Oil companies have become the target of the government’s efforts to boost the country’s badly needed revenues. A new review of drilling and production regulations is set to place additional financial burden on those operating in the country.
The new regulations, which have been seen by Menas Associates, appear to indicate sharp increases in several types of oil sector fees and the introduction of new ones. In the new regulations:
- Production platforms will now attract an application fee of a US$100,000 if they have capacities of over 5,000 b/d;
- Refineries, petrochemical plants, gas-based fertiliser plants, and methanol plants with capacities of over 30,000 b/d above or oil equivalent will also attract annual renewal fees of US$2,000 per 1000 b/d or oil equivalent; and
- those below 30,000 b/d will attract annual renewal fees of US$1,000 per 1,000 b/d or oil equivalent.
Applications for the conversion of an OPL to an OML will now attract a submission fee of US$1 million while applications for an existing OML will now attract a fee of US$1.5 million. Renewal of OML submissions will now also attract a fee of US$2 million.
Of more interest are the fees that are to be charged on applications for the assignment of an interest in an existing asset. The new regulation states that this will now attract anywhere between 5% to 10% of the ‘transaction purse’ while ‘fees for renewal bonus’ will be 5% of the Net Present Value of the asset.
These new fees follow those that the government has proposed in the 2020 Finance Bill — which will come into effect in January — that oil company dividend payments will now be subject to a 10% withholding tax. The government has also reviewed the Production Sharing Contract Act which imposes higher fees on deep water offshore production.
The government is desperate for additional revenue and it sees the IOCs as low hanging fruit. The possibility that it will back down on any of these new fees is virtually nil. It will probably wait to see what the outcome of the new fees are before it does anything. The first indication on whether the new fees will discourage investment will be seen if next year’s planned licensing round takes place. The level of interest shown in the potential blocks that will be offered for sale will demonstrate how much interest investors have in Nigeria’s oil sector.