Economic Modelling of the Delay in Passing the Petroleum Industry Bill in Nigeria and Its Impact on Deep Offshore Investments and Government Take Statistics

The petroleum industry bill (PIB) in Nigeria aims to reform the petroleum sector of the country and increase government revenue from petroleum investments. Despite the benets the bill offers to the country, its passage has suffered several setbacks. This research therefore studied the impact of the delay in passing the bill on deep offshore investments. Economic models were built using the scal terms in PIB 2009 and 1993 production sharing contract (PSC) arrangement to evaluate the impact of the bill. The model with the 1993 PSC scal terms was adjusted to capture the delay in passing the bill. The bill was assumed to be passed on a yearly basis for 10 years (2010 to 2019). The impact of the delay in passing the bill based on the reserve portfolio of rms in the deep offshore region of the country was also evaluated. The delay in passing the PIB reduced the government take. It was seen that for the non-passage of the bill, the government lost about $1227.2 MM. When the bill was passed in 2019, the government had been losing about $11.843 MM on a yearly basis due to the delay in passing the bill.


Introduction
The dynamics of attracting investments in the exploration and production of petroleum in any oil province have gone beyond the ease of producing petroleum and geological constraints (Iledare 2010; Onwuka et al. 2012). It now depends mostly on the attractiveness of a Nation's petroleum scal system For over a decade, Nigeria has been trying to reform her petroleum sector by taking actions to enact the petroleum industry bill (PIB) as an Act of the National Assembly but the bill has faced several setbacks. In 2008, the Oil and Gas Implementation Committee submitted a report that contains the legislation of the PIB to the government. The report was used to draft the PIB (Iledare 2010; Onwuka et al. 2012). The bill was sent to the National Assembly of the Federal Republic of Nigeria in 2009 by the then President of Nigeria (Iledare 2010). The bill stipulates operational strategies and guidelines for the promotion of Nigeria's prominence in the global energy landscape. It was aimed also at increasing government's revenue from petroleum investments (Iledare 2010). It also aligns the petroleum sector with global best practice, promoting transparency and good governance in the sector. The bill de nes and distributes responsibilities to government institutions designed to regulate, make policy and manage the operational and commercial aspect of the industry (Iledare 2010). The bill is progressive and dynamic in nature.
Before the emergence of the PIB, in theory, there have been three different production sharing contracts (PSC) arrangements in Nigeria with unique scal terms (Echendu and Iledare 2014). There are the 1993 PSC, 2000 PSC and 2005 PSC. The 1993 PSC was more progressive in nature and it stipulates a cost recovery option of 100% and zero royalty payments for investment located beyond a water depth of 1000 m. The 2000 PSC had the introduction of VAT included as part of its scal terms and the 2005 PSC had a cost recovery option of 80% (Echendu and Iledare 2016). Though the PIB 2009 had a cost recovery option of 70% but it has a dynamic royalty instrument that slides based on the production capacity of a rm and oil price.
Iledare (2010) evaluated the economic impact of the PIB 2009 on the pro tability of investments in the production of oil in the offshore region of Nigeria. He said that the government take statistics could be as high as 91%. The unit technical cost for the investment he considered was $24.29 per barrel. The investment had a contractor's and host government net present value of $92.29 MM and $937.83 MM. The cumulative oil produced from the eld was 100 MMbbls. Oyekunle (2011) also investigated the impact of the PIB 2009 on deep water investment economics. He found out that the petroleum industry bill will increase government revenue from investments in the deep offshore region. Governments could have a 50% chance of having a take statistics between 88% and 91%. They observed that the exponential decline curve technique that is said to be reserved gave the highest net present value, internal rate of return, growth rate of return and contractor's take statistics. This occurred because all the decline curve techniques used were subjected to the same time period. But they found that the unit of production technique of depreciation gave the most favourable pro tability metrics In the PIB 2012, the payments of fees and royalties were made as a regulatory provision unlike the PIB 2009 that states that, there were to be determined legislatively (Echendu and Iledare 2016). Due to the desire to make the PIB problem focused and ease its passage as an Act, it was broken down into four different bills (Oyekunle 2011). The scal terms used in drafting the PIB were incorporated into a new bill called the Petroleum Industry Fiscal Bill (PIFB) with adjustment in some of the scal terms. The national hydrocarbon tax and corporate income tax that replaces the petroleum pro t tax in the PIB 2009 and PIB 2012 were also adopted in the PIFB.
The emergence of the PIB as a means to reform the petroleum sector in Nigeria brought a sigh of hope to Nigerians and major stake holders of the petroleum industry. But the delay in passing the bill has a major impact in the conduct of activities and revenues generated from the industry. Many research efforts have been made towards evaluating the scal provisions in the PIB 2009 and subsequent modi cations made to the bill. There has not been a research that considered the economic impact of the delay in passing the bill using the scal arrangements contained in the bill. This research therefore considers the economic modelling of the delay in passing the PIB and its impact on deep offshore investments and government take statistics.

