PRODUCTION SHARING CONTRACTS IN THE NIGERIAN PETROLEUM INDUSTRY: REFLECTIONS ON THE LEGAL REGIME

Abstract

The issue of legal regime is central to the petroleum sector’s sustainability and diversification of economic resources of any country. In this regard, laws and regulations are put in place in line with the peculiarities of each country, which aims to boost the needed resource development and management. This study investigates the necessity for the regulation of the petroleum sector to tackle shortfalls and to enhance quantities of petroleum commodities in Nigeria. This work employed doctrinal methodology in the presentation and analysis of information gathered from primary and secondary source materials. The findings made from this article include the fact that production sharing agreement is better suited for the developing economies than alternative legal arrangements for exploitation of hydrocarbons, because these developing economies lack the technical expertise and finances to exploit and develop natural resources. It gives the government a decree of control over the operation of the oil companies. This agreement favours the state government because without putting their own resources, manpower, technology and finances, the state government gets the revenues, taxes and share in profits and without losing the ownership of the area concerned. The study recommended that a suitable audit provision should be made available in the Production Sharing Contract in order to determine the actual cost the contractor can recover. The work also moved for effective monitoring of the operations of the contractors to ensure that the venture is profitable and that there are no violations such as execution of work programme outside the approved budget, poor reporting of drilling expenditure, poor accounting for bank transactions and over-estimation of capital expenses, funding massive cost overrun without seeking the required management committee approval, over capitalisation of capital expenses and the ultimate write off of non-existent capital assets. It was further suggested that government should give immediate attention to the indigenes of the region where crude oil is being extracted from. The study ultimately recommended that all these measures and policies be encapsulated in a legal regime necessary for peace and socio-economic development in Nigeria.