18 November 2016, Sweetcrude, Abuja – The Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu has disclosed that the Federal government would get rid of onerous Joint Venture cash calls with international oil companies (IOCs), which have posed a headache for the government over the years.
In its part, Kachikwu said, the National Economic Council (NEC) yesterday endorsed a new funding regime for the oil and gas industry, eliminating the often arduous cash call regime which has dragged down the industry in about a decade, stalling growth.
The minister, who was speaking to correspondents at the the end of a National Economic Council meeting at the State House, in Abuja, said an alternative funding stream had been approved earlier this week by the Federal Executive Council (FEC) meeting on Wednesday and then presented yesterday to NEC, as the body mandated to come up with “measures necessary for the coordination of the economic planning efforts or economic programmes of the various governments of the federation.”
Kachikwu also noted that while the NNPC pays the entire Oil and Gas revenues realised from the JV operations into the Federation Account, the production costs are appropriated, calendarised and paid monthly as cash calls to the JV operations from the NNPC and international oil companies (IOCs).
According to the minister, January-November 2016 underfunding of the NNPC Cash Calls is estimated at $2.3 billion. This is in addition to the inherited arrears estimated at $6.8 billion for the year ending 2015.
He, however, disclosed that through negotiations, the $6.8 billion past due cash calls burden on the federation had now been reduced to $5.1 billion, which would be paid based on an improved oil production output.
Under the new funding stream, the JVs would become incorporated and source for their own financing, freeing up the federal government from the budgetary obligations of coming up with the cash calls already put at $2.3 billion so far this year alone.
Under the alternative funding regime, the technical cost of oil production in the country would also come down from about $27 to $18 per barrel.
The new arrangement, he assured, would drive up investment in the oil and gas sector while also boosting production output and revenue significantly.
For instance, net payment from oil production to the Federation Account is expected to peak under the new arrangement to about $18 billion by the year 2020 while raising output to 3 million barrels per day.
The Federal Government announced earlier on Thursday that it has reached a deal to pay $5.1 billion in unpaid bills to oil majors including Royal Dutch Shell and Exxon Mobil.
Dr. Kachikwu, who made the announcement in Abuja said the agreed amount, which is $1.7 billion less than the total amount owed, would be paid within five years, interest-free.
The Nigerian National Petroleum Corporation (NNPC) has amassed a total of $6.8 billion in unpaid bills up to December 2015, so-called cash calls, that it was obliged to pay under joint ventures with Western oil firms, with which it explores for and produces oil.
Under the arrangement, payment will be in the form of crude oil cargoes but only when Nigeria’s production exceeds 2.2 million barrels per day, Kachikwu said, which is the nation’s current production when all fields are operating properly.
“If for any reason we did not meet (the) threshold we will not pay the $5.1 (billion), so that is fantastic,” he said of the deal, which has been approved by the National Economic Council, an advisory body to the government.
Kachikwu last week said Royal Dutch Shell, Exxon Mobil, Italy’s ENI, Chevron and France’s Total had “accepted” what he described at the time as an “outline settlement”.
The petroleum ministry has for more than a year been trying to reduce its financial obligations, which have accumulated over several years. Kachikwu said there is at least $2.5 billion in additional debt that has accrued this year that it is still working to repay.