Methodology
Cash ow modelling using spreadsheet is one of the tools used to evaluate the impact of a scal regime on investments in the exploration and production of petroleum (Echendu and Iledare 2014; Hao and Kaiser 2010; Nyoor et al. 2019; Ogolo 2020). This technique was adopted in this research. The production data from a typical deep offshore eld was used as the source of revenue for the investments. The scal terms embedded in the 1993 PSC and the PIB 2009 were used to determine the net cash ow for the investment. The delay in passing the PIB 2009 was also captured in the models to study the economic implication of the delay in passing the PIB.

Field Production Determination
The eld of study is a typical deep offshore eld in the Niger Delta. The exponential decline method was adopted to forecast the annual production from the eld ( of the eld began at the end of 1999 with an initial production rate of 6,000 bbl/day. The peak period was three years beginning in 2005 before production began to decline at a rate of 15%. The peak production rate was 81,770 bbl/day. The eld production life was 20 years. Equation 1 and equation 2 were used to forecast the daily production rate and annual production from the eld. The cumulative production of the eld was calculated using equation 3.
Where q i = instantaneous production rate  Table 1. The eld was located in a water depth of 1200 m. Beyond a water depth of 1000 m, no royalty payment is made in the 1993 PSC arrangement but in the PIB 2009, companies are expected to pay royalty based on the royalty scheme speci ed for that eld. The eld annual production was used as the source of revenue for the investment. The yearly oil price used was the actual oil price for bonny light crude oil from 2000 to 2019 as shown in Figure 1. This is to enable the actual determination of the economic impact of the PIB 2009 on investment in the deep offshore region of Nigeria.
Exploration of the eld began in 1996 and took place for two years with an annual exploratory cost of $270 MM. The eld development started in 1998 and it was done for two years. $950 MM and $1500 MM were spent during the rst and second eld development year. The operating expenditure was assumed to be 5% of the capital expenditures. The cost recovery option speci ed in the 1993 PSC was 100% while that of the PIB 2009 was 70%. These scal terms were incorporated into the economic models that were used to determine the net cash ow of the investment. Other pro tability indicators that were determined from the net cash ow include the net present value, the internal rate of return, payout period, unit technical cost, discounted and undiscounted host government and contractors take statistics and frontend loading index. PSC has different pro t oil split ratios that is a function of the reserve or cumulative oil that can be produced from the eld. Table 2 shows the different deep water reserve portfolio of a contractor located beyond a water depth of 1000 m and the host government pro t oil split in the PIB 2009 and 1993 PSC. The pro t oil split ratio based on the different reserve portfolio as shown in Table 2 were incorporated into the models and the delay in passing bill was also determined to see how the delay in passing the PIB impacts revenues from elds with high amount of reserve.

Field Production
The eld oil production rate is shown in Fig. 2. While the eld oil annual production and cumulative production is shown in Fig. 3. The production life of the eld was from the end of 1999 to 2019. The eld annual production in year 2000 was 2.876 MMbbls. The annual production during the peak period was 29.846 MMbbls. The cumulative production in the entire life of the eld was 300 MMbbls. The eld had a recovery factor of 20%. 10.32%. The scal arrangement in the PIB 2009 led to a reduction in the IRR of the contractor. This is as a result of the cost recovery limit speci ed in the PIB 2009. The PIB 2009 stipulates a cost recovery limit of 70% which made the government to start earning revenues on time reducing the amount of revenue that was supposed to be used to recover the capital cost unlike the case of the 1993 PSC, where the cost recovery limit is 100%. This also affected the payout period of the investment. The payout period for the investment under the 1993 PSC was 10.42 years, while that of the PIB 2009 was 10.58 years. The FLI that de nes the front-end loaded nature of a scal system was also evaluated using the two scal arrangements. Both scal arrangements are front-end loaded. It is seen that the PIB 2009 seems to be more loaded than the 1993 PSC. The FLI of the investment under the 1993 PSC and PIB 2009 were 0.356 and 0.369. The PIB 2009 was more loaded because of the cost recovery limit and royalty payment speci ed for it. The PIB 2009 has a cost recovery limit of 70% that enables government to start earning revenues on time. The unit technical cost for both investments was $20 per barrel of oil. This indicator did not change as a result of the similar production and cost condition imposed on the two models.

