IOCs in dark as NNPC fails to issue directive on 2015 JV budget

International Oil Companies (IOCs), joint venture partners of the Ngerian National Petroleum Corporation (NNPC) are still in the dark over the 2015 project spending plans, just two months before the end of the year, BusinessDay has reliably learnt.

The IOCs, operators of the joint ventures between them and the NNPC, but junior partners, as NNPC holds the majority shares, industry sources told BusinessDay, have not received any directive from the national oil corporation and are therefore on the verge foreclosing on any new projects for the year.

This lack of commitment may cause the IOCs to outrightly cancel some projects because they are not sure if or when the funding will come.

The Federal Government  cut the 2015 Joint Venture Oil Budget by 40 per cent to $8.1 billion because of the fall in crude oil prices . Crude oil is the mains source of the country’s foreign exchange earnings and generates financing for the joint  venture  projects.

The implication of the failure of the  NNPC to issue  a directive has therefore put the joint  venture  partners in a very tight situation as they are not sure  which project  they should execute and how they could do so with limited exposure to banks and other financiers.

An employee of one of the joint venture partners of NNPC who spoke to BusinessDay, said in executing projects, they act based on assumption and that this makes their work difficult.

Ohi Alegbe, NNPC’s Group General Manager, Public Affairs said the IOCs are not given the latitude to spend as they will,  as there is a  specified percentage of the budget that  they can spend.

Alegbe further said: “The IOCs don’t have a blank cheque to spend the  joint venture budget until it is approved. ”

He said the National  Petroleum Investment and Management Service (NAPIMS) approves their work plans and budget on a monthly basis, adding  that before the approval of the 2015 budget, 25 per cent of the 2014 figure was used, pending the approval.

Another industry source  told our reporter that the National Assembly is to blame for the delay. He said both the Senate and House of Representatives spend such a long time to appropriate the budgetary allocation and approve it.

The Federal Government has recently initiated moves to enable the IOCs  borrow from the market to fund their operations as a way of resolving the perennial cash call challenge which has held  down oil production in the country.     

Nigeria, through the NNPC, operates oil joint ventures with multinational companies including Shell, ExxonMobil, Chevron, Total and Eni, which account for almost half of the country’s oil output.

The NNPC has informed the joint venture partners that this year’s capital expenditures will be cut by 40% from the initial proposed budget of $13.5 billion.

The NNPC and its joint venture partners had maintained a budget of $13.5 billion in the past three years, but because of the drastic decline in oil prices, that level cannot be sustained this year.

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

But since this budget was agreed to in the last quarter of 2014, there have been drastic changes in the parameters considered by the partners.

Oil prices have fallen sharply to below $50 per barrel from $80/b when the joint venture budget was prepared, while growth in the Nigerian economy has declined .

With the price of oil currently hovering around the $50 a barrel mark, down by more than 50 per cent from the middle of last year, Nigeria has been facing growing fiscal challenges, as oil accounts for about 70 per cent of the country’s revenue¨

Meanwhile, Nigeria’s oil output has declined to 1.9 mbpd from 2.5 mbpd.

Olusola Bello