OPERATORS FORGE IMPROVED TERMS IN NIGERIA
Foreign partners in Nigeria's biggest concession-Shell Petroleum Co. Nigeria, Elf Producing Nigeria, and Nigerian Agip Oil Co.-will receive increased production margins under a new agreement with Nigerian authorities.
A joint operating agreement and a fresh memorandum of understanding also will provide new incentives to invest and bonuses for increasing reserves by more than annual production.
The Nigerian partner in the venture, Nigerian National Petroleum Corp. (NNPC), wins the right to become an operator on the group's acreage and improved terms under which the foreign companies will dispose of unsold government equity crude when market conditions are depressed.
STEPPED UP OPERATIONS
The agreement, which took 18 months to negotiate, puts the relationship between the foreign companies and the state on a more formal basis. It also marks a step forward in the government's campaign to boost investment and increase oil and gas reserves.
The government's overall target is to increase national reserves to 25 billion bbl from 16 billion bbl and boost sustainable productive capacity to 2.5 million b/d by 1995 from the present 1.9 million b/d.
The NNPC-Shell group will play an important role because it is responsible for more than half the country's annual production. As part of the new understanding, it now has a 5 year work program.
Phil Watts, chairman and managing director of Shell Nigeria, said in anticipation of the new memorandum of understanding, the NNPC-Shell-Elf-Agip joint venture is spending $1.3 billion this year and plans to increase this level in the years ahead.
Equity holdings in the joint venture are NNPC 60%, Shell 30%, and Elf and Agip 5% each. Reserves on the 26,900 sq km onshore and 4,700 sq km offshore tracts are 11 billion bbl of oil and 9.5 billion bbl of gas equivalent.
The group's productive capacity is 1.05 million b/d. It is officially limited by a 950,000 b/d production quota.
MINIMUM MARGIN
At the signing ceremony for the new agreements, Nigeria's Minister for Petroleum Resources Jubril Aminu said the minimum notional margin after tax and royalty is increased from $2/bbl to $2.30/bbl or $2.50/bbl depending on capital spending.
The minimum guaranteed margin is based on the technical cost of operations not exceeding the notional fiscal technical cost, which has been increased from $2/bbl to $2.50/bbl.
He said the notional margin of $2.50/bbl is guaranteed in any calendar year the company's capital investment equals or exceeds an average $1.50/bbl.
Margins were last increased on Nigerian production in 1986.
Other features of the agreement include introduction of tax relief for each year the company increases its investments beyond an agreed level. A bonus is available for increasing reserves by more than production.
The 64 page agreement provides a commitment to train Nigerians to assume the role of operator for part and eventually for all the concessions. The agreement also commits the joint venture to use local companies for a wide range of services.
NNPC will benefit from the section of the agreement that commits the foreign companies to lift unsold government equity crude each month with 15 days notice. Previously NNPC was required to give 45 days notice.
During the previous 20 years the group, in its various forms, existed without a joint operating agreement. Watts said there is now a formal framework in which cooperation can flourish.
Watts said practical details of NNPC's operating role would be worked out during the next months, and by 1992 a progressive program will be in place.
The previous memorandum of understanding dealing with margins and tax was signed in 1986 when Nigerian activity had slumped in response to a decline in demand for oil from members of the Organization of Petroleum Exporting Countries.
At the time, Shell had only seven operational rigs. Last year there were 22. The venture drilled 19 wells in 1986 and 115 in 1991.
Shell added about 1 billion bbl of recoverable reserves last year.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.