16 December 2016, Sweetcrude, Abuja – In a move which will restructure the financing template for oil earnings, increase investments and boost government revenues, the Federal Government has reached agreement on a new cash call exit policy with the international oil companies (IOCs).
The historic agreement which will bring clarity and stability to the management of the country’s main revenue source was announced by the Minister of State, Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, while giving an account of key achievements of the Ministry in 2016 yesterday has already received the approval of the Federal Executive Council.
The Minister pointed out that the deal was part of new measures and strategies aimed at eliminating the burden of Joint Venture Cash Call arrears and securing future funding for the Upstream Petroleum Sector.
These strategies which are fully supported by the National Economic Council (NEC) will lead to an increase in national production from the current 2.2mbpd to 2.5mbpd by 2019, as well as a reduction in Unit Technical Costs from $27.96/Barrel Oil Equivalent (boe) to $18/boe.
Kachikwu further disclosed that the net payments to the Federation Account is expected to double from about $7Billion to over $14Billion by 2020 and the immediate effect of the new cash call policy will increase net FGN Revenue per annum by about $2billion.
Dr. Kachikwu outlined other innovations and initiatives championed by the ministry over the past year which has revamped the sector, restored investors’ confidence which was at an all-time low and positioned Nigeria’s Oil and Gas value chain for profitability.
“It would be recalled that based on historical records, the current Cash Call system has been structurally defective and has failed to address the perennial Joint Venture funding challenges being experienced in the industry where the Federal Government underfunding of the industry through JV Cash Calls stood at $9.125 billion by September 2016.
“This arrangement will guarantee payments of statutory Oil and Gas Royalties and taxes by NNPC and its JV partners as well as profit from its investments in the Joint Ventures,” he said.
At US$42.5 per barrel Oil price which the 2017 budget is predicated on and US$24 per barrel fiscal cost recovery proposed for 2017 in the Medium Term Expenditure Framework (MTEF) recently submitted to the National Assembly, over US$13 per barrel will accrue to Government as Royalties & Taxes from Joint Venture Oil and Gas Production apart from US$2.8 per barrel estimated as Government share of profit, at 57% equity.
According to Kachikwu, “This will restore investors’ confidence and achieve accelerated production growth in the Joint Ventures. New Governance processes will also be introduced.”
The negotiation on behalf of the Federal Government of Nigeria which was led by Dr. Kachikwu resulted in a remarkable agreement by the IOCs who have agreed to be paid their accumulated arrears up to December 2015, payable over the period of about five years.
It is important to note that this will not be a cash burden on the Federal Government as payments will be made via incremental production from each JVC.
Aside this key agreement on Joint Venture Cash Call Arrears Payment and Future Funding Mechanism signed today, it would be noted that under the stewardship of Dr. Kachikwu as Minister of State for Petroleum Resources and leadership of President Muhammadu Buhari, the Ministry has also made considerable accomplishments in the international frontiers through maintaining robust relationships and strengthening linkages within and outside the petroleum producing community.
The Minister noted as achievements recorded in 2016 to include the successful tenure and handover of the Presidency of four key international energy organisations namely: The Gas Exporting Countries Forum (GECF); Organisation of Petroleum Exporting Countries (OPEC); African Petroleum Producers Association (APPA); and West African Gas Pipeline Authority (WAGPA).
Others include the successful election of Mohammed Sanusi Barkindo of Nigeria as the Secretary-General of the OPEC, the successful mobilisation of OPEC members and Non-OPEC Oil Producers to dialogue on the stabilisation of the global market in Doha; Algiers which culminated into the achievement of freeze on production at the 171st conference in Vienna
“The Federal Government has been instrumental in the rise in oil prices to US$55/per barrel for the first time in 16 months after negotiations with non-OPEC producers; Nigeria’s successful negotiation of an exemption from the production freeze; as well as the successful hosting of the 52nd Conference of Ministers of African Petroleum Producers Association in March 2016 (APPA).
“We have also provided leadership and support to other APPA members in the development of legislation, institution and systems for local content in Africa.”
Kachikwu further pledged that the Ministry will continue to drive innovation and change in its approach to delivering an oil and gas industry that is internationally competitive and is governed by open and transparent processes to ensure the security of investment for both domestic and international investors.