Total: New Deepwater Royalties, Finance Act Eroded Value of Oil Assets

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By Peter Uzoho

Total Exploration and Production Nigeria Limited has said the deepwater royalties stipulated in the amended Deep Offshore and Inland Basin Production Sharing Contract Act (DOIBPSCA) 2019 and related provisions in the Finance Act 2020, has led to significant value erosion of oil and gas assets and a slowdown in investment in the Nigeria oil and gas industry.

Aside the concerns on the new fiscal provisions introduced into the two Acts, the international oil company (IOC) also said the uncertainty coming from the Petroleum Industry Bill (PIB), which it noted does not appear to improve Nigeria’s attractiveness as an investment destination, would continue to stifle investment in the country.

The Country Chair and Managing Director of Total E&P Nigeria Limited, Mr. Mike Sangster, stated this in response to THISDAY’s questions on industry issues.

Sangster, also disclosed that the company would restart its suspended Preowei Deepwater development project this year if conditions, including a favourable PIB, allowed them to.

He further said the company would also continue delivering on its offshore Ikike Project this year.

“New Deep-Water royalties implemented by the Federal Government in November 2019 and the New Finance Act, which was signed into law in February 2020, led to significant value erosion of oil and gas assets and a slowdown in investment.

“In addition, the uncertainty coming from the Petroleum Industry Bill (PIB), which does not appear to improve Nigeria’s attractiveness as an investment destination, will continue to stifle investment in the country,” Sangster said.

The Total Country Chair said that such fiscal provisions contribute to Nigeria’s unattractiveness to investors, pointing out that Nigeria had attracted only four per cent of the $70 billion committed to new upstream projects in Africa from 2015 to 2019, despite having the largest reserves on the continent.

“That is why the industry is working hard with the relevant authorities and lawmakers to make the case for a win-win Petroleum Industry Bill that will attract new investment and jobs to Nigeria,” he said.

However, the Total Managing Director reveled the plan of the company to recommence the development of its suspended Preowei field, a deepwater hydrocarbon pool located north of the Egina field in Oil Mining Lease (OML) 130, off Nigeria.

Preowei is expected to produce 50,000 barrels of oil per day, at peak, when completed and it starts producing.

The company had, during the lockdown last year, also suspended its planned Ocean Bottom Node (OBN) seismic survey on both Preowei and Egina fields.

It had anchored the suspension of the project on COVID-19 pandemic, the new fiscal regime in the Nigerian oil and gas sector and the dip in oil prices, which it said, constituted a perfect storm of sorts to push such a development project to the back burner at the time.

A sub-sea tank with over 150 million barrels of oil and gas equivalent, Preowei was discovered in 2003. The field development plan calls for a subsea tie back to the Egina field FPSO.
The Final Investment Decision (FID) for Preowei was scheduled to take place at the fourth quarter of 2020 but could not happen.

“In 2021, the focus will remain on managing our costs and delivering on our ongoing investments, such as the offshore Ikike Project – which is progressing well. We did suspend some projects in 2020, such as the Deepwater Preowei field development, we hope to restart this in 2021 if conditions allow, including a win-win PIB.

“In addition, we continue to look at ways of reducing our carbon footprint as Nigeria and the rest of the world continues to demand more reliable, affordable and cleaner energy”, Sangster said.
On the oil and gas industry performance in the pandemic-ravaged 2020, Sangster said the Russia/Saudi price war, followed by the pandemic-induced collapse in demand caused dramatic falls in oil and gas prices to as low as $15 per barrel and even briefly negative in the United States.

He said: “Companies all over the world, and in Nigeria, had to reduce spend quickly to cope with much lower revenues. In addition, we had to put in place a large-scale quarantine system to protect our operational sites from the virus in order to be able to continue to produce and keep our people healthy.

“Opec+ stepped up with significant production cuts which helped prices to recover from the lows of second quarter of 2020, but Nigerian producers had to reduce production significantly as part of the OPEC+ effort.

“However, despite the difficult economic environment, oil and gas still represented a very large part of the Federal Government’s revenues, so it was vital that operations continued. The industry also stepped up, under the leadership of the NNPC, to commit N21 billion to the government’s efforts to combat COVID-1