Delay in Passing the PIB 2009
The yearly impact of not passing the bill was measured for duration of 10 years. Figure 4 shows the host government NCF based on the period of delay in passing the bill. The impact of variation in the pro t oil split was also studied to understand how the delay in passing the bill could impact pro tability of other assets based on their reserve portfolio. The base case model had the least NCF for the host government. This case was the host government take using only the 1993 PSC arrangement. It was observed that the more the delay in passing the bill, the lower the host government take. When the bill was passed in 2010 based on a reserve of 300 MMbbls, the host government NCF was $10787.45 MM and in 2019, it was $9603.14 MM. The host government lost about $1227.2 MM for not passing the bill for the duration considered. An average of $122.712 MM was lost on yearly basis due to the delay in passing the PIB.
While when the bill was passed in 2015, the host government NCF was $9787.56 MM. The delay in passing the bill affected the revenue that government was supposed to generate from the investment.
This same observation was seen in other pro t oil split ratio. It is seen that as the cumulative production increases, the host government revenue increases. Higher reserve will favour more revenue generation in both PSC arrangements. Because as the reserve increases, the pro t oil split for the government also increases in accordance with Table 2   irrespective of the companies reserve portfolio. The earlier the passage of the PIB, the higher the host government take. The contractor's undiscounted take reduced with the passage of the PIB. The more the delay, the higher the contractor's undiscounted take. This is seen in Figure 7. The base case model had the highest undiscounted contractor's take. But it reduced with the passage of the PIB. The higher the contractor's reserve portfolio in the deep offshore region, the lower the contractor's undiscounted take. Figure 8 shows the internal rate of return for the investment based on the delay in passing the PIB 2009. The internal rate of return for the base case model was the highest but with the passage of the bill, the internal rate of return reduced. The earlier the bill is passed, the lower the rate of return. This is because more revenue is accruing to the host government leading to a reduction in the rate of return of the investment. It was observed that the higher the contractor's reserve portfolio in the deep offshore region, the lower the contractor's internal rate of return. This occurred because of the increment in the government revenue based on the pro t oil split ratio. The delay in passing the PIB can also been seen in the internal rate of return obtained based on the reserve portfolio of a rm. The earlier the bill was passed, the lower the internal rate of return of the investment.

Conclusions
The government take obtained from the model developed using the scal terms in PIB 2009 was higher than that of the 1993 PSC. This was a result of the new tax layer and the dynamic royalty instrument added to the bill.
The delay in passing the PIB 2009 affected the government revenue from investment in the deep offshore region. The government lost about $1227.2 MM for not passing the PIB 2009. This shows that the government lost an average of $122.72 MM on a yearly basis for not passing the bill on assets of such nature in the deep offshore region of the country. When the bill was passed in 2019, the government had been losing about $11.843 MM on a yearly basis. The earlier the bill was passed as an Act, the higher the revenue the government generated from the investment.
Despite the achievement of government's motive of passing the bill to generate more revenue, the contractor's revenue was affected. The contractor's NCF reduced from $5859.53 to $4632.36 MM when the bill was passed in 2010. The internal rate of return and contractor's take statistics also reduced with the passage of the bill. This was as a result of the early rent extraction embedded in the PIB 2009.
The higher the reserve portfolio of contractor's in the deep offshore region, the higher the government revenue generated using the PIB 2009 and 1993 PSC scal framework. This is as a result of the increment of the pro t oil split ratio as the cumulative production increases. Despite the increment in the government's revenue, it was observed that the earlier the bill was passed, the more revenues the government would have generated from assets with high reserve portfolio.

Availability of Data and Materials
The eld used for this study was a hypothetical deep offshore eld and the production data of the eld was forecasted using exponential decline curve analysis. The scal terms used to build the economic models were obtained from the draft 2009 Petroleum Industry Bill and 1993 PSC in Nigeria.