At the just concluded Nigeria Oil & Gas Conference and Exhibition held in Abuja, the Managing Director of Shell Nigeria Exploration and Production Company, SNEPCo, Mr Bayo Ojulari, spoke with energy correspondents about sundry issues bothering the oil giant and investments in the oil industry in Nigeria.
Ojulari opined that stakeholders are debating the issue of royalty and tax with the National Assembly, NASS, in terms of investment in the oil industry and that Nigeria should fast track business activities.
He said the issue around Production Sharing Contract, PSC, is also before NASS and it will soon be resolved by all stakeholders to make it convenient for operators in Nigeria’s oil and gas space.
Ojulari also spoke about the consensus judgement of the Supreme Court of which the company was oblivious about the verdict since it was not a party to it and was never consulted.
Excerpts:
Can you explain the aspect of royalty and tax in Nigeria’s oil and gas industry?
For every barrel, you pay royalty, you pay cost for doing business and tax as well. You have to take out these three and whatever is left, if you then take 50% you can as well pack your bag signifying the end of business.
When there is a high royalty there is no profit and if government says there is royalty which is taken from production and 50% is taken what is left cannot cover cost.
The debate is ongoing at NASS, and all stakeholders have made their views known about the issue. This is democracy and we should not bastardize what we have. Since the debate is on, it is hopeful that the final passage of the bill will be something that will work for the nation. But NASS cannot be forced to pass bills.
When we think about issues around policy, we should know that as a country, we are competing against other countries which is what gives me concern. By the privilege I have in working with an international company, I know what is happening in other areas and I also wish that things should be done faster so that we don’t loose out in investment. The money will not be kept in the bank forever. Nigeria needs to move faster and the process we are following is the right process but we need to move faster in order not to delay investment.
On 1000 incremental 50% can you be more explicit so that we could understand what it really means, is that when the operator goes beyond 1000 metre drill, whatever he is able to get government takes 50%?
The current regulation is beyond 1000 metre because the risk does not have royalty but going forward government will take royalty. We as industry say yes but at what rate?
Everybody understands the technology not as risky in the first fifteen years ago when we started but the rate must be something that could be comparable with the rest of the world.
Let me give you one ego trip, some people will tell you that they saw one country and their royalty is high, go and check their tax rates. Most countries where the tax rates are high, royalties are low and where royalties are high, taxes are low. You can not have royalties and tax all high. This will not attract investment.
There is one other tricky thing that is going on now in the industry. On PSC, government took some companies to court that they are owing back log of huge amount of money. What is your position about this because after certain amount of cost, whatever is above it will be shared. But the general belief is that for the PSC the company takes everything and Nigerian government is not getting what accrues to it. What’s your take on this?
Of course, you know better, the last statement you made, let’s rationalize it. Today, for production we do at the Deepwater we will pay tax. Tax and EBT, then you deduct your cost, after it has been deducted, Nigerian National Petroleum Corporation, NNPC, takes its own share and it gives contractor a percentage. So, anybody saying in terms of PSC, Nigeria is not getting anything does not understand the process. The question is that Nigeria should get more and people are clamouring for more. Every country will clamour for more there is nothing wrong with that as long that it is done in collaborative way that does not kill the industry. Otherwise, you will kill the hen that is laying the eggs and there is no egg any more.
The point is that the PSC says that after $20 the government and operator should negotiate and update it. Unfortunately, the negotiation did not happen. You cannot say oil price has gone up and you want to take all the sides because cost is up. You need to net up the cost, this is what we are saying.
What is beautiful in NASS is that we don’t have to say much because lawmakers were so educated and I was very proud of them, I must be honest, the Senate Committee that administered this discussion did well.
I was really proud to be a Nigerian that day because those guys did well. Before we could say anything, they were asking some basic questions. What did you do with the cost that should have been deducted? What do you do with other investments that you have done at those high oil prices?
The issue around the court case was also discussed at the public hearing. I work for Shell, but am a bloody Nigerian and my family is in Nigeria. I always tell people that they cannot intimidate me even if am an expatriate, you cannot intimidate me. We all belong to this country, am not afraid. I told them at NASS.
First of all, the fundamentals are that we need to know each state went to the Supreme Court and it passed a consensus judgement where the accused was not interviewed which was what the Senate Committee Chairman asked. He asked me if I was invited for a discussion by the Supreme Court? I said judgment was passed without any consultation or clarification and it was called a consensus judgement. This is the first one I will hear in Nigeria. So, let’s first of all ask ourselves, how did we manage that?
Shell dissociates itself from that judgment and it cannot be part of it. Before we knew it the company was also at the public hearing and the contractor of the company billed everybody without doing any business. This is jungle justice and if you do that I can tell you every international investor will leave Nigeria if that is the way we want to run our country. Where a group of people will sit together, pass judgement with company that has been operating for more fifty years in the country. These are the things I want to say about the court judgment.