IOC’s $20bn tax liabilities may shift Shell’s Bonga project till 2019

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The decision by the Federal Government to compel International Oil Companies (IOCs) to settle about $20 billion tax arrears owed states, industries and governments will delay the final Investment Decision (FID) on Shell Bonga Soutwest project till 2019.

Shell’s Head of Upstream, Andy Brown, disclosed this Tuesday on the sidelines of the International Petroleum Week Conference in London.

The Nigerian National Petroleum Corporation (NNPC) had last month written the IOCs, citing what it called outstanding royalties and taxes for oil and gas production.

Specifically, Royal Dutch Shell, Chevron, Exxon Mobil, Eni, Total and Equinor were each asked to pay the Federal Government between $2.5 billion and $5 billion.

Brown said Shell, the largest investor in the West African nation, would likely dispute the charges, adding that the oil firm will need to resolve the issue before taken an FID decision on the Bonga Southwest project.

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

We will have to take it seriously but we think it has no merits, said Brown, who steps down from his role this year,’’.

Shell’s Bonga Southwest deepwater, one of Nigeria’s largest oil field is expected to reach 180,000 barrels per day production

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 Shouthwest’s FID may slip into next year.” Brown said.

Norway’s Equinor, which produced around 45,000 barrels per day (bpd) of oil in Nigeria in 2017, confirmed the request. “Several operators have received similar claims in a case between the authorities in Nigeria and local authorities in parts of the country,” an Equinor spokesman said.

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Exxon “is currently reviewing the matter”, a spokeswoman for the U.S. company said. ‘Appropriate reforms in Oil and Gas sector is the gateway to prosperous economy in Nigeria’. Shell, Total, Eni and Chevron declined to comment, as did the Presidency, petroleum ministry and NNPC.

The charge came after the Federal Government and states settled a dispute over the distribution of revenue from hydrocarbon production. The sides agreed last year that Abuja would pay the states several billion dollars, three companies and government sources said.

The companies were expected to dispute their respective payment claims. “Equinor sees no merit to the case,” the company spokesman said. A source at another company said: “This looks like an internal dispute between the federal and local governments.

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The Federal Government is simply trying to shift to the IOCs (international oil companies) money it owes.” The tax demand adds a fresh challenge to energy companies investing in Nigeria, which have been negotiating production-sharing agreements with the government to develop and operate giant offshore fields.

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