Nigeria risks losing $185 billion within 10 years as higher taxes proposed by a new law will deter investment in the country’s oil industry, an association of energy companies including Exxon Mobil Corp. (XOM) said.
Nigerian oil production may slump by 25 percent from 2.4 million barrels a day if the Petroleum Industry Bill, or PIB, is implemented, Mark Ward, managing director of Exxon Mobil Corp.’s Nigerian unit, said in Lagos today. The loss of investment caused by the law would leave it insufficient to tackle decline rates at oilfields, said Ward, representing the Oil Producers Trade Section at a conference in the commercial capital.
“The terms proposed increase royalties, increase taxes and lower allowances or incentives all at the same time,” said Ward. Energy companies are “deeply concerned” as the new tax proposals will “create one of the world’s harshest fiscal regimes.”
The new law is aimed at reforming the way Nigeria’s oil and gas industry is regulated and funded, and seeks to increase the government’s share of profit from oil pumped to at least 73 percent, from 61 percent currently, according to Petroleum Minister Diezani Alison-Madueke.
The Oil Producers Trade Section, or OPTS, includes Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX), Exxon Mobil, Total SA (FP) and Eni SpA. (ENI) The companies pump about 90 percent of Nigeria’s oil through ventures with state-owned Nigerian National Petroleum Corp.
Proposed increased taxes in the legislation would make exploration “uneconomical,” they said in a joint presentation to lawmakers last month.
The PIB may boost the government’s share of oil profits to as much as 96 percent, Ward said. For gas projects, the PIB will increase the tax rate to 80 percent from 30 percent, “significantly reducing incentives for investments.”
Under the bill, rentals and penalties would be set by the petroleum minister, while the country’s president would be able to award licenses without competitive bidding. Companies remain concerned that there’s no guarantee of the sanctity of existing contracts, or of independent arbitration when disputes arise, Ward said.
Africa’s most populous nation, with more than 160 million people, relies on oil for as much as 95 percent of export earnings and 80 percent of government revenue. The West African nation produced 1.92 million barrels a day of oil in July, according to data compiled by Bloomberg.