Supreme Court judgment: FG makes $62 billion profits arrears demand on oil majors – Independent Observers

Supreme Court judgment: FG makes $62 billion profits arrears demand on oil majors

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By Andy Chukwu

Nigeria is demanding about $62 billion from international oil companies (IOCs), as its share of past income from production-sharing contracts (PSCs).

The government demand is based on a 2018 Supreme Court, as it stated that the energy companies failed to comply with a 1993 contract-law requirement that the government receive a greater share of revenue when the oil price exceeds $20 per barrel.

The demand document was prepared by the Attorney-General’s office and the Justice Ministry.

While the government hasn’t said how it will recover the money, it has said it wants to negotiate with the companies.

Under the PSC law, companies including Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA, and Eni SpA agreed to fund the exploration and production of deep-offshore oil fields on the basis that they would share profit with the government after recovering their costs.

When the law came into effect 26 years ago, crude was selling for $9.50 per barrel. The oil companies currently take 80% of the profit from these deep-offshore fields, while the government receives 20%, according to the document.

Oil currently traded at above $59 a barrel.

Most of Nigeria’s crude is pumped by the five oil companies, which operate joint ventures and partnerships with the state-owned, Nigerian National Petroleum Corporation (NNPC).

Representatives of the oil companies met Justice Minister Abubakar Malami, October 3, in the capital, Abuja, when they were assured by Malami that no hostility is intended toward investors.

However, the minister stated that the government will ensure all the country’s laws are respected, the people said.

Already, oil companies including Shell have gone to the Federal High Court to challenge the government’s claim that they owe the government any money, arguing that the Supreme Court ruling doesn’t allow the government to collect arrears.

They also contend that because the companies weren’t party to the 2018 case, they shouldn’t be subject to the ruling.

The Supreme Court ruling followed a lawsuit by states in Nigeria’s oil-producing region seeking interpretation of the nation’s production-sharing law. The states argued that they weren’t receiving their full due. The court ruled in their favour and asked the Attorney-General and Justice Minister to take steps to recover the outstanding revenue.

The 1993 law required that its provisions be reviewed after 15 years, and subsequently every five years. The Attorney-General’s office insists that the provision for a higher share of revenue doesn’t require legislative action to take effect, according to the document.

“Instead it imposes a duty on the oil companies and contracting parties, being NNPC, to by themselves, review the sharing formula,” the Ministry said.

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