Federal Government's decision to review existing oil exploration and production contracts in line with the reforms in the oil and gas sector has pitched it against the international oil companies (IOCs) operating in Nigeria.

But the reform programme of the government was further defended in Dublin, Ireland, yesterday by the Special Adviser to the President on Petroleum Matters, Prof. Emmanuel Egbogah, who told Irish investors that the Federal Government had embarked on the unbundling of the Nigerian National Petroleum Corpora-tion (NNPC) to transform it into an integrated, international commercial oil and gas corporation "driven by revenue".

The multinational companies are opposed to the policy shift and are insisting that the production sharing contracts (PSCs) signed on old projects should be allowed to remain as they were in view of the investments which had been made.

They also contend that to begin renegotiation on existing contracts signed many years ago would not only constitute a breach, but was capable of affecting future investments in oil and gas projects.

As part of efforts to boost revenue receipts and limit impunity with which oil reserves were booked in the past, the Oil and Gas Implementation Comm-ittee headed by the current Minister of Petroleum Reso-urces, Dr. Rilwanu Lukman, had recommended the review and renegotiation of all existing PSCs signed with the multinationals.

Although Lukman had stated that the oil contracts in place provide for periodic review and renegotiation, THISDAY learnt from industry sources that the real reason for the review was because the PSCs as they are, do not favour Nigeria as the multinationals "cart" away greater part of the oil revenue, leaving the country with just a token.

The government, sources said, is determined to go on with the review notwithstanding the stiff resistance by the IOCs who complain that they are not being carried along in the reform process.

Chevron President, Latin America and African Operations, Mr. Ali Moshiri, who spoke on the issue, said reforms had happened in other countries before and in Venezuela recently, but that "the approach matters a lot".

The Chevron boss told THISDAY that the IOCs were not opposed to the reform or forward-looking reviews, but categorically stated that for Nigeria to have more production, more investments in deepwater, the existing "production sharing contracts signed on old projects should remain as signed".

He said: "The overall strategy of the reforms, we support that and I want to make that very clear. The strategy we support. But the detail of it is so complicated that it requires a lot of dialogue to make sure we have a good understanding of what the details are. But what the Federal Government of Nigeria is doing in a strategic sense is actually right.

"For example, the issue of funding that my friend, Dr. Lukman, keeps bringing up has to be addressed. You cannot address it without going through some sort of reforms. The International Joint Ventures, we have no problems with it strategically. The very concept, the details; that is where the complications come in; that is where we require dialogue. Strategically, the reform has our full support.

"The production sharing contract is a very important part of this whole thing. The majority of the deepwater prospect in Nigeria is coming on. Therefore if we are going to have more production, more investment in deepwater, you should not really touch the production sharing contract. And we've got to encourage the people to develop Nsikos, Bonga South-west and others. They are very expensive and if you look at these deepwater projects, they are very expensive - $7-$8 billion. It is different from JVs in shallow water, in swamp.

"With the production sharing contracts, what we would like to suggest - we would like the Federal Government of Nigeria to honour what has been done. And if you want to do a forward looking review, that is okay. That means any new projects coming in falls under the reforms; we are okay with that because that is our choice. But something that is already there, investment has already been made - those have got to be grandfathered. If it was a 1993 PSC, it's got to be honoured, if it is a 2005 PSC, it's got to be honoured."

Speaking at last week's inauguration of Total's 185,000 barrel per day Akpo oilfield, the company's Chief Executive, Christophe de Margerie, urged the Federal Government to ensure transparency and lay down clearer rules for foreign partners as the country pushes through the oil and gas sector reforms.

Specifically, Margerie sought clarification on the existing contracts signed many years ago.

"We have existing contracts, which are prevailing now for many years - production sharing, formal concession, etc - so we need to clarify, to be more transparent. We know we need a new framework, but we also need to make sure we understand what our future is going to be ... We need to understand the rules of the game," he said.

Shell's Regional Executive Vice-President for Africa, Ann Pickard, in a recent interview said to be successful; the reforms would address funding, security, eliminate uncertainties and improve transparency.

Industry executives had expressed concern that foreign oil companies are not being consulted thoroughly enough and that the legislation could impact existing contracts.

Pickard stated the need for a dialogue between government and the industry, saying "we can work together to come out with a win-win solution."

"The President and Dr. Lukman have stated that there will be due consultation with the industry and we know that they have a lot of respect for contracts sanctity and the IOCs. But it is important that we begin our dialogue as soon as possible, to understand the impact," she said.

The review will affect several major oil companies, including Exxon Mobil Corporation, Royal Dutch Shell, Chevron Corporation, Total, and Eni SpA (Agip), all of which are joint ventures with the state owned-NNPC.

Analysts say Shell, the biggest foreign oil operator in Nigeria, and Total are the most exposed to changes in contracts in Nigeria in terms of reserves.

They say any actual change to fiscal terms in Nigeria would be negative for (Shell's) stock in particular, even as they argue that the renegotiation will damage Nigeria's reputation as a country known for honouring contracts.

Industry sources say a key element to renegotiations would entail modelling existing onshore contracts on dozens of offshore deals known as PSCs that Nigeria has with many foreign companies.

Nearly two-thirds of Nigeria's oil production comes from onshore areas. The country has about 36 billion barrels of oil reserves.

Such PSCs often require a company to fund 100 per cent of the development costs of a project.

Under the deals, the government allows a company to recover all those costs and split the profit with the company.

PSCs also typically entail the government receiving more revenue as oil prices increase. And after the period of cost recovery, the sharing ratio for oil profits changes significantly in favour of the government.

Since the 1960s, the Nigerian government has been a joint-operator with companies such as Chevron and Shell in developing its onshore resources.

This has meant jointly coughing up billions of dollars to bankroll projects - something the government no longer wants to do.

"The government now wants the foreign companies to take on all the costs onshore. They no longer want to put up money in a joint-development role," the source said, adding that converting onshore contracts to something like a production sharing agreement would likely mean that foreign companies would be unable to book those onshore oil and natural gas reserves as their assets.

This, he said, would be "a blow to US and European companies at a time when they're struggling to increase their reserves, which many money managers view as a key investment criterion".

In Dublin, Egbogah yesterday told Irish investors that the unbundled NNPC would be a profit-oriented entity.

Specifically, the Adviser to the President said NNPC would be unbundled into 10 different groups.

Addressing the Irish investors in Dublin, Egbogah, who assured them of security and appropriate repatriation of profits as guaranteed under the Company and Allied Laws, said: "The unbundling of NNPC is being done in such a way that it will be divorced of some of its current conflicting roles of policy regulation and national asset management to function properly as a profit oriented, commercial and duly capitalised limited liability company with rights to raise funds for its projects and operations."

The bill to unbundle NNPC, known as "the Petroleum Industry Bill", was introduced in 2007 and has passed its first and second reading at the National Assembly.