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NNPC’s cash-for-crude deals to raise $5.6bn

NNPC pays N140.55bn for Oando-branded retail stations, jetty, others

The Nigerian National Petroleum Company Limited (NNPC) has entered into ‘cash for crude’ deals worth about $5.6 billion with some of its business partners as it forages for cash to revamp the country’s beleaguered oil sector, BusinessDay analysis of its latest financial statements show.

The deals, christened ‘capital commitments agreements’, an accounting term for capital expenditure on another company’s long-term assets, seek to raise quick cash for investments and meet cash-call obligations and highlight the fragile financial state of the company, despite its claim of making record profits.

NPDC-Eagle Export Financing deal

The Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC, has a capital commitment contract of $1.04 trillion (N432 billion) with Eagle Export Financing Limited for the forward sale agreement for the delivery of crude oil.

“Under the contract, Eagle Export Funding Limited will make an upfront payment to NPDC for crude in a Forward Sale Agreement (FSA). The payment received is required to be settled with the delivery of crude oil volumes,” NNPC’s records showed.

Based on the agreement, NNPC said at least 1.8 million barrels of crude oil must be nominated and scheduled by NPDC (and delivered at the relevant delivery terminal to Eagle Export Ltd in every delivery period, which commenced on 28 August 2020.

NLNG’s third-party financing

As at December 2021, NPDC has capital commitments of $118.57 million (N48.9 billion) for the incremental gas supply agreement between NNPC and Nigeria LNG Limited (NLNG).

Details of the contract showed NLNG is required to avail NPDC with a total of $501.6 billion (N190.4 trillion) for the purchase of gas for a period of 12 years.

“NNPC entered into a new arrangement with NLNG on behalf of NPDC, through its equity holdings in NAOC, SPDC & TEPNG JV’s, to provide incremental gas supply to NLNG T1-6 Feedstock and in return, NLNG being the buyer would provide an advance cash call payment as identified in the agreement,” NNPC’s latest financial statement showed.

“NLNG is to recover their funding as provided by the agreement when Gas Supply is made to them by the Seller (NNPC),” it added.

Further findings showed that as of December 31, 2021, NPDC, through the Nigerian Agip Oil Company Joint Venture, has drawn $179.6 million from the $501.6 billion and NLNG has so far recovered $68.35 million worth of crude oil out of the $179.6 million, leaving a balance of $118.17 million (N49 billion) worth of crude to be delivered to the NLNG.

Financing of investment in Dangote Refinery

In September 2021, the NNPC acquired 20 percent interest in Dangote Petroleum Refinery and Petrochemicals Free Zone Enterprise worth $2.76 billion.

This investment is held by NNPC Greenfield, a special-purpose vehicle that is 100 percent owned by the NNPC.

This acquisition was financed by $1.036 billion funding from Lekki Refinery Funding Limited, of which $1 billion was paid to Dangote Refinery and $36 million accounting for transaction costs.

“The balance of the cost of equity investments made in Dangote Refinery, which is $1.76 billion will be paid upon completion of the refinery project starting April 1, 2023 or any other date agreed between the parties (NNPC and Dangote Oil Refining Company Limited) via a combination of a $2.5/bbl discount (on the official selling price) per barrel on 300,000 barrels per day to Dangote Refinery, and 100percent of NNPC’s portion of any dividend declared by Dangote refinery, throughout the repayment period,” NNPC said.

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The state-owned company’s financials showed the NNPC entered into a forward sale agreement with Lekki Refinery Funding Limited to supply 35,000 barrels of crude oil per day for the settlement of the $1.036 billion (N426.2 billion) funding received for the financing of investment in Dangote Refinery.

“The interest rate for the facility is 3-month LIBOR plus 6.125 percent. The arrangement has been scheduled to commence from August 30, 2023,” NNPC said.

Pre-export financing

NPDC has a capital commitment of $159 million for the settlement of pre-export finance loans obtained by NNPC “for the settlement of debts owed by the NNPC Group to some import vendors of petroleum products”.

“As at 31 December, 2021, there are no capital commitments regarding pre-export financing as outstanding liability balance was refinanced through a forward sale of crude valued at $694m (N278 billion) to Eagle Export Limited tagged ‘Project Eagle Subsequent’,” NNPC said.

Analysts say the NNPC Ltd could be on the hook for penalties if it fails to deliver, a development that is possible, considering Nigeria’s oil production is fraught with uncertainties.

Ayodele Oni, energy lawyer and partner at Bloomfield law firm, says there are variant types of forward sale agreement contracts, but generally, NNPC is obliged to fulfill its obligations if not the state-owned company may either pay back the funds with a margin.

“Like every contract, there will be remedies for breaches. These could include refunding the money paid together with a margin. Of course, contracts can also be re-negotiated. At other times, there could be liquidated damages for breaches,” Oni said.

A force majeure – a breach caused by factors outside its control – could bring reprieve if the NNPC fails to meet its obligation, said Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice.

“Whether the force majeure clause in Nigeria’s Forward Sale Agreement was wide enough to include vandalism and crude theft remains to be seen,” Alokolaro said.