Economic analysis of the production sharing contract in nigerias. This decree has been amended by deep offshore and inland basin production sharing contracts amendment decree no 26 of 1999. Production sharing contract in nigeria overview legal. Production sharing contract measures to raise revenue for federal government nigeria. Deep offshore and inland basin production sharing contracts decree. Concept of production sharing contract psc government petronas contractors pda psc entire ownership of nations petroleum resources is vested to petronas. Production sharing agreement psa is a contract between one or more investors and the government in which rights to prospection, exploration and extraction of mineral resources from a specific area over a specified period of time are determined. Together with partners in lower and middleincome countries, iied has been working to strengthen local and national capacity to examine contractual issues with a sustainable development lens. However, in contrast to production sharing contracts, in a service contract the iocs. Several oil producing countries, particularly the developing ones have adopted it as a contract for the exploration and development of their oil and gas resources. Model psc under the petroleum act page 2 production sharing contract dated this agreement is a production sharing contract made under the petroleum act between the, acting on behalf of the democratic republic of timorleste the ministry. Economic analysis of the production sharing contract in nigerias deepwater okunola oluwafemi a.
The fundamental distinction between psc and rt regimes lies in the. The main features of a good psc includes the following. The chargeable tax on petroleum operations in the contract area under the production sharing contracts shall be split between the corporation or the holder and the contractor in the operations. Production sharing contract in accordance with each partys tax oil allocation for the payment of petroleum profit tax under the provisions of the production sharing contract. They participate in the petroleum industry in joint ventures with nnpc, as operatorscontractors in the nigerian deep water under production sharing contracts with nnpc. The 2005 hydrocarbons law includes two main instruments. Production sharing agreement a guide or the oi and gas sector ased on eerience rom the asian egion 2012. The psc act which grants certain fiscal incentives to exploration and production companies operating in the deep offshore and inland basin area of nigeria allows the fgn to adjust the revenue sharing formula in the psc whenever the price of. The production sharing contract psc was widely introduced in 1993 to address some of the issues faced by the joint operating agreement joa and also to provide a suitable agreement structure for encouraging foreign investment in offshore acreage. Petronas, as a custodian, manages the petroleum resources of the nation. At the end, this dissertation will compare both regimes from a contractual perspective in order to answer whether it is really necessary to adopt a new regulatory framework based on a production sharing contract for the subsalt area in brazil.
Nigeria with several 100 percent cost recovery contracts. Production sharing contract psc production sharing agreement psa under a pscpsa, a national oil company noc or a host government enters into a contract directly with an oil and gas company. Petronas has exclusive rights to exploit nations petroleum resources. The production sharing contract psc the psc is today the toast of nigerian petroleum industry.
A legal analysis of production sharing contract arrangements. The first and the most important feature of a psc is that the title of the oil and gas remains with the state and not the ioc. A comparative analysis of production sharing contracts of. Production sharing contract in the nigerian oil and gas. Productionsharing agreements oxford institute for energy. In the early 1990s, when nigeria sought to increase its petroleum production. Under these arrangements, the nnpc is the holder of the concession while the ioc is the contractor. Dec, 2019 the president of the federal republic of nigeria recently signed into law the deep offshore and inland basin production sharing contracts amendment act 2019 the amendment act. Upstream production tends to be subject to more complex fiscal terms bonuses, royalty, production sharing, additional profits taxes corporate income tax usually payable or replaced with a special petroleum profit tax oil and gas production treated separately or together for tax purposes. These multinationals account for about 97% of nigerias oil reserves and production. Production sharing contract measures the president today indicated his support of legislation concerning production sharing contracts for offshore and inland basin crude oil and gas extraction.
