Chineme Okafor


he Supreme Court, in a land­mark judg­ment, or­dered the fed­eral gov­ern­ment to ad­just its share of pro­ceeds from the sale of crude oil when­ever the price ex­ceeds $20 per bar­rel, thus re­flect­ing the con­tent and pro­vi­sions of the Deep Off­shore and In­land Basin Pro­duc­tion Shar­ing Con­tracts Act on how oil rev­enue from deep off­shore pro­duc­tion should be shared.

The con­tention in the law­suit filed by the At­tor­neys-Gen­eral of Rivers; Bayelsa; and Akwa Ibom States, was that sec­tions of the Deep Off­shore and In­land Basin Pro­duc­tion Shar­ing Con­tracts Act had not been fol­lowed ju­di­ciously by the fed­eral gov­ern­ment, which ought to have ad­justed the fed­er­a­tion’s share of pro­ceeds from the sale of deep off­shore crude oil when­ever the price of oil ex­ceeded $20 per bar­rel.

Oil has for a long time traded above $20 per bar­rel, but that ad­just­ment had not been done hence the le­gal process which ended in a good judge­ment for the af­fected states, mostly the lit­toral states.

Ori­gin of Law­suit Rivers, Akwa Ibom and Bayelsa States had in 2016, in­sti­tuted the ac­tion with suit num­ber SC.964/2016 against the fed­eral gov­ern­ment at the Supreme Court. They, in the suit, asked the apex court to in­ter­pret the pro­vi­sions of Sec­tion 16(1) of the Deep Off­shore and In­land Basin Pro­duc­tion Shar­ing Con­tracts Act.

The sec­tion stated that: “(1) The pro­vi­sions of this Act shall be sub­ject to re­view to en­sure that if the price of crude oil at any time ex­ceeds $20 per bar­rel, real terms, the share of the gov­ern­ment of the Fed­er­a­tion in the ad­di­tional rev­enue shall be ad­justed un­der the pro­duc­tion shar­ing con­tracts to such ex­tent that the pro­duc­tion shar­ing con­tracts shall be eco­nom­i­cally ben­e­fi­cial to the gov­ern­ment of the Fed­er­a­tion.”

Based on this, it was re­quired that there should be an up­ward re­view of oil rev­enue takes of the fed­er­a­tion any­time the price of crude oil got over $20 per bar­rel, but that has not hap­pened since 1999, and the stan­dard that is be­ing used by oil com­pa­nies to date is still the $20 per bar­rel.

Ex­perts, who spoke to THISDAY on the de­vel­op­ment, stated that or­di­nar­ily, the fed­eral gov­ern­ment should have ac­ti­vated the con­tent of the Act, but they failed to, hence, the de­ci­sion of the states to chal­lenge it at the apex court.

The three states had al­leged that be­tween 2003 and 2015 the fed­eral gov­ern­ment lost an es­ti­mated sum of $1,149,750,000,000 due to its fail­ure to ac­ti­vate the up­ward re­view of the shar­ing for­mula. They fur­ther con­tended that the ex­ist­ing Pro­duc­tion Shar­ing Con­tracts be­tween the gov­ern­ment and the In­ter­na­tional Oil Com­pa­nies (IOCs) were no longer valid be­cause the price of oil had for a long time gone be­yond $20, and should be re­viewed.

The suit thus asked the court to de­ter­mine whether there is a statu­tory obli­ga­tion im­posed on the fed­eral gov­ern­ment un­der Sec­tion 16(1) of the Act to ad­just the shar­ing for­mula.

They also wanted an or­der of court declar­ing the fail­ure of the fed­eral gov­ern­ment to in­crease its share as a breach of the law.

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