FG loses revenue to non-renewal of oil licences

FG loses revenue to non-renewal of oil licences

The delay in the renewal of expired onshore and shallow-water licences held by
International Oil Companies is said to be denying the Federal Government
additional revenue at a time that its resources are fast shrinking.
The IOCs have, however, continued to produce from the Oil Mining Licences,
some of which expired seven years ago.
Oil majors, including Total, Shell and Eni have yet to get their expired licences
renewed, according to industry sources.
Shell Petroleum Development Company holds an interest in six shallow-water
offshore leases, of which five – OML 71, 72, 74, 77 and 74 – expired on
November 30, 2008, but have not been renewed by the government.
The company, in its 2013 annual report, said it had satisfied all the requirements
of the Nigerian Petroleum Act to be entitled to an extension of the licences.
“SPDC is pursuing a negotiated solution with the Federal Government of Nigeria.
Production from the EA field, in one of the disputed leases, continued throughout
2013,” Shell said.
Licences (or concessions) entitle the holder to explore for hydrocarbons and
exploit any commercial discoveries.
An energy expert and Senior Lecturer, Energy Law, University of Lagos, Dr. Dayo
Ayoade, said in a telephone interview with our correspondent, “Oil licences have
an end date. For instance, OMLs last for 20 years. So, after exploiting the field for
20 years, you are supposed to renew the licence because we do not have
provision on relinquishment, which is one of the things the Petroleum Industry Bill
seeks to address.”
The government has historically been slow in renewing just leases/ licences, said
an energy law and policy expert, who is a Senior Associate at Banwo and
Ighodalo, a Lagos-based law firm, Mr. Ayodele Oni.
He said, “From my experience conducting due diligence on these blocks, the
government typically renews same two to four years after expiration and backdate
their renewals accordingly.
“Unfortunately, the Minister of Petroleum Resources just takes her time. Other
times, there are protracted negotiations regarding fees payable/other additional
commitments or investments that the companies must commit to. Very recently,
the government insisted on getting not less than $1m per OML.”
According to him, although, investments by the IOCs will typically slow down until
they receive such renewal, their investment plans are not seriously affected since
they know that the renewal will come anyway.
Oni said, “This problem has been going on for the past few years. The Nigerian
government doesn’t have a policy in place as to what to do when licences run
their course. We have to make a decision as to what to do.
“It’s simply a policy limbo and Nigeria is very good at that. It is high time the
government did something and not allow this limbo to continue to deprive us of
revenue.”
The Chief Executive Officer, Gacmork Nigeria Limited, Mr. Alex Neyin, said, “It is
part of the rot in the industry. Most of the IOCs are tired of the rot. The leases
have expired for the past two to three years, what does it take to renew a
licence?
“It does not take more than one week to renew a licence. The money to be paid
by the IOCs for the renewal of the licences is not the issue.”
According to him, what most of the IOCs are doing is to divest the assets before
the licences expire, as they cannot divest them after the expiration of the
licences.
The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said ExxonMobil’s
expired licences were renewed in 2012 and Chevron’s in January this year, adding
that Total, Shell and Eni had some expired licences to renew.
“I think the delay in renewing these licences is costing the companies as they are
likely to be paying a lot more yearly than they would have paid for the full 20-year
licence at once. The government could have gained an additional revenue boost
from the renewal bonuses to be paid,” he said.
The Deputy Manager, Public Affairs, Department of Petroleum Resources, Mr.
George Ene-Ita, told our correspondent, “There are many licences awaiting
renewal. There are many applications with the DPR for renewal.”
He said the renewal of the licences would be pending until the oil companies met
the requirements prescribed by law and regulations.