* Oil majors want better terms for deepwater, gas
* Bill to overhaul industry has been stalled for years
* Investment on hold due to regulatory uncertainty
By Tim Cocks
LAGOS, Sept 26 Shell thinks the tax
terms in a landmark Nigerian oil bill are so uncompetitive they
risk rendering offshore oil and gas projects unviable, the
firm's managing director and industry sources said.
Nigerian President Goodluck Jonathan approved the latest
draft of the Petroleum Industry Bill (PIB) last month, and
parliament is expected to open debate over the next few weeks.
In comments from a stakeholders' forum that Shell -
Nigeria's leading oil producer - sent to Reuters on Wednesday,
Shell Nigeria Managing Director Mutiu Sunmonu welcomed the
bill's arrival in parliament, but warned it may stifle
investment if its terms are not improved.
"A balanced PIB is what is required - one that will provide
optimal revenue to the government whilst providing sufficient
incentives for new investment to fuel growth," Sunmonu said. It
must also "take local business challenges into consideration as
well as the impact on existing investments," he added.
"What we have seen of the draft PIB to date does not
indicate a bill that fits these criteria," he said.
If it becomes law, the bill should end years of regulatory
uncertainty that has blocked billions of dollars of investment
in this West African country.
The PIB is meant to overhaul everything from fiscal terms to
the state-owned Nigerian National Petroleum Corp (NNPC). Its
comprehensive nature has sparked disputes between lawmakers,
ministers and the oil majors that have held it back for more
than five years. A previous draft never got through parliament.
"The current draft PIB requires significant improvement to
secure Nigeria's competitiveness," Sunmonu warned. "As it stands
right now the PIB will render all deepwater projects and all dry
gas projects ... non-viable."
But Magnus Abe, chair of the Senate petroleum committee,
said Shell would have a fair chance to give input to the PIB
before it is passed.
"Anybody - any Nigerian, any stakeholder - has the right to
comment on the bill on or before the public hearing," he told
In the current draft, oil companies will pay 50 percent
profit tax for onshore and shallow areas and a 25 percent levy
for frontier acreage and deepwater areas.
Current taxes on both were not disclosed.
An industry source, who could not be named, said the
deepwater profit tax was a worse deal than most oil majors were
getting on existing deepwater projects.
Since the PIB is supposed to govern these retrospectively,
the companies would lose earnings on such existing investments,
he said, although there was no disagreement over onshore.
Sunmonu also expressed concern over the terms on projects to
unlock Nigeria's huge latent natural gas potential for domestic
use in power plants. The country has 187 trillion cubic feet of
proven gas reserves, he said.
"A bad PIB will deter investment ... Nigeria needs to
compete - and the PIB will either enable or strangle that
competitiveness," Sunmonu said.
Little is known about secretive terms on offshore contracts,
analysts say the terms for onshore are much more favorable than
the deals in existence now.
Nigeria exports some 2 million barrels per day (bpd) of oil,
but could double that with a better-managed industry, foreign
oil majors say. They also say fiscal terms need to compensate
them for the extra security risks of operating here such as
piracy, kidnapping and oil theft by armed gangs.
An amnesty ended political militancy in the oil-rich Niger
Delta in 2009, but industrial scale oil theft continues.
"All of this has had a huge impact on both cost and
revenues, but we can live with them ... provided the underlying
fiscal regime is positive," Sunmonu added.