Nigeria has introduced a fresh production-sharing contract (PSC) model that upstream regulator NUPRC says incentivises deepwater operations in new ways, including provisions to spur non-associated gas development.
TotalEnergies signed the first PSC under the new framework, describing the underlying licences as Nigeria's first award of an exploration block to an international oil company in a decade. "This marks a new milestone in our long-term partnership with Nigeria," said Kevin McLachlan, senior vice-president for exploration.
NUPRC shared a document with Argus describing the TotalEnergies PSC as comprising 32 clauses and 13 appendices, and as Nigeria's first to "comprehensively cover, in scope, both crude oil and natural gas".
The new PSC includes "robust gas terms", NUPRC said, including a profit gas split based on cumulative associated gas sales, designed to incentivise monetisation of non-associated gas. State-owned oil firm NNPC is the PSC concessionaire. Its chief executive Bashir Ojulari said tapping deepwater non-associated gas is one of Nigeria's key challenges.
Nigerian president Bola Tinubu has tasked Ojulari with raising domestic gas output to 10bn ft³/d by 2027. NUPRC data show average output of 7.59bn ft³/d in January-July this year.
The TotalEnergies PSC sets a $10mn signature bonus. It also includes production bonuses payable to the government of 2mn bl or cash equivalent when output reaches 35mn bl, and 4mn bl or cash equivalent at 100mn bl. A finance specialist involved in the negotiations told Argus the structure encourages investment by deferring part of what would otherwise be a high signature bonus. The production bonuses may prove low depending on the size of any discoveries, the specialist added.
NUPRC said the PSC also features a profit oil split based on cumulative production and a cost oil cap of 70pc. The regulator said its signature bonus strategy aligns Nigeria with countries such as Thailand, Israel, Guyana and Brazil, which have moved away from heavy, front-loaded bonuses to attract investment.
The finance specialist said TotalEnergies will pay only Nigeria's company income tax under the PSC, as deepwater operations are exempt from hydrocarbon tax under the 2021 Petroleum Industry Act. Nigeria's new tax law, enacted on 26 June, could also allow production tax credits of up to $4.50/bl for crude and $1/1,000 ft³ for non-associated gas, depending on the size of producible reserves. Royalties will be calculated monthly, based on production and a monthly oil price set by NUPRC.
NUPRC said the signing of the PSC marked the close of Nigeria's 2024 licensing round, noting that "attracting investors to the [round] was not easy". TotalEnergies, in an 80:20 consortium with local independent Sapetro, won licences for PPLs 2000 and 2001. Chevron was named reserve bidder. An industry source said other international oil companies were cautious about the underexplored deepwater plays offered in the round.
Ojulari said NNPC looks forward to "many more" bid rounds including the next one, which NUPRC has said will launch this year. As concessionaire, NNPC "will be marketing" the new PSC model to promote deepwater opportunities, he said.
