OIL PRODUCTION AND THE NIGERIAN ECONOMY: AN ANALYSIS OF THE CONTRACTUAL ARRANGEMENTS

Abstract

This paper is an assessment of the crude oil contractual arrangement in Nigeria. Following the ambiguity and secrecy surrounding the contractual arrangement in Nigeria as well as the call by researchers to shift away from joint venture agreement to production sharing contract, the study employed monthly time series data for the period 2017 – 2020 to search if there is a need to move away as well as possibility of seasonality in crude oil production by contractual arrangement and to determine the relationship between oil price, oil revenue and the contractual arrangement based on crude oil production. The empirical results clearly show a uni-causal relationship between exchange rate and JV as well as oil price and JV. The study also showed evidence of causality between PSC and exchange rate, as well as PSC and Oil Price. Which signifies changes in exchange rate and oil price granger causes changes in crude oil production by PSC and JV. The study also revealed that there is seasonality in production in the month of July and August which may have resulted to higher gross oil revenue noticeable in the third quarter. The study also discovers the likelihood for production and revenue to be lower in the first half of the year and higher in the second half of the year cumulatively. The study recommends that rather than shifting away from JV to PSC, the federal government should continue with all the contractual arrangement since they have their individual peculiarities but concerted effort should be made to encourage indigenous contract arrangement as already springboard through the marginal field. Also, the government should pay close attention going forward on the seasonal patterns as such information can be used for planning as there is the likelihood of FAAC to be higher or lower within the period identified in the study.