Cash call payment for the development of joint venture oil and gas assets ate into the Federal Government’s revenue last year as a total of N1.829tn was paid, according to the Nigerian National Petroleum Corporation, which represents the government in the JVs.
The government generated N3.11tn from the sale of crude oil and gas in 2018, out of which N1.829tn was transferred into the joint venture cash call account while the balance of N1.28tn went into the Federation Account, the NNPC data revealed.
The dollar allocation to the JV cash call account was $4.17bn (from oil and gas export receipt of $5.58bn) while the naira portion was N559.81bn (from domestic oil and gas sales proceed of N1.41tn).
The federation crude oil and gas lifting are classified into equity export and domestic, both of which are lifted and marketed by the NNPC and the proceeds remitted into the Federation Account.
The equity export receipts, after adjusting for JV cash calls, are paid directly into Federation Account domiciled in the Central Bank of Nigeria.
Domestic crude oil of 445,000 is allocated for refining to meet domestic products supply. Payments are effected to the Federation Account by the NNPC after removing crude and product losses, pipeline repairs and management cost incurred.
The nation’s oil and gas production structure is split between JV (onshore and in shallow waters) with foreign and local firms, and Production Sharing Contracts in deep water offshore.
The NNPC owns 55 per cent of the JVs with Shell, and 60 per cent of all the others.
Under the JV arrangement, both the NNPC and private operators contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.
But the NNPC failed to meet its share of cash call obligations for many years, resulting in significant debts owed to oil companies.
In 2016, the international oil companies operating in Nigeria agreed to give the Federal Government a discount of $1.7bn from the $6.8bn cash call arrears owed by the NNPC.
The Group Managing Director, NNPC, Dr Maikanti Baru, said in June last year that the corporation had settled all its outstanding cash call arrears amounting to $5bn, and that it had restored confidence in the country’s oil and gas industry.
The corporation, in its latest monthly report, said total oil and gas export receipt of $345.68m was recorded in December 2018 as against $605.71m in November 2018.
It said, “Of the export receipts, $137.08m was remitted to the Federation Account while $208.60m was remitted to fund the JV cost recovery for the month of December to guarantee current and future production.”
The NNPC added that N63.10bn, equivalent to $206.88m at a budgeted exchange rate of N305/$, was transferred to JVCR from domestic crude oil receipts.
It said, “Total export crude oil and gas receipt for the period December 2017 to December 2018 stood at $6.06bn. Out of which, the sum of $4.56bn was transferred to JV Cash Call as first line charge and the balance of $1.50bn was paid into the Federation Account.
“From December 2017 to December 2018, Federation Account and JV received the sum N928.85bn and N578.92bn, respectively.”
Last week, the Federal Government announced plans to cut its stakes in JV assets to 40 per cent this year in a bid to boost revenue generation.
The Minister of Budget and National Planning, Senator Udo Udoma, said the government would intensify efforts to improve its finances including the “immediate commencement of the restructuring of the joint venture oil assets so as to reduce government shareholding to 40 per cent.”
The President Muhammadu Buhari-led administration had in its Economic Recovery and Growth Plan released in 2017, said it would reduce its stakes in JV oil assets, refineries and other downstream subsidiaries such as pipelines and depots.
The sale of 15 to 20 per cent stake in the JV assets means the government’s cash call payment would reduce.
Renaissance Capital estimated that the government could generate revenue of $9bn from the sale, according to an e-mailed note.
An oil and gas analyst at the investment bank, Temilade Aduroja, said, “IOCs that currently have JVs with the NNPC include Mobil, Chevron, Shell, Total and Agip, with a total 2017 production of 751,000 barrels per day, representing 39 per cent of Nigeria’s total production. Including indigenous companies, Nigeria’s JV assets represent 44 per cent of total production.
“The NNPC’s current JV production (441,000bpd) represents 23 per cent of Nigeria’s total production. Selling down NNPC’s stake from 60 per cent to 40 per cent will reduce NNPC’s JV production by about 142,000bpd (eight per cent of Nigeria’s production); at today’s oil price, this is a $3.5bn loss in revenue. However, high operating costs and JV cash calls eat into its profits.”
She noted that the government would generate revenue by selling 20 per cent of its stake in Mobil, Chevron, Total and Agip’s JV assets and 15 per cent in Shell’s JV assets.
Aduroja said, “It is difficult to determine how much the NNPC will sell these assets for, as we do not have reserve information.
“However, if we assume that Nigeria’s production is comparable to its proved reserves, given that the NNPC will lose eight per cent of Nigeria’s production from the sale, we assume that the NNPC will sell eight per cent of Nigeria’s proved reserves.
“This implies that the NNPC will sell assets worth 2.98 billion barrels of oil in reserves.”
Energy and financial experts have described as a welcome development the move by the government to sell some of its stakes in JV oil assets.
The Managing Director, Financial Derivatives Company, Mr Bismarck Rewane, said, “I think it is a good thing because I have always championed the cause of government exiting. But who are they going to sell their interest to?
“The fact that it will create some more liquidity that we can use that to fund infrastructure is good. We should have done it five years ago. The earlier we sell those assets, the better. If we had sold them when oil price was higher, we could have got a better return. But it is better late than never.”