Continental Focus, International Reach

Nigeria Looks to Re-Write Contracts with Shell

Tuesday, May 28, 2019

Nigeria has begun renegotiating oil contracts with Shell. According to Minister of Petroleum, Emmanuel Ibe Kachikwu, the government is looking for better terms than were seen in the previous PSCs with the international oil firm.

Nigeria has several types of contracts with energy majors including JVs for onshore blocks, in which the government has an equity stake, and production-sharing agreements for the deepwater blocks.

The state signed production sharing contracts in the early 1990s with companies including Shell, France’s Total, ENI, and ExxonMobil.

Kachikwu said the old agreements favored the foreign companies, giving them as much as 80% of the oil that was produced after costs — known as profit oil — against the 20% for the state. “That is a non-starter,” the Minister said. “It’s got to be better.”

He said the new contracts should start at 60% or lower in the company’s favor. Under these types of contracts, the companies take the greater share in the initial stages of operation, before gradually shifting in favor of the state as the companies recover their investments.

Kachikwu said NNPC has already entered into renegotiations with Shell, which in 2023 will be the first company to see a contract expire. Others will expire by 2028.

“The Shell model, when they finish, will then be the basis of what we do with all other PSC contractors,” he said.