State-owned Nigerian National Petroleum Corporation signed a deal with its partners in the deepwater oil block OML 118, as Africa's largest oil producer takes step to sweeten its relations with international oil companies in a bid to stem its recent output decline, it said late May 25.
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OML 118 contains Bonga, Nigeria's first deepwater oil field, which has the capacity to produce 225,000 b/d of crude oil and 150 MMcf/d of gas.
NNPC said the OML license for the block's partners Shell, Total, ExxonMobil and Eni were renewed for another 20 years, and five agreements include settlements on a tax dispute, and production sharing contracts were finalized.
This is expected to pave the way for the much touted and delayed expansion of the Bonga field, which until now has been shelved due to a long-standing tax dispute with Shell, the operator of the field.
At the heart of the Bonga expansion program is the development of the Bonga Southwest field, which had been put on hold for more than two years as Shell and the NNPC clashed over the commercial framework of the project.
In a statement, NNPC's group managing director Mele Kyari said "over $10 billion of investment would be unlocked" in the expansion program on the Bonga field as a result of the settlement of the disputes.
"This is an indication of a renewed confidence between NNPC and its partners; between the [Nigerian] government and the investing communities," he said.
Osagie Osunbor, the country chair of Shell's Nigerian operation, said this renewal will do a lot to improve the relationship between Nigeria and Shell, as the disputes had "affected trust and investment."
In 2019, Shell had gone ahead to invite bids from international contractors to build a new 150,000 b/d floating production storage and offloading (FPSO) platform for Bonga Southwest. The process was halted when Nigeria said it was reviewing the PSC agreement binding on the field.
Shell is Nigeria's biggest oil producer, but relations have soured over recent years due to commercial and security issues.
On May 18, Shell CEO Ben van Beurden told investors the company was focusing more on its Nigerian deepwater and gas assets after it deemed its onshore oil portfolio in Nigeria "no longer compatible" with its strategic ambitions, which include a focus on climate change and net zero carbon strategy. The energy major is currently in talks with the government to sell at its onshore oil assets.
Kyari also said that the deal would yield over $780 million in immediate revenues to the federal government and would also free the parties from over $9 billion in contingent liabilities.
Shell had previously said it would develop the Bonga Southwest project across three phases with a total potential yield of 3.2 billion barrels.
Nigeria is banking on increased output from the field to raise its production capacity to close to 3 million b/d in the coming years from current levels of 2.3 million b/d, according to NNPC sources.
Nigeria is finally starting to take some steps to lure investors back to its oil industry.
The upstream sector has not seen much action in the past half a decade, mainly due to continued regulatory uncertainty and high costs.
On May 20, Kyari said Nigeria was implementing ongoing reforms in its oil sector essentially to introduce more transparency, create a more robust fiscal environment and to ensure the country's oil sector is more competitive.
In 2019, Nigeria increased taxes on its deepwater oil production, which was not welcomed by many international oil companies. At the time, President Muhammadu Buhari had said Nigeria would earn an additional $500 million from the review of the taxes in the PCS in 2020, rising to $1 billion in 2021.
Other oil producing countries in the region have sweetened their fiscal terms to attract foreign investment over the years.
Nigerian oil output has fallen sharply since early 2020 due to the oil price crash caused by the coronavirus pandemic and as it came under pressure to adhere to OPEC+ output cuts.
Nigerian crude oil and condensate production averaged as low as 1.65 million b/d for the first four months of this year, compared with 1.75 million b/d and 1.90 million b/d in 2020 and 2019, respectively, according to S&P Global Platts estimates.