The Nigerian National Petroleum Company (NNPC), Limited is set to reverse huge losses incurred since the beginning of the year after it successfully executed agreements for the renegotiated Production Sharing Contracts, PSC, with contractors in five Oil Mining leases.
It is projected that the deal would transform the oil and gas industry as well as unlock over $500 billion in revenue from its oil resources.
The contract execution deal is coming few weeks after the NNPC transited to a limited liability company.
According to reports, the NNPCL recorded a project funding underperformance of $1.216 billion between January and June 2022.
It was also reported that the NNPCL defaulted in its projection in the first six months of 2022 by $1.216 billion.
According to data, whereas the firm projected to spend over $500 million for each month, $333.4 million was expended in January, and the figure dropped to $18.1 million in February.
The funding for priority projects rose again in March to $294.3 million and $150.5 million in April and caved in to $113.3 million in May and $249.8 million in June.
It was further reported that while the monthly forecast for cost recovery and funding of government priority projects was $536 million, total projected spending for the purpose for 2022 was kept at $3.21 billion.
The situation has become dire such that the company became incapacitated such that it could not meet its monthly financial obligation to the joint account operated by federal, state and local governments.
The NNPC prior to this and specifically in 2021, reported a deficit of over $2.6 billion for cost recovery and priority projects, even when it budgeted about $5.8 billion for the purpose.
While through cost recovery, a party is able to recoup its capital and operating costs out of a specified percentage of production, the NNPC also has major oil and gas projects meant to boost the country’s production.
Some of the projects, which have been on for years include domestic gas development initiatives, frontier exploration, renewable energy and the Nigeria/Morocco pipeline.
However, some of these would be reversed following the company’s renewed agreements in OMLs 128, 130, 132, 133, and 138.
Industry operators have expressed confidence that the contracts would definitely unlock investment in the upstream sector and boost investors’ confidence.
Commenting on the renewed PSCs, group CEO, NNPC, Mallam Mele Kyari, said renegotiations of the assets were in line with the provisions of section 311 of the Petroleum Industry Act (PIA) 2021 with other improvements to the PSCs aimed at driving performance in the PSC operations.
Kyari said the negotiations were completed within the timeframe specified by Petroleum Industry Act, PIA for all re-negotiated PSCs, stressing that “the meaning of this is that there is now a great deal of clarity between NNPC Ltd and its partners in the deepwater space.”
Kyari commended President Muhammadu Buhari, for his leadership in providing the NNPC and its contractors the opportunity to achieve the milestone through the PIA, thereby offering more opportunities for boosting the nation’s crude oil production and revenue base.
Country Chair, Shell Companies in Nigeria, Osagie Okunbor, commenting, described the execution of the OML 133 PSC contract as significant progress towards harnessing the deepwater resources of Nigeria.
Also speaking, the chairman/managing director of ExxonMobil Companies in Nigeria, Richard Laing noted that the renewal of the Usan (OML 138) and Erha (OML 133) leases validates his company’s commitment to maintaining a significant deepwater presence in Nigeria, through Esso Exploration and Production Nigeria (Deepwater) Limited.
On his part, chairman/managing director of Chevron Nigeria Limited (CNL), Rick Kennedy said Chevron is proud of its strong partnership with Nigeria and its various partners and remains committed to supporting the country to develop its energy resources safely and reliably.
The recent negotiations will put to rest the protracted dispute between the NNPC and the Contractor Parties in Oil Mining Leases (OMLs) 125, 128, 130, 132, and 133, as well as 138 PSCs).
The PSCs and their leases, except OML 130, will run for another 20 years term under pre-PIA laws, while OML 130 is to be renewed under PIA terms.
The PIA in Section 311(2) stipulates that new PSC agreements under new Heads of Terms will be signed between NNPC as Concessionaire and her Contractor Parties within one year of signing the PIA into law, giving a deadline of 15th August 2022.
This provision paved the way for the resolution of lingering disputes which created investment uncertainty and stifled new investments in the nation’s deep offshore assets.
To achieve this, NNPC leveraged the near-end term of the PSCs and the parties’ interest to renew the PSCs as a negotiation currency in bringing the contractors to work towards trading the past for the future.
These renewed PSCs would provide several benefits such as improved long-term relationships with contractors, elimination of contractual ambiguities, especially concerning gas terms, and enable early contract renewal amongst others.
