By Milcah Tanimu

The Federal Government of Nigeria has disclosed that 23 oil blocks, managed by both international and local oil companies under crude oil Production Sharing Contracts (PSCs) with the Nigerian National Petroleum Company Limited (NNPC), failed to produce crude or were inactive during the year under review. This information was revealed in the latest Oil and Gas Industry Report for 2021, released by the Nigeria Extractive Industries Transparency Initiative (NEITI), an agency of the Federal Government.

Production Sharing Contracts (PSCs) are agreements where oil companies undertake to fund operations for the exploration, development, and production of petroleum within a specific concession area for an agreed number of years. If successful, the company is obligated to pay Petroleum Profit Tax, royalties, and other bonuses/levies to the government. The company can recover its costs through “Cost Oil,” and it pays Petroleum Profit Tax (PPT) and royalty in-kind.

The NEITI report indicated that in 2021, 12 of the PSC oil blocks recorded production, while 17 blocks did not produce crude. Furthermore, six blocks were inactive, bringing the total number of both inactive oil blocks and those that did not produce during the review period to 26.

Some of the oil companies involved in these inactive or non-producing blocks included Esso E&P, Nigerian Agip Exploration, Shell Nigeria Exploration and Production Company, Texaco Nigeria Outer Shelf Limited, Star Deep Water Petroleum Limited, and Statoil Nigeria Limited, among others.

The report also stated that total production from the PSCs in 2021 was 242.96 million barrels, accounting for 42.92 percent of the total production of 566.13 million barrels.

Production Sharing Contracts are designed to shift the financial burden of exploration and production from the government to the contracted oil companies, with the government benefiting from taxes, royalties, and profit shares if production is successful. However, the findings in the NEITI report raise questions about the effectiveness and productivity of these contracts within the Nigerian oil industry.