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.