It is also expected that these contracts would be executed without hinderances as huge sums owed five international oil companies has now been slashed after the company fully paid off Mobil Producing Nigeria Limited and Chevron Nigeria Limited. The two firms were initially owed $833.7 million and $1.097 billion respectively, though both have now been fully paid but Shell Petroleum Development Company (SPDC), Total and Agip are still being indebted to the tune of $595.1 million, $65.1 million and $213.1 million respectively.
The NNPC is also said to have signed the cash call repayment agreements with the five IOCs to defray the cash-call arrears within a period of five years after many years but the repayment period has now exceeded six years.
Cash Call obligations arise when non-operating JV partners like the NNPCL are called upon to provide funding for operations usually based on each partner’s equity in the project.
Also, the ministry of petroleum resources had negotiated a discount with the IOCs, comprising SPDC, Total, Mobil, Chevron and Agip from about $5.1 billion down to $4.68 billion and had since then continued to reduce the debt payments in installments.
The cash call arrangements, under which NNPCL pays for its 55 per cent to 60 per cent share of investment in the upstream joint ventures, had been in place for over 40 years before it was restructured.
According to Comrade Brown Ogbeifun, former President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), the journey of the NNPC to a private sector commercial entity commenced with the passage of the Petroleum Industry Act, PIA in 2021. It subsequently got incorporated with the Corporate Affairs Commission (CAC) with a floated initial capital of N200 billion on September 21, 2021. By all standards, that remains the highest share capital in Nigeria.
Ogbeifun, shared the belief that a well-managed NNPC will help the country achieve its energy security plan and would no longer run at loss.
He recalled that the Nigerian National Petroleum Company Limited transformed into a legally regulated Companies and Allied Matters Act (CAMA) entity on July 1, 2022 which was done to align and conform with the provisions of Section 53(1) of the Petroleum Industry Act 2021
Ogbeifun, an accredited mediator of the Centre for Effective Dispute Resolution-UK, who had served as a committee member on Socio-Economic Impact of Downstream Deregulation in Nigeria and the Privatization of NNPC Downstream Sector, explained that what it now translates to is that NNPC Ltd has now been created as a private sector and commercial mindset entity for optimum productivity and profitability, improved its transparency and accountability profile, and emplace better collaborations and coordination between the NNPC, Limited and the Federal Internal Revenue Services, Nigerian Extractive Industry Transparency Initiative (NEITI), Central Bank of Nigeria (CBN), Ministry of Finance, Nigerian Upstream Petroleum Regulatory Commission, the Ministry of Petroleum Resources NUPRC) ‘The Commission,’ Nigerian Midstream and Downstream Petroleum Regulatory Authority NMDPRA, ‘The Authority,’ etc.
Besides, Ogbeifun said a well-managed NNPC as a private concern would generate more taxes into the federal government coffers. The certainty of a legal framework assures investors of legal protection from the hitherto used rule of thumb, thereby boosting investor confidence and spurring them to invest in an oil and gas industry that would emerge as a hub for petroleum investments in the continent.
Furthermore, the PIA empowers the NNPC to determine and keep viable assets and do away with identified toxic assets, focusing on gas investments. The frontier exploration for more oil and gas reserves shall be enhanced and would be free to determine entrance and exit into new investments. It shall also have the power to raise funds from the capital market to fund its operations.
An economist, Dr. Muda Yusuf, reacted by saying that dysfunctional policies governing the nation’s oil and gas sector are some of the major headwinds to the growth and development of the Nigerian economy.
The policies have discouraged investments in the sector, perpetuated corruption, entrenched inefficiencies and compounded the fiscal challenges of government.
Yusuf, the Chief Executive Officer of the Center For The Promotion Of Private Enterprises (CPPE), said that added to the policy problems is the insecurity, vandalisation of oil installations, and massive theft of crude oil.
“It is a combination of policy and governance failures. Rather than take advantage of high oil price to build fiscal buffers, improve our foreign reserves and strengthen our currency, we are experiencing the exact opposite. It is one of the biggest economic tragedies of our time. The economy is experiencing serious bleeding from the fuel subsidy regime, the equalisation fund and the theft of crude oil.”
He said with the new initiative embarked by the new NNPC Limited, there will be great level of operational transparency and injection of funds in new projects that will in turn generate jobs and revenue for the country.
