Shell: Nigeria’s Multi-billion Dollar Tax Claims May Delay Bonga Project

Royal Dutch Shell yesterday disclosed that the federal government’s recent claims that it owed Nigeria billions of dollars of unpaid oil and gas-related taxes could delay the development of its major oil field – the Bonga South West deepwater oil field located off the coast of the country.

The federal government recently ordered several major international oil companies (IOCs) to pay nearly $20 billion in taxes it said were owed the government.

Reuters quoted Shell as saying yesterday that the country’s tax claims lacked merit, and could see the Final Investment Decision (FID) on Bonga South West slip into 2020 instead of 2019 that was initially thought.

The report quoted Shell’s Head of Upstream, Mr. Andy Brown, as saying on the side-lines of the International Petroleum Week conference in London that the tax claim lacked merit.

“It is something that has gone through the courts in Nigeria, which relates to an original clause within the original PSCs (production sharing contracts),” said Brown said.

Brown, who will step down from his role this year, explained: “We will have to take it seriously but we think it has no merits.”

According to him, the outstanding tax issue will delay the FID on developing Shell’s Bonga South West deep-water oil field, one of Nigeria’s largest with production expected to reach over 200,000 barrels per day (bpd).

“We’ll need to resolve that before we ever FID the Bonga South West project,” he said in the report.
He further indicated that Shell has made progress with the government on some basic terms for operating the field but a decision on its development was now unlikely to be made in 2019. “Bonga South West’s FID may slip into next year,” Brown added.

Nigerian National Petroleum Corporation (NNPC) and Shell Nigeria Exploration and Production Company (SNEPCo) had earlier this month commenced the tendering process for the execution of $10 billion Bonga South West/Aparo (BSWA) deepwater project.

Consequently, the company released the Invitation to Tender (ITT) to contractors for the development of the oil field.

SNEPCo and the NNPC had reached agreement on the key commercial terms necessary to move the development of the oil field forward.
This agreement, it was learnt, covers related production sharing contract (PSC) interpretation disputes.

“It also sets an incentivising and fair framework for developing this world class opportunity while opening further opportunities in the prolific Nigerian deepwater oil and gas industry. We look forward to realizing the significant benefits to the Nigerian state, the Nigerian deepwater oil and gas construction contractors, their workforce and the investing parties as we progress towards investment decision, construction and start-up,” an official of the project partners had explained.

The project’s initial phase would include a new Floating, Production, Storage and Offloading (FPSO) vessel, more than 20 deep-water wells and related subsea infrastructure.

First oil from the project, which is expected to add 225,000 barrels per day of crude oil to Nigeria’s daily production, is expected in 2021 or 2022.
THISDAY gathered that the BSWA field straddles Oil Mining Leases (OMLs) 118, 132 and 140.

However, the bulk of BSWA resources are located in OML 118 but it also extends into OMLs 132 and 140, operated by Chevron, where it is called Aparo.
SNEPCo is the operator of the BSWA project in line with the agreement between the NNPC, Esso Exploration & Production Nigeria (Deepwater) Ltd., Total E&P Nigeria Ltd., Nigerian Agip Exploration Ltd., Texaco Nigeria Outer Shelf Ltd., Star Ultra Deep Petroleum Ltd., Sasol Exploration and Production Nigeria Ltd. and Oil and Gas Nigeria Ltd.