Wood Mackenzie’s latest analysis quantifies the possible economic impact of the Petroleum Industry Bill (PIB), the latest draft of which was put before the National Assembly in July 2012 and is currently under debate. Using the proposed upstream fiscal changes detailed in the PIB, and proposed royalties that are separate to the PIB, the independent Energy research firm’s assessment indicates three key areas that would be impacted the most: small exploration and production (E&P) companies investing in onshore fields; gas projects; and deepwater projects.
In summary, Wood Mackenzie’s key findings are as follows:
Onshore
Gas
Deepwater
Martin Kelly, Lead Sub-Sahara Africa Analyst for Wood Mackenzie comments; “This long-awaited legislation is still being debated by stakeholders, and the prospects of its imminent passage remain distant. Nevertheless, with so much at stake for all concerned, the impact of the proposed legislation remains a hot topic of discussion for Nigerian oil and gas players.”
Wood Mackenzie’s assessment shows that the PIB is a positive step for small E&P players operating new fields in onshore and shallow water concessions. Kelly explains; “Our analysis indicates that on a stand-alone basis, the new terms would increase value for investors in new onshore and shallow water fields.
However, one of the stated objectives of the PIB is to establish a progressive fiscal framework that encourages further investment while optimising revenues to the government. Wood Mackenzie’s view is that the current version of the PIB and the proposed royalties do not fully achieve this. In particular, deepwater and dry gas projects will be hit hard by the proposed legislation, as Kelly expands: “Wood Mackenzie’s analysis indicates that the PIB would be a significant barrier to the development of shallow water gas fields: Only gas fields that contain some oil could generate value, and even then the returns are likely to be marginal.”
A key battleground in the PIB debate is its impact on Nigeria’s deepwater sector. The Government is keen to increase its tax revenues from deepwater projects to levels that are more in line with other deepwater countries, such as Angola. However, as Obo Idornigie, Senior Sub-Sahara Africa Analyst for Wood Mackenzie explains; “While the proposed terms would increase government revenues, our analysis indicates that all of the producing deepwater fields would experience significant reductions in remaining value to the contractors.”
For undeveloped deepwater projects there are similar challenges, Idornigie continues; “Looking at the rates of return investors might expect from these new projects, the PIB would reduce most of them to below 15%; and no deepwater projects have been sanctioned in West Africa unless they achieve at least this level of returns.”
[mappress] LNG World News Staff, April 23, 2013