FG cancels concessions to oil firms

Martin Ayankola, Lagos with Agency Report - 05.02.2008

The Federal Government has commenced the review of its agreements with major oil producing companies in Nigeria as it cancelled a 22-year-old Memorandum of Understanding (MoU) it signed with them which provides incentives to boost oil exploration and production in the country.

The government and the oil multinationals, including Shell, ExxonMobil,Chevron, Eni and Total, signed a memorandum of understanding in 1986 which offered a $2.50 bonus to the companies for every barrel of oil discovered.

A source in the Ministry of Energy said “that was in the period of very low oil prices and low investments in exploration. The government felt those factors no longer exist, hence the cancellation of the MOU.

“Oil prices are now at all-time highs, which provides in itself incentive to the oil firms. So it is better to stop it now,” the source added.

The source said the move wass part of a wider reform of the oil sector embarked upon by President Umaru Yar'Adua, which includes a review of the previous licensing round and funding arrangements for joint ventures.

The MOU, which had been reviewed twice since it was first introduced, was agreed upon at a time when Nigeria's oil reserves were on the decline, plummeting to around 15 billion barrels, while oil prices of around $10 per barrel provided little incentive for exploration.

Oil prices have since breached the $100 per barrel mark while Department of Petroleum Resources said last week that Nigeria's oil reserves stood at 33 billion barrels at the end of 2007.