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BusinessDay

FG slashes oil joint venture budget by 40%

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The dropping oil prices have forced the Federal Government to reduce the capital budget for joint venture oil operations by 40 per cent to $8.1 billion for the fiscal year 2015.

According to Platts ( a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets), “The Nigeria National Petroleum Corporation (NNPC) has informed the joint venture partners that this year’s capital expenditures will be cut down by 40 percent from the initial proposed budget of $13.5 billion.”

An NNPC source said that, “the $13.5 billion has been the level that has been maintained in the past three years, but because of the drastic decline in oil prices, that level cannot be sustained this year.”

The government through the NNPC contributes 60 per cent of the funding requirement while foreign partner firms provide the 40 percent balance.

The multinational companies, whose operations are affected, include Shell, ExxonMobil, Chevron, Total and Eni, and they account for around half of country’s oil output.

Eddy Wikina, former  General Manager, External Relations, Shell Nigeria Exploration and Production company, and currently the  Managing  Director  of treasury  Petroleum Resources,  said that  the implications of this action by the government was that  the  joint venture  companies  would begin to retrench workers in the oil and gas industry.

Wikina stated that a lot of  projects would be dropped  by the companies and this  would  further impact  the economy, as many  Nigerian companies   that depend on  the joint  venture  companies to get  contract  jobs would have no jobs to do, and this would force them to lay off their  workers.

When Ohi Alegbe, the spoke’s person for NNPC was contacted, he directed BusinessDay to the Ministry of Finance, saying that it was a budget issue and it would be properly treated by the officials of the ministry.

However, another industry official that was spoken to by BusinessDay, simply asked, “what did $8.1 billion do?

Initially, the Nigerian government had proposed N1.22 trillion ($7.5 billion) to fund its share of the oil joint venture operations this year, with the foreign oil firms providing the balance of $6 billion.

“But since this budget was agreed in the last quarter of 2014, there had been drastic changes in the parameters considered by the partners,” another NNPC source said.

“Oil prices have fallen sharply to around $40 per barrel from $80/barrel when the joint venture budget was prepared, while general growth in the Nigerian economy has declined below 6 percent from 6.3percent,” the source said.

Officials of the Western oil companies confirmed receiving NNPC directives on the budget cut. “Even though the directive is for joint venture operations, it is generally expected. Oil companies have themselves been revising down their budgets in the light of the oil price slump,” an official said.

With the price of oil hovering around $50/barrel currently, down by more than half from the middle of last year, Africa’s top oil producer, Nigeria, faces growing fiscal challenges as oil accounts for more than 70 percent of the country’s revenue.

Joseph Dawha, NNPC chief executive, last month, hinted that three deepwater offshore oil projects and one shallow-water one were at risk of being delayed or cancelled outright because of the decline in oil prices.

Meanwhile, Nigeria’s oil output declined to 2.15 million barrels per day at the end of 2014, from 2.26 million barrels per day at the beginning of the year, according to data released by National Bureau of Statistics.

Oil revenues also declined to N2.3 trillion ($13 billion) from N2.6 trillion, as the decline in oil prices took its toll on export earnings, the agency said.

Olusola Bello & Josephine Okojie with wire service