Renegotiate Offshore Oil Contracts

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Lamido Sanusi

Lamido Sanusi

The governor of Nigeria’s central bank, Lamido Sanusi, said the contracts for oil companies to conduct deep offshore operations must be renegotiated because the fiscal terms are unfavorable to the West African nation.

The companies should “renegotiate this or get out,” Sanusi said today to cheering attendees at an economic conference in Abuja, the capital. “These discussions are not just economic discussions; they’re discussions that go to sovereignty.”

“Unfair fiscal terms” for the deepwater operations, which account for 40 percent of Nigeria’s oil production, cost the country $5 billion a year in lost revenue, and contribute to the decline of the foreign-currency reserves of Africa’s biggest oil producer, he said. Fuel subsidies, which the government wants to end, total another $6 billion a year, Sanusi said today outside the conference.

Foreign-currency reserves dropped 3.7 percent to $32.8 billion on Nov. 4 compared with a year earlier, according to central bank figures. The country imports most of its fuel products because of a lack of refining capacity, and spends foreign currency in biweekly auctions to support the naira.

Nigeria receives 20 percent of oil companies’ profits from deep offshore wells, “which is calculated when the oil companies tell us what their expenses are,” Sanusi said.

U.S. Imports

The country is the fifth-biggest source of U.S. oil imports. Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA operate joint ventures with the state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the West African nation’s crude.

Shell spokesman Precious Okolobo and ExxonMobil spokesman Nigel Cookey-Gam declined to comment on Sanusi’s remarks. Total spokesman Charles Ebereonwu, Nigerian Agip Oil Company Ltd. spokesman Tajudeen Adigun and Chevron spokesman Femi Odumabo didn’t answer telephone calls seeking comment.

The Nigerian government is pushing to renegotiate the terms with the companies through the Petroleum Industry Bill, Sanusi said. The proposal for changing oil industry regulation has been in the legislature for more than two years, stalling new projects in the industry as producers including Shell and Total hold off on investment until the law passes.

“I don’t talk to companies, I don’t care what they think,” Sanusi said when asked how oil companies will react to such changes in their contracts.

The central bank has struggled to keep the naira within its target band of 3 percent above or below 150 per dollar as oil prices declined and demand for imports surged. Mounting demand for dollars had pushed the naira outside the target range, with the currency weakening to a record 166.6 per dollar on Oct. 10.


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