In line with the Petroleum Industry Act (PIA) 2021 provisions of transiting assets from the Petroleum Profit Tax (PPT) into PIA terms, the NNPC Ltd. and its Joint Venture (JV) partner, Chevron Nigeria Ltd (CNL), have concluded the conversion of five of its JV assets into the PIA terms.
Under the new PIA regime, all existing Oil Prospecting Licenses (OPLs) and Oil Mining Leases (OMLs) would be automatically converted to Petroleum Prospecting Licenses (PPLs) and Petroleum Mining Leases (PMLs) upon their expiration.
Nonetheless, an option of voluntary conversion is provided for holders of OPLs and OMLs (Operator, Licensees or Lessees) under the erstwhile Petroleum Profit Tax (PPT) regime. The PIA terms are generally perceived as more investor-friendly, compared to the erstwhile PPTA terms.
During a brief ceremony held at the NNPC Towers on Monday, the two partners signed documents on the conversion of five (5) OMLs into four (4) PPLs and twenty-six (26) PMLs, in line with the new PIA terms, marking a significant step towards increasing domestic gas supply and expanding global market presence.
Speaking at the occasion, Group CEO NNPC Ltd., Mr. Mele Kyari, described CNL as one of the most reliable partners for NNPC Ltd. “Over the years, Chevron has been a partner of choice that has not contemplated completely divesting/exiting (oil production in) the shallow water and we are proud of them,” he added.
Kyari assured CNL that NNPC Ltd would sustain its partnership with the JV partner to create more value for both parties and expand Nigeria’s footprints in the domestic and export gas markets.
He commended the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) for its exemplary role in midwifing the conversion.
The Director, Deepwater and Production Sharing Contract (PSC) of CNL, Mrs. Michelle Pflueger who stressed the significance of the conversion for both companies, affirmed CNL’s long-standing commitment to the assets.
Also speaking, NNPC Ltd.’s Executive Vice President, Upstream, Mrs. Oritsemeyiwa Eyesan, highlighted the advantages of the PIA terms over the previous PPT terms, noting that the conversion was a strategic move towards the successful implementation of the PIA.
In his remarks, NNPC Ltd.’s Chief Upstream Investment Officer, Mr. Bala Wunti, noted that the assets conversion is expected to significantly boost crude oil production, with the two partners focusing on attaining the 165,000 barrels of oil per day (bopd) production target by year-end, 2024.
He emphasized the continued importance of CNL’s operational philosophy in maintaining network stability and facilitating gas supply especially to the domestic market.
Under the previous Joint venture agreements, all equity partners are expected to contribute towards CAPEX. The higher your equity ( like in the case of NNPC), the bigger your CAPEX contribution.
Because of how illiquid NNPC has become, these has led to the burden of JV cash calls. PMB inherited JV cash call of over $ 5 billion. Clearly a disincentive for investment.
With the new Production sharing contract, CAPEX is supplied by the international oil companies and recovered from the sales of crude oil. Profit is then shared with NNPC after removing operating cost
For NNPC:- This is a relief from JV cash calls mandate
For investors :- PIA offers better fiscal incentives. PIA replaces the PPT tax payment regime with a simplified 2 tier tax system – The Hydrocarbon Tax (HCT) and Companies Income Tax (CIT).
Also under the HCT, tax rates will vary based on the type of license held. For operations in onshore and shallow waters, converted Petroleum Mining Licenses (PMLs) will be taxed at a rate of 30%, whereas converted Petroleum Prospecting Licenses (PPLs) will see a lower rate of 15%.
