adjusted, once in all of the 1990s. Chart link here. (Remember to uncheck inflation adjusted and log scale at the top.) $9.50 would then represent the very bottom of the market over decades. These guys did a deal at the very bottom of the market, didn't think to put in any price adjustment clause and are only now suing? The price went to $140 nominal late last decade! The story is an interesting one but there must be more to it.. the story does hint, now that I think about it, that its a ploy by the government to get the oil companies to cough up more..   

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5 hours ago, markslawson said:

Seriously? I just looked up an oil price chart.. unless I'm missing something, and that is always possible, then oil prices might have briefly touched $10, nominal as opposed to inflation adjusted, once in all of the 1990s. Chart link here. (Remember to uncheck inflation adjusted and log scale at the top.) $9.50 would then represent the very bottom of the market over decades. These guys did a deal at the very bottom of the market, didn't think to put in any price adjustment clause and are only now suing? The price went to $140 nominal late last decade! The story is an interesting one but there must be more to it.. the story does hint, now that I think about it, that its a ploy by the government to get the oil companies to cough up more..   

Oil was down to $9.50/bbl in 1998 for an extended time, it finally started going back up into the 20s and 30s in 2000.

It is Nigerian gov ploy to strong arm and black mail the companies into paying them more. Call it corruption in the Nigerian oil structure that probably would account to such deals, plus dont forget that the oil companies such as XOM and Shell had to invest billions and billions of $$$ up front for getting these deals and invest into exploring and developing the fields and infrastructure. The NNPC and their oil ministry and whatever else agency or ministry is trying to make up for the billions of $$$ of oil revenues that is lost to oil theft and corrupt people sell them on the black market.

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Time for all the operators in Nigeria to leave for greener pastures. This operating environment will just get worse. Don’t worry, China will slot right in there. Let them deal with it.

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Most of the companies will still be in Nigeria, they have spent and invested billions of $$$ and there is billions of barrels of oil to be produced, more to be discovered. There are also many independent explorers in Nigeria too.

But if they keep trying to hit the companies with these sham payment demands , they will wise up, either terminate their existing JVs or sell to others and leave. NNPC isnt technically capable of finding new deepwater oil or offshore oil for that matter, their oil production will probably flounder like Venezuela.

Look that the oil refineries owned by the gov in Nigeria, they  have enough throughput refining capacity but they fail to meet the domestic demands and they could be refining their oil right in their own refineries and wont need to import anything.

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19 hours ago, ceo_energemsier said:

Oil was down to $9.50/bbl in 1998 for an extended time, it finally started going back up into the 20s and 30s in 2000.

Really? The graph I linked doesn't show that at all - the minimum was more than $12 for maybe three months, but perhaps this is just a detail. The Nigerians and the oil majors must have been referencing something so they must have been using some sort of index.. anyway, otherwise I thoroughly agree.. its strongarm stuff with a legal cover. Shades of Venezuela...

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