AN EXAMINATION OF THE LEGAL REGIME FOR PRODUCTION SHARING CONTRACTS IN THE UPSTREAM PETROLEUM INDUSTRY IN NIGERIA

1.1Background to the Study

Production Sharing Contract (PSC) is an arrangement used in the upstream petroleum sector for the exploration and exploitation of petroleum resources by several oil producing countries, particularly the developing ones such as Algeria; Angola; and Gabon.1 In the case of Nigeria, the PSC arrangement has been largely adopted for the exploration and exploitation of the offshore and inland basin petroleum reserves.2 It is an arrangement in which the international oil company (IOC) usually referred to as the contractor, solely deploys its capital and expertise into petroleum exploration and production on the understanding that such produced crude oil would be shared with the state party at agreed ratio after deduction of costs and applicable taxes. A PSC is a contractual arrangement between an IOC and the host State authorizing the IOC to conduct petroleum exploration within a certain area in accordance with the terms of the contract.3 The PSC or production sharing agreement (PSA) as it is also called4 differs from the other concessionary systems in two main respects. First, it does not grant the international oil company (IOC) ownership rights over the resources in situ. Accordingly, the Government may take a greater interest in technology transfer, preparing for the eventual turning over of the resources to its hands if it so wishes. Secondly, unlike the concessions, which grants the IOC rights over the resources for a specified period of time, the PSC grants the IOC an interest in the resources that is tied to the recouping of sunk costs and, then of course, to the garnering of a profit. Importantly,

1 Ola, V.; et al. (2021) Comparative Analyses of Nigeria and Malaysia‟s Production Sharing Contract (PSC).

European Journal of Business and Management Research. Vol. 6 Issue 1, p. 12.