Subsequently, it will look at the main features of concessions by analyzing the brazilian regulatory framework for oil activities. Contract area means the area specified in article 3 hereof and delineated on the map set out in annex a, as modified and reconfigured from time to time in accordance with the stipulations of this contract. How to scrutinise a production sharing agreement a guide or the oi and gas sector ased on eerience rom the asian egion 2012. Production sharing contract in the nigerian oil and gas sector nigeria had in the past years engaged in joint venture agreement jva for the exploration of her petroleum resources. This contract is a production sharing contract, the scope of which is the exploration, appraisal, development and production of hydrocarbons in the contract area and the supply of required infrastructure within and outside of the contract area up to the delivery point, all at the contractors sole risk and expense. Production sharing contract will be brought into discussion. The president recently assented to the deep offshore and inland basin production sharing contract amendment bill 2019. This jva in nigeria was associated with poor funding, due to the imbalance in the financial capacity of the different joint venture partners, especially the. The deep offshore and inland basin production sharing. Revenue sharing arrangements in production sharing agreements illustrate this point vividly. Renegotiation of nigerias production sharing contracts. Amendment of the deep offshore and inland basin sharing contract act, cap d3, lfn, 2004. This study aims to compare expected returns from exploiting petroleum resources of selected countries nigeria, indonesia. A billdeep offshore and inland basin production sharing contract.
Amendment of nigerias production sharing contract regime. Production sharing contract measures kpmg united states. Nigeria, indonesia, malaysia and equatorial guinea. Production sharing contracts psc have offered exploration and production companies and oil producing countries such as nigeria a unique arrangement for the development of petroleum resources, particularly within the deepwater offshore area.
Fiscal regimes, petroleum contracts, and natural gas. Exploration and production agreements provided by the 1986 hydrocarbons law includes joint ventures, partnerships, production sharing, and risk service contracts. Model production sharing contract under the petroleum act. Productionsharing agreements psas are among the most common types of. Nigeria has adopted it for the exploration and development of the offshore and inland basin. Production sharing contract psc is an arrangement used in the. The production sharing contract psc was widely introduced in 1993 to address some of the issues faced by the joint operating agreement joa and also to. National assembly passes oil production sharing contract bill.
In a service contract, similar to a production sharing agreement, the closest legal framework, the international oil company brings the technology and makes the upfront capital investment. In our previous three budgets, we set the stage for our. This contract is a production sharing contract, in accordance with the provisions herein contained. Oct 30, 2019 meanwhile, the nigeria extractive industries transparency initiative has welcomed the passage of the deep offshore and inland basin production sharing contract amendment bill by the national assembly. Oil producers like nigeria are not just on the verge of a national petroleum industry legal revolution in its. Deep offshore and inland basin production sharing contracts. Sharing contract psc provisions that permit royalty payments according to the. A comparative analysis of production sharing contracts of selected developing countries. Nigeria had in the past years engaged in joint venture agreement jva for the exploration of her petroleum resources. Production sharing contracts production sharing contracts or agreements psc hereafter are ubiquitous in much of asia, africa and the middle east, with only a handful of countries in these regions adopting a royaltytax or concession rt regime or some hybrid.
Show full abstract makes the contracts more flexible, allows to adapt production sharing agreements to any type of fields, to transfer the main economic elements of the contract from the sphere. The deep offshore and inland basin production sharing contract act, cap d3, lfn 2004 in this act referred to as the principal act is amended as set out in this act. The federal military government hereby decrees as follows. The amendment act modified the erstwhile deep offshore and inland basin production sharing contracts decree of 1999 the principal legislation or the decree. Production sharing contract in the nigerian oil and gas sector hg. It is an agreement born in response to the funding problem faced by the old jv arrangement as well as the desire of the nigerian government to open up the sector for more foreign participation. Production of petroleum in nigeria 1987 5 jerl 273290. The case for publishing petroleum contracts in nigeria natural. Pdf stabilisation and renegotiation clauses in production. The contractor shall a be responsible to the government for the execution of the petroleum operations contemplated hereunder in accordance with the provisions of this. Production sharing contract in nigeria has some distinct features from other forms of contractual arrangements in the upstream petroleum subsector. Pricewaterhousecoopers limited a nigerian limited liability company. Production sharing contract psc is an arrangement used in the upstream sector for the exploration and development of petroleum resources.
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