NNPC cash call debts hit $7bn

Nigerian National Petroleum Corporation (NNPC) and its venture partners, the International Oil Companies (IOCs), are in a state of flux over the latter’s cash call debts that are now over $7bn even as it maintains its 60 percent crude oil allocation.

Oil and Gas industry sources revealed NNPC has only paid about 30 percent of its cash call obligation since January this year while every month it continues to take its 60 percent allocation in the production-sharing contract with IOCs.

“As a matter of fact, a larger part of the April cash call obligation is yet to be paid to the joint venture partners by NNPC,” the source said.

NNPC and its partners have long disagreed over a legacy payment of $5bn, which it maintains, is only $3bn.

Sources say the disparity arose from reconciliation of approved quotas.

NNPC had in a letter dated 31st of March 2016 proposed to its joint venture partners on how it intends to pay disputed arrears of between $8 billion and $10 billion, saying that oil production shortfalls “could cripple” the industry if left unaddressed.

The letter from the minister of state for Petroleum Resources, Ibe Kachikwu, to the managing directors of Chevron, Shell and the Nigerian subsidiaries of Exxon and Eni named three “unresolved challenges” – arrears from the joint ventures; the payment structure of the joint ventures; and a dispute related to production-sharing contracts.

Previously, NNPC proposed refinancing cash call debts through crude allocation but sources say NNPC may not be able to meet this obligation due to prevailing fuel scarcity in the country that has seen it augment domestic crude oil allocation.

“Further cash call debts are piling up, NNPC also lacks the capacity to distribute 100 percent of local consumption around the country,” noted the Vice President, Yemi Osinbajo, explaining the removal of subsidies on petrol.

NNPC’s production sharing contract agreement with the IOC’s is fraught with discrepancies but following global oil price slump and dwindling foreign exchange, issues that simmered below have blown to the surface.

A source contacted at one of the major oil companies only confirmed that attention is being paid to the arrears but could not speak further on the issue. Oil majors routinely decline comments on contractual disputes especially with NNPC.

In April, NNPC engaged in a brawl with some major IOC’s over how much crude it has to take in view of its huge debts. This standoff affected monthly oil export programs.

Oil majors cover NNPC’s huge JV project costs fuelling cash call debts; hence, they demand that NNPC cannot get the same crude allocation in their PSC when it is failing to pay its share of the cost.

Lower oil prices also mean that more cargoes will be needed to meet contract terms, but renewed militant attacks have rendered Nigeria’s 2.2 million barrels per day production aspirations unrealistic with shut-ins of 800,000 barrels per day.

OLUSOLA BELLO & ISAAC ANYAOGU