… To reimburse partners $380m
From Uche Usim and Adewale Sanyaolu
The Nigerian National Petroleum Corporation (NNPC) and two of its Joint Venture (JV) partners, NNPC/Chevron Nigeria Limited (CNL) JV and NNPC/Shell Petroleum Development Company (SPDC) JV have sealed a $16 billion deal to boost crude reserve and production in the country.
The agreement sealed in London include two sets of alternative financing deals on JV projects aimed at boosting reserves and production in line with government’s aspiration to fully develop the oil and gas sector.
Group Managing Director of NNPC, Mr. Maikanti Baru, explained that the two projects are expected to generate incremental revenues of about $16 billion within the assets’ life cycle, including a flurry of exploratory activities that would generate employment opportunities in the industry, boost gas supply to power and rejuvenate Nigeria’s industrial capacity utilisation.
He stated that the agreement with Chevron would see the development of the NNPC/CNL JV Sonam Project (Project Falcon), hitherto financed through cash calls, to incremental proven and probable oil/liquids reserves of 211 million barrels and proven and probable gas reserves of 1.9 trillion cubic feet within Oil Mining Licences (OMLs) 90 and 91.
Baru said the project is envisaged to achieve an incremental peak production of about 39,000 barrels per day of liquids and 283 million standard cubic feet of gas per day (mmscf/d) of gas respectively over the life cycle of the asset.
The JV partner, he said, had already expended $1.5 billion representing 97 per cent of project completion costs, adding that the agreement would cover the remaining $780 million to complete the project’s scope. Giving a breakdown of the expected funding requirements of the Sonam Project, Baru said $400 million is to fund the development of seven wells in the Sonam field (OML 91), the Okan 30E Non-Associated Gas (NAG) well (OML 90), and associated facilities including completion of Sonam NAG Well Platform.
The GMD added that $380 million would also be required to reimburse the JV partners for the 2016 portion of the funds committed to lenders that had been cashed and paid for. He stated that the Sonam Project alone, on fruition, would net the Federal Government cumulative incremental earnings of $7.3 billion over the project’s life.
The agreement with SPDC, on the other hand, would facilitate the development of the NNPC/SPDC JV Project Santolina, which comprised 156 development activities across 12 OMLs (OMLs 11, 17, 23, 25, 27, 28, 32, 35, 43, 45, 46 and 79) and 30 different fields in the Niger Delta.
The GMD said the development of the Sonam Project would be carried out in two phases, with the first phase focused on short term activities involving Oil and Gas Generation (STOGG) programme comprising 128 rigless activities and 10 work-overs, while the second phase would focus on medium term activities that would involve further development of EA/EJA fields by drilling 14 new wells and three wor-kover ones.
He said the first phase of the project is estimated to deliver incremental liquid reserves of about 202.9 million barrels of oil and 161.8 billion cubic feet on Proven and Probable (2P) basis.
The GMD put the total third-party financing for Project Santolina at $1 billion, inclusive of financing cost of which, he said, co-lending amounted to $420 million with NNPC’s portion of $850 million.
He stated that Project Santolina would generate about $9 billion of incremental revenue to the Federation Account over the project’s life cycle and a Net Profit Value (NPV) of $5.2 billion over the loan life at 8 per cent discount rate.
Baru explained that NNPC’s objectives in securing third-party financing for the two sets of projects aligned with government’s aspiration to increase reserves and crude oil and gas production as well as monetise the nation’s enormous gas resources.
He emphasised that the financing option underscored the realisation of one of the corporation’s 12 Business Focus Areas (BUFAs) that is, increasing crude oil and gas reserves and production to support government’s Seven Big Wins aspiration.
In his presentation, Mr. Andy Brown, Shell Global Upstream Director, stated that the alternative funding arrangement was an innovative financing plan that would enable SPDC commence exploration activities hitherto stalled due to funding challenges.
Mr. Jeffrey Ewing, Chairman and Managing Director of Chevron Nigeria Limited (CNL), said the company was committed to supporting Nigeria’s aspirations of sustaining oil and gas production through innovative strategies as typified by the alternative financing arrangements over which agreement was executed.
Similar sentiments were expressed by the consortium of banks involved in the project namely Access Bank, Standard Chartered Bank, Union Bank and United Bank for Africa (UBA) and some foreign financial institutions.