FG targets $14bn in new deal to end JV cash call with IOCs

… says PIB will be passed in Q1, 2017

Beginning from 2017, net payments to the Federal Government’s accounts are expected to rise and eventually double from about $7 billion to over $14 billion by the year 2020.

This is because the Federal Government on Thursday signed a historic agreement to end its Joint Venture (JV) cash call investment template with international oil companies (IOCs) operating in the country.

On the basis of the agreement signed, the IOCs, which include Eni, Total, Shell, Mobil and Chevron, have agreed to be paid their accumulated arrears up to December 2015, payable over the period of
about five years.

Ibe Kachikwu, minister of state for petroleum resources, signed the agreement on behalf of the Federal Government, while CEOs of the five IOCs involved in the deal signed on behalf of their respective
companies.

The move, the government said, has critically restructured the financing template for oil earnings, and will also increase investments, boost revenues, with its immediate effects increasing net government revenue by about $2 billion per annum.

“The agreement, which is expected to bring clarity and stability to the management of the country’s main revenue source, has already received the approval of the federal executive council,” Kachikwu said.

According to Kachikwu, the business template is part of new measures and strategies aimed at eliminating the burden of JV cash call arrears and securing future funding for the upstream petroleum sector, as this
will restore investors’ confidence and achieve accelerated production
growth in the joint ventures.

“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.

“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 reduction in Unit Technical Costs from $27.96/Barrel Oil Equivalent (boe) to $18/boe,” the minister explained.

It would be recalled that based on historical records, the current cash call system has been widely regarded as structurally defective and has failed to address the perennial JV funding challenges being
experienced in the industry.

As a result, the Federal Government’s underfunding of the industry through JV cash calls resulted in a project capital deficit of $9.125 billion by September 2016.

However, the new arrangement now entered into is expected to guarantee payments of statutory oil and gas royalties, taxes by NNPC and its JV partners, as well as profits from its investments in the joint
ventures.

At $42.5 per barrel oil price upon which the 2017 budget is predicated and the $24 per barrel fiscal cost recovery proposed for 2017 in the Federal Government’s Medium Term Expenditure Framework (MTEF) recently
submitted to the National Assembly, over $13 per barrel will accrue to government as royalties and taxes from joint venture oil and gas production.

This is apart from $2.8 per barrel projected, as government share of profit at 57 percent equity.
On the issue of Nigeria’s oil sector governance, Jamila Shua’ra, who is the permanent secretary in the ministry of petroleum resources, noted that the National Assembly had split the Petroleum Industry Bill (PIB) into segments for speedy passage.

She also explained that the Petroleum Industry Governance Bill (PIGB) would be the first part of the PIB to be passed by the National Assembly in the first quarter of 2017.

Stakeholders in oil and gas industry have lauded the government for the courage to exiting the cash call joint venture, saying it is a game changer.

Thomas Dada, president, Nigeria Gas Association (NGA), said the development was very good for the country, as it would result in efficient use of resources.

He explained that the idea of arrears, payable within 5 years, through incremental production revenues was to encourage those holding the assets to work the fields for maximum benefit to the country, saying it was a good caveat for the asset holders and it made sense also as that would help to boost the county’s production.

The big picture is that the country has finally bided the cash call problem goodbye while it hoped that the money from that would be deployed into meaningful ventures for benefit of the entire country.

He urged the government to address the issue of security, as it would amount to wasteful exercise if operations were threatened or hampered after reaching such wonderful milestone as regards cash call issue.

Emeka Eni, immediate past president, Nigerian Petroleum Technology Association of Nigerian, said the new arrangement was a game changer as it would make more efficient companies to function better to the
advantage of the country’s economy.

 

FRANK UZUEGBUNAM, YANGE IKYAA and Olusola Bello