FG loses millions of dollar over failure to renew oil licences

The Federal Government is losing hundreds of millions of dollars to its failure to renew the leases of some oil companies which expired between three and four years ago.

The companies affected are Shell, Chevron and Total, all of which operate a joint venture partnership with the Federal Government.

How much a company pays on each lease depends on the reserve estimate of the lease, a source said.

According to another industry source,

the evaluation of the leases for which licences were to be renewed have be completed by the Department of Petroleum Resources (DPR) since 2012 and submitted to the office of the minister of petroleum resources and nothing has been heard of the exercise since then.

Some stakeholders say the mere fact that it has taken the government more than two years to renew the licence negates global industry practices.

“This means that the companies are operating by default”.

An oil company chief executive, who does not want to be named, said that by law the companies should have forfeited the leases if government failed to renew them, adding that if government wants the companies to cease operating in the country, it should ask them to go, rather than continue to keep them is suspense.

He further observed that government was losing money that the companies would have paid to its coffers as revenues from licensing for those two years.

“If the leases are valued for $400 million for a period of 20 years for example, and two years have elapsed, it then means that the government would have lost $20 million on each of these years”.

But Mutiu Sunmonu, the country chairman of Shell group of companies and managing director of Shell Petroleum Development Company, said the process was ongoing and that there was no dispute whatsoever between the companies and the government over the renewal process.

He added that government has not asked any company to relinquish any lease before getting renewal.

“We are not asked to relinquish any bloc before the licences are renewed. As a matter of fact you cannot divest unless you renew your licence, the renewal would have to technically come first”, he said.

He also observed that the non renewal pertained not only to Shell, but to Total and Chevron as well.

Sunmonu said the delay had not in any way affected his company’s operations, as they have five shallow water blocs.

“One of them is operating and as it continues to operate, everybody is taking the benefit including the government”, he said.

Eddy Wikina, managing director, Treasure Energy, and former external affairs manager, Shell Exploration and Production Company (SNEPCO), wondered why the companies’ licence renewal was taking so long. He said the joint venture companies could not just walk away, as government needed them to produce oil and gas.

He further said the government action amounted to inefficiency and lack of focus.

“If the government is not renewing their licences it should have the courage to tell the companies to go away, but it does not have the courage to stop operations because it is taking petroleum profit tax (PPT) and royalties from them,” he said.

BusinessDay