While other countries are luring oil majors, Nigeria is demanding more from them

Last week, President Muhammadu Buhari appended his signature to a bill that amended Nigeria’s Deep Offshore (and Inland Basin Production Sharing Contract) Act. The President had hailed the development as a “landmark moment”, expressing his optimism that the country will, henceforth, be entitled to more of the revenues derived from the exploration of crude oil in the country. 

A different approach by Nigeria’s competitors 

Meanwhile, other oil producers in Africa, who also double as Nigeria’s competitors, by the way, were busy putting in place conditions that will enable them to lure oil companies to invest in their countries. Reuters reported that the likes of Angola, Cameroon, Gabon, and Ghana are adjusting their terms in order to attract more investments. 

For instance, while speaking during the just-concluded Africa Oil Week in Cape Town, Ghana’s Deputy energy minister, Mohammed Amin Adam, acknowledged that his country is changing strategy. The decision, he said, was influenced by the growing competition in the race to attract investors. Similarly, Gabon’s petroleum minister (Noel Mboumba) was quoted as saying the following: 

“We are aware that oil companies have to spend a lot of money. That is why we are careful in the way we design our (terms) to have it as a win-win.”  ?

Specifically, below are highlights of the new approaches that have been adopted (or still being adopted) by other leading oil producers across Africa: 

• Gabon reduced how much the government will receive from the oil revenue derived from shallow and deepwater concessions. The country also “increased the cost-recovery limits for companies”. 
• Cameroon “sweetened” tax terms for oil explorers and made law making it easier for oil companies to easily make up for the expenses incurred from their exploration activities. 
• In Ghana, the government is putting measures in place to ensure that oil companies are given more freedom to explore/drill for oil.  
• Angola is also committed to revising its local content laws, even as it privatises some of its oil assets. 

Is Nigeria out of touch? 

Following Nigeria’s decision to increase the revenue oil companies are expected to pay the government, Total Nigeria’s Managing Director, Mike Sangster, made a statement implying that the Nigerian authorities are out of touch with what currently obtains in the international oil market. According to him;

“The continent has to compete for capital with other areas. It’s important that the regulators understand that.” 

The role of declining demand and oil prices 

Sangster may not be wrong. As the worldwide demand for oil continues to decline, oil majors are becoming more careful about where and how they invest. Therefore, bearing in mind that Nigeria is not the only oil producer in Africa, there is a possibility that these oil majors may decide to shift focus to other countries with oil reserves. 

By the way, the increasing use of alternative energy around the world is continuing to contribute to a growing decline in oil demand. It has even been projected that demand for fossil fuel will decline further in the coming years. 

A case for Nigeria... 

A closer look at this development will show that the Nigerian government is not wrong for demanding more revenue from oil companies operating in the country. After all, oil pumped from offshore exploration activities within Nigeria's territory belongs to the country; naturally. Moreover, the old revenue sharing model between Nigeria and these companies was repeatedly faulted for failing to reflect the current realities on the ground. As such, they needed to be readjusted, especially now that the country urgently needs to earn more money. 

Note that Nigeria depends mainly on oil revenue for its fiscal expenditures.