Last week, Nigeria’s President Muhammadu Buhari appended his signature to a bill that amended the country’s Deep Offshore (and Inland Basin Production Sharing Contract) Act. As Nairametrics reported, the Nigerian leader hailed the development as a “landmark moment”, even as he expressed his optimism that the country will, henceforth, be entitled to more of the revenues derived from exploration activities.
A different approach by Nigeria’s competitors
While this was happening, other African oil producers (who also double as Nigeria’s competitors by the way) were busy putting in place conditions to lure oil companies to come and invest in their countries. Reuters reported that the likes of Angola, Cameroon, Gabon, and Ghana were adjusting their terms in order to attract more investments.
Speaking during the just-concluded Africa Oil Week in Cape Town, South Africa, Ghana’s Deputy Energy Minister, Mohammed Amin Adam, acknowledged that his country decided to change strategy because of growing competition in the race to attract investors. In the same vein, 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.”
In specific terms, below are the new approaches that have been adopted (or still being adopted) by other major 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 a 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 amount 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 is happening 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 how and where they invest. Therefore, bearing in mind that Nigeria is not the only oil producer in Africa for instance, the chances of these oil majors shifting focus to other areas abound.
By the way, the increasing use of alternative energy around the world has been a major contributory factor to this recorded decline in oil demand. It has even been projected that demand for fossil fuel would decline further in the coming years.
A case for Nigeria…
A closer look at this development will show that the Nigeria government is not totally wrong for demanding more revenue from the oil companies. After all, oil pumped from offshore exploration activities naturally belongs to Nigeria. Without the country’s consent, no exploration can take place.
Moreover, the old revenue sharing model between Nigeria and these companies do not exactly reflect the current realities on 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.