The persistent constraint by the Nigerian National Petroleum Corporation (NNPC) to meet its $615.8 million joint venture cash call obligations have taken a turn for the worse on the country’s crude oil production output.
This has made it impossible for the country to reach its desired 2.4 million barrels per day as production output has continued to hover around 1.7 to 1.9 million barrels per day.
Specifically, crude oil production from the joint venture between NNPC and the international oil companies (IOCs) have declined by 47 per cent due to the inability of the federal government to provide its own funding through the national oil companies.
As at January 2015, NNPC is indebted to about $5 billion in cash calls to its JV partners.
Despite having several joint venture agreements with International Oil Companies (IOCs), NNPC has consistently been challenged meeting its funding obligation.
A Joint Venture (JV) operation is a standard practice in the ownership of assets in Nigeria. It usually takes the form of an agreement between the national oil company, in this instance, the NNPC, IOCs and sometimes, indigenous oil companies.
Under the arrangement, all parties contribute to funding oil exploration and production operations in the proportion of their JV equity holdings and receive crude oil produced earnings in the same ratio.
However, the slide in crude oil prices has further aggravated the Federal Government’s inability to fund its JV agreements with international and indigenous oil companies.
The NNPC Group Managing Director, Emmanuel Kachikwu stated that the continued decline in oil price led to insufficient cash available to meet monthly JV cash calls obligations of about $615.8million as appropriated by the National Assembly.
He said to mitigate this effect, the corporation was compelled to sweep all the export receipts to JV cash call funding implying a zero dollar proceed remittance to the Federation Account since April.
Speaking in Lagos during a training workshop for journalists organised by PriceWaterhouseCoopers (PwC), the General Manager in charge of Venture Relations at ExxonMobil, Victor Olaiya, stated by 2020, about one million barrels per day would be lost by the joint ventures because of inadequate funding.
He added that while crude oil production from the joint venture projects is declining, output from the Production Sharing Contracts (PSCs) is increasing.
He noted that the PSC projects are funded solely by the International Oil Companies, which take all the risks associated with the projects.
Olaiya also disclosed that Nigeria does not have a budget on how much the NNPC would contribute to the joint venture in 2015.
He also disclosed that ExxonMobil had sourced $15 billion to implement joint venture projects in the last couple of years.
In his speech, the Chief Economist, PwC Nigeria, Dr. Andrew S. Nevin, said despite high oil revenues, large levels of public expenditure had opened up a fiscal deficit over the last few years, adding that this deficit is projected to continue.
“Despite this, outstanding government debt is low compared to countries within the region and those at similar levels of development. Of the $13 billion of outstanding public debt, the vast majority is denominated in domestic currency. However, a significant portion is due to be rolled over this year,” he said.
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