The Federal Government's plan to revamp oil/gas sector could stall if oil reform bill does not pass by early next year, a scenario which some oil firms fear will further delay investment decisions in the country.

The National Assembly is working to finalise energy legislation that would rewrite Nigeria's decades-old relationship with Royal Dutch Shell, Exxon Mobil, Chevron and other oil companies.

The reforms aim to break state oil firm NNPC, long hampered by funding shortfalls, into profit-driven units able to tap international capital markets. The move could bring some of the biggest financing deals of their kind ever undertaken in Africa.

But under the Petroleum Industry Bill (PIB) approved by President Umaru Yar'Adua last year, the government would also be allowed to renegotiate old contracts, impose higher costs on oil companies and retake acreage that firms have yet to explore. "Our intention on the Petroleum Industry Bill is to ensure greater transparency and greater efficiency in the oil sector," Minister of State for Petroleum Odein Ajumogobia said on Sunday, adding oil firms' concerns were being listened to.

"It is a balance. We want to take as much as we can without making it unattractive (for investors) ... It would be futile to pass a law that is intended to create a better investment climate and ultimately not do so," he said in the capital Abuja.

Top oil executives in July warned the legislation could threaten billions of dollars of investment if they went ahead in their current form.

Several energy projects, especially offshore oilfields, have been put on hold and many more could follow if Nigeria's long-term fiscal policy for the sector remains murky.

"Uncertainty around these issues is already stalling development of major discovered resources and discouraging companies from undertaking aggressive exploration programmes," Chike Onyejekwe, managing director of Shell Nigeria Exploration and Production Company, said at an industry conference in Abuja.

Few analysts believe parliament will finalise the oil reform bill before the end of the year, prolonging the uneasiness in the oil sector.

"I'd be surprised if it passed this year. This national assembly has passed few pieces of legislation since its election in 2007 and this is a major bill with lots of competing interests," said Alexandra Gillies, an oil expert writing a book on Nigeria's energy reforms.

Industry officials fear the bill, which has been stuck in the planning stage for more than a decade, could soon be brushed aside by political jockeying ahead of 2011 national elections.

Nigeria's campaign season unofficially starts in February with a gubernatorial election in southeastern Anambra state. Politicians will then be more interested in appeasing party bosses than lobbying for controversial bills, analysts say.

Key committees in both chambers of parliament are close to finalising their own versions of the oil reform bill, which must then be reconciled with the president's draft and voted on.

"We are trying to address the concerns of not just the government, but also the oil majors. We still need to find common ground over hydrocarbon taxes, royalty payments and of course gas," said a member of the House of Representatives committee reviewing the bill.

President Yar'Adua has touted the oil reform bill as the answer to many of the sector's problems like funding shortfalls, domestic gas shortages and budget-debilitating fuel subsidies.

But foreign oil firms say the legislation goes too far and makes investment in Africa's most populous country uneconomical.

Parliament has asked several independent consultants, including the International Monetary Fund, to study the impact the bill would have on foreign investment.

One consultant said it advised lawmakers the bill would make many small oilfields uneconomical and likely prevent Nigeria to boost its oil capacity to 4 million barrels per day (bpd).

"The PIB proposes multiple, increased royalties and fiscal terms that will make new investments in deepwater uneconomic. It also excludes a number of legitimate costs from being recovered," Shell's Onyejekwe said.

Many offshore oilfields, such as Shell's 220,000 bpd Bonga field, were awarded in the 1990s under production sharing contracts that offered royalty rates as low as zero percent to attract billions of dollars in foreign investment.

"That was the pioneering time, you needed to encourage people to go out and spend billions of dollars to find oil deep offshore, so we gave them incentives," Ajumogobia said.

"Fifteen years later it looks unreasonable, especially when you consider that other countries that had the same situation were collecting royalties from them."

Under the PIB draft, royalty rates will range between 5 percent and 25 percent depending on the amount of production or global oil prices. The bill also imposes a 30 percent income tax on all petroleum companies.

A House of Representatives committee reviewing the bill is expected to meet this week, while its Senate counterpart is close to handing over a finalised bill to be voted on.

An industry official involved in talks with the government over the bill said both sides remained "very far apart" on oil taxes, royalty payments and revenue sharing.