Page 5 - AfrOil Week 12 2021

AfrOil COMMENTARY AfrOil

It is not yet clear which side was correct. Abuja remarked. “The commercial terms around gas
never really had a chance to make the grab that midstream infrastructure in the PIB are unclear.”
investors feared because of the disruption that
accompanied the coronavirus (COVID-19) Costs, cycle time and fiscal regimes
pandemic. When asked how Nigeria might attract more
With oil prices and energy demand dropping investment to deepwater oilfields, Idornigie sug-
fast, many IOCs decided quite abruptly that it gested that the country should work to reduce
was time to postpone or reduce the pace of their the expenses and time involved in bringing new
work in Nigeria. This compounded the impact fields into production.
of other slowdowns at deepwater fields such as “First of all, the development costs and cycle
Preowei, Bonga South West and others men- time for delivering deepwater projects in Nigeria
tioned in a Wood Mackenzie report in Febru- is above the global average,” he told AfrOil. “The
ary 2020, before the pandemic forced most of last deepwater project in Nigeria was delivered
the world into lockdowns and other restrictive at about $25 per barrel (just development costs
measures. excluding operating costs), and the cycle time
was around 60 months. The industry average for
Gas monetisation and competitiveness a project of similar scale is now around $10-15
Despite this disruption, Omo-Agege and other per barrel. The government will need to work
Nigerian officials are still optimistic that pas- with the industry to adopt measures to sim-
sage of the PIB will help the oil industry regain plify the approval cycle process and use more
the ground it has lost. However, the legislation standardised solutions for delivering offshore
has weaknesses as well as strengths, according infrastructure.” The PIB may not
to Obo Idornigie, vice-president of sub-Saha- Fiscal reforms are also necessary, he added.
ran African research for Welligence Energy “From a fiscal perspective, improving the allow- make Nigerian
Analytics. able deductions for tax purposes will be key,” he deepwater
In response to questions from AfrOil, Idor- said. “The industry is also pushing for royalty to
nigie praised the PIB for establishing a stronger be based on cumulative production as opposed projects more
foundation for the development of Nigeria’s to the flat 10% plus link to oil prices. The high
abundant reserves of natural and associated royalties and other front-loaded elements will competitive
gas, as well as crude oil. “From an offshore gas discourage investment in marginal deepwater
perspective, a key strength of the PIB is the fields which have been lying fallow for decades.
inclusion of fiscal terms for offshore gas monet- Nigeria holds over a billion barrels spread across
isation. This has always been a stumbling block several marginal deepwater fields, which could
for developing offshore gas fields based on pro- be developed under the appropriate cost struc-
duction-sharing contracts [PSCs]. Also, over- ture and tax terms.”
hauling some of the dated laws and providing
a holistic document is a huge step in the right Continued caution
direction.” Nigeria’s government is not unaware of these
He also pointed out that the PIB might not issues. As Idornigie noted, both IOCs and local
make Nigerian deepwater projects more com- companies were able to air their concerns during
petitive. “A key weakness is the deepwater fiscals. public hearings on the PIB in January.
Its front-loaded approach through higher roy- Even so, the government and legislators have
alties, cost recovery ceiling and limit on allow- not made any major changes, and the bill is now
able deductions is a big industry concern,” he on track to pass in the third reading and be sent
commented. “The government will also replace to President Muhammadu Buhari for signature
investment tax allowances and credits with pro- in the second quarter of 2021.
duction allowances. We do not believe the terms As such, officials in Abuja should not be sur-
are competitive in the current environment.” prised if investors remain cautious about deep-
Additionally, he noted that the legislation did water projects for the time being, at least until
not cover all the bases with respect to improving they see exactly how the government treats the
conditions for the development of gas reserves. companies involved in such initiatives under the
“Introducing gas fiscal terms is not enough,” he new rules. ™

Week 12 24•March•2021 www. NEWSBASE .com P5