By Adewale Sanyaolu
After years of inability to settle its Joint Venture (JV) funding arrears, the Federal Government yesterday said it has reached an “outline settlement” worth $5 billion with five International Oil Companies (IOCs) to cover outstanding payments for joint exploration and production.
A Joint Venture (JV) operation is a standard practice in the ownership of assets in Nigeria. It usually takes the form of an agreement between the national oil company, in this instance, the NNPC, IOCs and sometimes, indigenous oil companies.
Under the arrangement, all parties contribute to funding oil exploration and production operations in the proportion of their JV equity holdings and receive crude oil produced earnings in the same ratio.
Minister of State for Petroleum Resources, Mr. Ibe Kachikwu said Royal Dutch Shell, Exxon Mobil, Italy’s ENI, Chevron and France’s Total had “accepted” the $5 billion deal.
Kachikwu, disclosed that the payments would be made in the form of new oil production, adding that there would also be a one-off cash payment.
The agreement would hopefully be finalised by the end of the year and covers the period from 2010 to 2015.
The delay in payments has hindered oil and gas investment and worsened a budget crisis as the government seeks to increase spending to get economy out of recession.
Daily Sun had in May,reported stakeholders’ proposal that the corporation slashes the percentage of government equity (usually 60 per cent) in the operations and allow the IOCs and indigenous companies cover exploration and development costs.
This concern is growing as budgetary provision to it from government continues to dwindle due to competiting national capital and fiscal demands.
Despite having several joint venture agreements with IOCs, NNPC has consistently been challenged meeting its funding obligation.
Prior to the oil glut, payment of cash calls and requests for payment for anticipated future capital projects sent by JV operators to the government as non-operating partners had always been a challenge, with payments either being partially made or not at all.
As at January 2015, NNPC is indebted to about $5 billion in cash calls to its JV partners.
Commenting on the issue, Managing Director and Chief Executive Officer, Seplat Petroleum Development Plc., Mr. Austin Avuru, at an industry event in January, raised concerns about the NNPC’s value to the industry.
He said, “the cost of operation in the upstream sector has soared. Two critical factors account for this – security issues in the Niger Delta and bottlenecks in NNPC; project delays and $5 billion of cash calls in arrears that have not been paid to the point where you ask the question, is NNPC really adding value to the industry today?”
Also former Managing Director/CEO, Total E&P Nigeria, Elizabeth Proust, who buttressed Avuru’s comment, said, “resolving JV funding could increase production by 2.8 billion cubic feet per day by 2020. Government and industry need to implement a sustainable solution to deliver vital funding.”