By Bunmi Aduloju
The Nigerian government is not in the best place to support the country’s oil industry, notably the upstream sector, with any form of palliatives, to cushion the effect of the pandemic.
“As a government we are not also in the best frame and shape at this point”, Timipre Sylva, the country’s Minister of State for Petroleum, has said. “Our earnings are heading south as a result of COVID-19”, Sylva said at a discourse with the Nigerian Association of Petroleum Explorationists (NAPE). “So, we are not in the best position right now to support in more positive terms”, he explained.
Nigerian upstream operators, especially the homegrown independents who produce over 25% of the country’s entire output, have lamented that they were continuing to face royalty and other taxes, a crippling debt overhang and a disproportionate burden of the cost of insecurity in the Niger Delta, despite dwindling revenues.
Sylva said that “the easier way to support is to make sure that the fiscal terms, the framework around your operational environment is actually eased off so that, at least, you can operate better. And unfortunately, these are not things that we can do for most of the time”.
“But, I think”, he explained, “the most important support for the industry I believe, will come from the Petroleum Industry Bill (PIB, the reform legislation currently on its way to parliament), “because the PIB is taking everything holistically into consideration to ensure that at least, operators will have the best terms available”.
In a short speech prefacing the dialogue, Sylva had revealed that royalties for onshore and shallow water assets (in which most Nigerian independents participate) would be reduced “in the new law”. He had also noted that the law would “establish a gas base price that is higher than current levels for producers and this base price will increase over time. This price level should be sufficiently attractive to increase gas production significantly since this gas price will be comparable with gas prices in other emerging economies with considerable gas production”.
Sylva offered that the PIB would be very competitive. “We are looking at the global environment. It is a very competitive environment now in the oil and gas sector. I will want to ensure that Nigeria continues to be one of the destinations of choice and that is why we ensure that the PIB is least as easy on the industry as much as possible.