Kunle Kalejaye 23 November 2016, Sweetcrude, Lagos – The chronic joint venture, JV, funding shortfalls being experienced in the Nigerian oil and gas industry is costing the nation about 200,000 barrels in daily oil production, the Nigerian National Petroleum Corporation, NNPC, has said.
In the last three to five years, according to the corporation, the joint venture funding shortfalls have resulted in declining JV oil production from about 1 million barrels per day to about 800,000 barrels per day currently – a loss of about 200,000 barrels per day.
NNPC Group Managing Director, Dr. Maikanti Baru, disclosed this in Abuja as he spoke of NNPC’s exit plans from the cash call system with its joint venture partners comprising the multinational oil companies Shell, Total, Agip, Chevron and ExxonMobil.
Speaking at the 34th annual international conference and exhibition of Nigerian Association of Petroleum Explorationists, NAPE, Baru revealed that the development would relieve the Federal Government of the cash call burden with the JVs sourcing for funds for their operations, estimated at $7-$9 billion annually.
To address the structural funding problem which, according to him, has been compounded by the security challenges in Niger Delta, Baru said NNPC was exploring alternative funding mechanism that allows the JV business finance itself by retaining its operating costs and capital allowances (fiscal costs) in order to sustain and grow the business.
He explained: “Where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the joint venture, part of the profit margin could be retained to fund the budget and where necessary, external financing could also be sought to finance commercially viable and bankable capital projects without recourse to government treasury”.
He added: “The JV cash call exit model we are pursuing guarantees Government most of the revenue that normally accrues to it from the JV operations by lifting the royalty and tax oil upfront. This contributes 75% to 85% of the accruable revenues to government.
“Consequently, the effect on government take would be minimised. We are working assiduously to kick start this from 1st January, 2017”.
Stating the reason behind the exit model, the NNPC boss said in 2016 alone, underfunding of NNPC cash calls is estimated at about $2.5 billion. “This is aside the inherited arrears estimated at over US$6 billion,” he said.