Trying to Understand the Nigerian Oil Industry

By | April 2, 2008

In the closing lines of a post on the Zambian copper industry I wondered whether anyone knew the details of the deals between oil companies and the Nigerian government. A news story I read in BusinessDay rekindled that interest, and a post I read at NigerianCuriosity made me decide to actually blog about it. The news story says that the Nigerian House of Representative found out, during a visit of the House committee on the upstream oil industry to the Department of Petroleum Resources, that the Memorandum of Understanding between Nigeria and major oil companies elapsed in 2003. Shell Petroleum Development Corporation (SPDC) Chevron, Total, Exxon Mobil and Nigeria Agip Oil Company were on the list of companies said to be affected by this. The committee chair, Mr Tam Brisibe, was also quoted to have said that Nigeria signed the MoU with its joint partners in 1986 when it had problems marketing its crude oil. The concern of the committee was that Nigeria might have been cheated of revenues due to it. But I think that the more serious concern should be about how it so happened that the MoU elapsed and nobody noticed.

But then…
…when I googled the only information I got about any MoU was from the Oil and Gas Insights website. The report said that the Nigerian government sought to terminate the MoU that governs the production of onshore oil in Nigeria. The MoU ensured that a minimum profit of $2.50 per barrel was paid to the government, no matter how low the prices of oil get. There was no maximum cap, but future explorations were assured of a tax rate of 65.75%, lower than the 85% for projects that were already in production. Under the Petroleum Profits Tax Act, the tax rate is 85% on all chargeable income; the MoU was supposed to serve as a tax incentive. A letter was written to Shell about this, telling the company that the MoU was going to be replaced with a standard tax plan.

The website also reported that the NNPC said, in January, that it was going to renegotiate the details of its joint ventures, ventures like SPDC in which the NNPC owns 55% and Shell 30%.

So?
So I still don’t understand the structure of the Nigerian oil industry, and it doesn’t seem like the chair of the House committee on the upstream oil industry, Mr Tam Brisibe, does. The fact that these two reports – one from a Nigerian newspaper quoting Mr Brisibe, and another from an industry magazine/website – are conflicting makes it even more confusing. I hope that the investigation of the House committee will help throw some light on the issues, and make the most volatile, but yet most lucrative, industry in the country a little bit more accessible to curious members of the public. I will try to follow the story.

Ref:
Oilandgasinsight
BusinessDay

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    This is typical of the African economies. You will never get a straight answer as there are too many fingers in too cakes, all trying to filter a little money into their pockets. The big companies are also not blameless in that their modus operandi is to bribe and cheat all the players they can in the game in the interests of making more money. Good luck with gettin g a straight answer out of anyone.