15 October 2015, Abuja – The Federal Government, Wednesday, granted financial autonomy to some Joint Venture (JV) oil companies, giving the JVs control over their budget, empowering them to source for funds and remit taxes, royalties and dividends to the government.
Reports obtained from Reuters revealed that the decision of the Federal Government in this regard was contained in a letter by Emmanuel Ibe Kachikwu, Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, signed by President Muhammadu Buhari.
NNPC did not respond to a request for comment but several oil sources confirmed the authenticity of the letter.
The letter states that this plan will apply to five oil blocks sold by Shell in 2011-2012 to local companies, Shoreline Natural Resources Nigeria Limited, First Hydrocarbon Nigeria Limited, ND-Western Limited, Elcrest Exploration &Production Nigeria Limited and Neconde Energy Limited.
It also covers West African Exploration and Production Company, which bought two licenses in 2015 from Shell.
According to the letter, the JVs will be turned into firms that control their own budgets, making them similar to the Nigeria Liquefied Natural Gas (NLNG), which finds sources for its own funding, pays taxes and royalties and also pays dividends.
It is expected that the NNPC would reduce its stake in joint ventures to below 50 per cent from 55 per cent by selling assets to local companies to bypass time-consuming National Assembly approval.
Analysts see the new joint-venture structure as a sign that reforms are finally underway. Industry sources are of the opinion that there would not be any immediate impact on oil exploration and production from the new model, so-called incorporated joint-ventures, as it will be tested on a few blocks first.
The industry sources expressed optimism that if successful, it could be expanded to other arms of NNPC.
“This could be an important early indicator for a key aspect of reformed oil sector policy – how to incentivise and maintain upstream investment by local private companies, and resolve operational issues between them and NNPC,” said Roderick Bruce, West Africa energy analyst at IHS.
“Now the incorporated JV can raise funding more easily as it’s a model international investors will understand and there will be a balance sheet behind the IJV,” said Kola Karim, chairman of energy company Shoreline.
Oil traders and executives said dealing with the NNPC has become more efficient under Kachikwu, who took over in August. The exploration overhaul is seen as a start to further changes at NNPC after years of relative standstill.
“During the last administration, the board hardly met, so expenses were not approved. Now NNPC is saying they won’t honour those that were not approved. The paper trail did not keep up. There has been a disconnect between expenditure and approval,” a source close to the matter said.
For example, for one joint-venture project worth about $3 billion, NNPC still disagrees over $300 million spent ages ago, an industry source said.
“It’ll take three months to reconcile and another six months at least to figure out how to cover it. The obligations date back three years to 2012,” a banking source said, speaking of the overall debt.
Nigeria produces about 2.2 million barrels per day of oil with foreign and local companies through production sharing contracts and joint ventures (JVs).
But projects have been held up because NNPC needs parliamentary and regulatory approval to spend anything. Officials and lawmakers are often six months late in giving their nod, making proposals irrelevant as costs exceed the original budgets. As a result, unpaid bills have been piling up.