The economic performance of international oil companies in Nigeria.

Abstract

Name of Author: Cornelius Babatunde Alalade Title of the Investigation: THE ECONOMIC PERFORMANCE OF INTERNATIONAL OIL COMPANIES IN NIGERIA: The Effect of Fiscal Taxation and the Separation of Ownership and Control. This research investigates the tax policies of the Nigerian government and the separation of ownership and control and the possibility that they impact on the economic performance of the international oil companies operating in Nigeria. The key areas of the research include a literature review which concentrates on both shareholder and stakeholder theories in corporate governance and on the separation of ownership and control. The literature review is also on government control mechanisms, including state ownership of corporations and taxation. Another key part of this research is the investigation of the relationship between types of contract between host government and the operating companies, and the companies' economic performance in relation to contract type. The second part of this research examines the relationship between the variables representing fiscal taxation and those representing economic performance. Given that there are essentially two types of contracts operating in Nigeria's oil and gas exploitation business, that is, Joint Venture (JV) and Production Sharing Contract (PSC), these two formed the basis of the research. For the purposes of measuring economic performance, the unit cost of production and gross margin per barrel were chosen as the variables for measuring the impact of the separation of ownership and control and the impact of fiscal taxation on the economic performanceof the operating companies. Data obtained from secondary sources served as the basis for the quantitative analysis employed in this research,and the results obtained were statistically tested before any interpretation and recommendations were suggested. Interviews were also conducted for the qualitative aspect of this study in order to obtain information on the factors that influenced Nigeria's oil and gas exploration and production fiscal policy formulation in the past. This research provided the opportunity to arrive at certain conclusions which, even if they sometimes appeared obvious, were never previously empirically substantiated, and the corroboration of some existing theories as being applicable to the Nigerian situation. They also provided a basis for suggesting the inappropriateness of some existing concepts or theories in their application to Nigeria's oil and gas exploration and producing companies. For example, the results suggest that the existence of separation of ownership and control does not guarantee optimization of economic performance (or maximization of wealth) for the production sharing contract type in oil companies operating in Nigeria, even if they do elsewhere. Fiscal taxation was also suggested as critical to economic performance but possibly not the only variable impacting on the economics of petroleum exploitation in Nigeria. This research provided other possible areas for further research in both fields of corporate governance and fiscal taxation.