Oil and gas companies operating under production sharing contracts (PSCs) in the Deep Offshore and Inland Basin are governed by the Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSC) Act, Cap D3 LFN 2004. The Nigerian Senate has now passed a bill to amend the DOIBPSC Act 2004. The DOIBPSC (Amendment) Bill 2019 aims to review the regulation of deep offshore oil fields in Nigeria. It also makes provisions for price reflexive royalties as well as to boost the nation’s revenue. For instance, the Federal Government (FG) estimates a revenue of $500 million in 2020.
Here are four (4) proposed changes to the Principal Act.
- First (Amendment of Section 5): Substitution of production-based royalty system with a dual arrangement of field-based and price-based royalty;
- Second (Deletion of Section 16): No more change in revenue payable to the FG from production sharing contracts (PSCs) when the price of crude oil is higher than $20 per barrel;
- Third (Insertion of a new Section 17): The Minister of Petroleum Resources will allow the Nigerian National Petroleum Corporation to call for a review of the PSCs every 8 years;
- Fourth (Insertion of a new Section 18): Penalty for non-compliance with the provisions is at least NGN500 million or 5 years imprisonment or both, upon conviction.
The introduction of the penalty and progressive royalty rates implies more revenue for the government and additional costs for covered companies. BRC’s comparison of the 2004 Act and 2019 Amendment Bill is available here.
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