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In 2004 NNPC set an ambitious target to grow oil production to 4million barrels per day and reserves to 40 billion barrels by 2010. It became apparent very quickly that the targets were unrealistic so the national oil company extended the target to 2020. The current reserves are 36.18 billion less than the 37 billion barrels in 2010

During this period Nigeria has not conducted any bid round. The decade long tryst to perfect the PIB has quite understanably restricted investment. The very real effect of tardy legislation has been to reduce revenues by perpetuating uncertainty, thus detrimentally effecting the countrys growth and development. It is difficult to see how any bid round can take place until the PIB is enacted.

President Muhammadu Buhari has refused to assent to the governance fragment of the four-part Petroleum Industry Bill (PIGB). This has the effect of delaying the components of the PIB which address the fiscal arrangements that will govern the exploration, production and development of the sector and community provisions. The PIGB which focuses on governance is critically flawed in many areas in our opinion and at best provides a clumsy and far from perfect attempt to foster corporate governance and transparency in the sector. It would appear that the legislature has adopted the approach that the bill is a work in progress to be adapted and further perfected over time. It is hard to see the President assenting to the Bill in its current form. Given that the election cycle has begun it is unlikely that the Bill will be passed in this session of parliament.

 

As Nigeria displays an acute petroleum dependency for its revenue, the government has understandably initiated a policy intended to boost the reserves to 40 billion barrels by 2011. One of the approaches to achieve this objective is the development of marginal petroleum concessions. Thisapproach may result in the introduction of 300 million barrels to the existing reserves. Nigeria’s marginal concessions’ fiscal regime stands to influence the success of the government’s objective.The 24 Marginal field operators in Nigeria are operating under farm in agreements with International Oil Companies from whose acreages the marginal field areas were carved out. The typical agreement calls for the farmor to receive some form of royalty from the farminee.

But in Nigeria's proposed new legislation, (Petroleum Industry Bill), these International Oil Companies will have to give up areas that are currently being operated by marginal field operators, according to the former Petroleum Minister, Mr Rilwan Lukman. “These areas will be given directly to these operators. This will allow them to get their own acreage and become masters over their own fields under favourable royalty and tax provisions “. “These contracts were granted without implementing a modern acreage management which typically includes strong relinquishment practices.

As a result, in Nigeria petroleum companies are “sitting on” acreage and there is no access to acreage for new investors In 2002 the Federal Republic of Nigeria embarked upon the licensing of 24 marginal oil fields containing about 300 million barrels of crude oil. Awards were made to indigenous companies in 2003. The prospects of the successful development and production of these fields rest upon the attainment of commerciality thresholds via oil price appreciation, and the propriety of the applicable fiscal regime.

One condition for the development of these fields is currently present - a high oil price regime prevails. However, the unpredictable and widely fluctuating nature of oil prices is such that the current regime cannot be solely relied upon to sustain the economic development of these fields. Accordingly, the propriety of Nigeria’s fiscal regime, as it applies to the marginal fields, comes into question.