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The federal government’s recent decision to grant the Bayelsa
State government’s request for exclusive concession of oil derivation on nine
offshore deepwater oil fields appears to have exhumed the carcass of what the
Offshore/Onshore Oil Dichotomy Abolition Act (2004) buried more than eight
years ago.

Under the Act, payment of 13 percent derivation to oil bearing
states was to be applicable only to crude oil produced in onshore locations
(land) as well as offshore locations within water depths of less than 200
metres isobaths.

The implication was that revenues earned from oil produced from
concessions located in water depths beyond 200 metres isobaths were not to be
subject to the derivation principle.

The 2001 dispute between the Federal Government and the eight
littoral states was predicated on the Federal Government decision that the
seaward boundary of each of the littoral states was the low-water mark of the
land surface of such state. As such, the natural resources located within
Nigeria’s continental shelf are not derivable from any of the littoral states, making
revenues from such resources not subject to the derivation formula.

But the littoral states said their territory extends into the
continental shelf and the exclusive economic zone (EEZ) and, as such all
natural resources derived from both onshore and offshore locations within their
respective territory should be subject to the payment of “not less than 13
percent derivation” as provided in the proviso to Section 162(2) of the
Constitution.

The federal government took the case before the Supreme Court asking
for “a determination of the seaward boundary of a littoral state within the
Federal Republic of Nigeria for the purpose of calculating the amount of
revenue accruing to the Federation Account directly from any natural resources
derived from that State pursuant to section 162(2) of the constitution of the
Federal Republic of Nigeria 1999”.

Supreme Court judgment

The Supreme Court, in its April 2002 judgment, declared that
“the seaward boundary of a littoral state within the Federal Republic of Nigeria
for the purpose of calculating the amount of revenue accruing to the Federation
Account directly from any natural resources derived from that state pursuant to
Section 162(2) of the Constitution of the Federal Republic of Nigeria 1999, is
the low-water mark of the land surface thereof, or (if the case so requires as
in the Cross River State with an Archipelago of Islands) the seaward limits of
inland waters within the State”.

The federal government had, also in 2003, agreed with governors
of all the littoral states that the ‘200 metres water depth isobaths’ be
substituted for ‘continental shelf and exclusive economic zone.’ The
implication of the agreement was that all the country’s existing producing oil
fields are located within 200 meters water depth isobaths.

In other words, except for Abo Field operated by the Nigerian
Agip Oil Company (NAOC), virtually all commercial deep offshore oil concessions
are located in at least 1,000 meters of water depths.

Searching for increased
revenue

However, some observers say the concession to Bayelsa for
attribution of nine oil fields, ostensibly to assuage the “negative impact of
the delimitation of maritime boundaries of littoral states by the National
Boundary Commission (NBC) in the wake of the promulgation of the
Offshore/Onshore Dichotomy Abrogation Act” appears to be in the breach.

The Chairman, House of Representatives Committee on Rules and
Business, Ita Enang, who was involved in deliberations that gave birth to the
Onshore/Offshore Dichotomy Abolition Act, told NEXT on Friday that the
concession granted Bayelsa is a clear infringement on the provisions of that
law, as no littoral state is entitled to derivation on resources located in
water depths beyond 200 meters isobaths.

“If the decision is to be just and equitable, the law must be
amended forthwith to extend the prescribed limits of littoral states approved
in the Act,” he said.

“My conviction has always been that the issue of 200 metres
water depths isobaths was supposed to be the starting point, so that the
onshore/offshore dichotomy would ultimately be abolished completely. Under such
an arrangement, other states, including Akwa Ibom, Delta and Lagos, will also
benefit.”

Mr. Enang appears to be echoing the sentiments of most other
littoral states, which gave indications during last month’s Federation Accounts
Allocation Committee (FAAC) meeting that they may be heading back to the
Supreme Court for intervention, since all of them are facing similar security
and environmental challenges in the region.

What makes the issues contentious is the significant alteration
of the existing Revenue Mobilisation Allocation and Fiscal Commission (RMAFC)
indices for the payment of oil derivation.

Prior to the concession and subsequent revision of the volume of
oil production figures attributable to each littoral state, Akwa Ibom topped,
with 13,905,432 barrels; followed by Rivers (12,636,795 barrels), Delta
(11,163,493 barrels), and Bayelsa (10,313,368 barrels).

But the reverse is the case under the revised indices released
since last July, with Bayelsa at first position at 15,995,773 barrels; ahead of
Rivers (13,317,840 barrels), Akwa Ibom (12,796,954 barrels) and Delta
(11,163,493 barrels).