About $62 billion is expected by Nigeria from the major international oil companies operating in the country. This is part of the strategic move by the Nigerian Government to raise money to fund its 2020 national budget which was presented before the Senate on Tuesday by President Buhari.
According to the Nigerian Government, these international oil companies have persistently refused to comply with a 1993 contract-law which specified that the country will receive more share from oil revenue if global oil prices are above $20 per barrel.
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Note that when this contract-law was implemented more than 20 years ago, crude oil prices averaged $9.50 per barrel. In 2019, that price has more than quadrupled. For example, global oil benchmark, Brent Crude, is currently trading at $57.85 per barrel. Interestingly, these oil companies have continued to receive 80% of profit from oil contracts with Nigeria, leaving the country with just 20%.
The production sharing contract was entered between Nigeria and oil majors such as ExxonMobil Corp, Chevron Corp, Total SA, Royal Dutch Shell, and Eni SpA. These companies were to fund exploration efforts in Nigeria’s deep offshore oil fields and later share the profits with the government.
These oil companies, which currently produce most of Nigeria’s crude oil output, have been getting most of the proceeds from oil production and sale despite the spike in oil prices which has been recorded over the years.
Now, the Nigerian government is demanding that the contract be respected. Already, a 2018 Supreme Court ruling has given Nigeria the right to increase its share of oil revenue emanating from production-sharing contracts.
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However, the oil companies are kicking against this development. The likes of Shell have filed suits challenging the Government’s demands. According to these companies, the 2018 Supreme Court ruling does not require them to pay arrears to Nigeria.
