The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu and the Federal Government has reached an agreement on a new cash call exit policy with the
international oil companies, IOCs, which will increase government’s annual revenue by $2billion and see to the restructuring of the financing template for oil earnings, increase investments and boost government revenues.
According to a statement by the Director of Press in the Ministry of Petroleum Resources, Idang Alibi, the agreement on joint venture cash call arrears payment and future funding mechanism was announced yesterday by the Minister while giving an account of key achievements of the Ministry in 2016.
The move is expected to bring clarity and stability to the management of the country’s main revenue source.
The negotiation on behalf of the Federal Government, which was led by Kachikwu, resulted in a remarkable agreement by the IOCs who have agreed to be paid their accumulated arrears up to December 2015, payable over the period of about five years. It is important to note that this will not be a cash burden on the Federal Government as payments will be made via incremental production from each JVC.
The Minister, at the event, outlined other innovations and initiatives championed by the ministry over the past year which have revamped the sector, restored investors’ confidence which was at an all-time low and positioned Nigeria’s Oil and Gas value chain for profitability.
The Petroleum Ministry has also made considerable accomplishments in the international frontiers through maintaining robust relationships and strengthening linkages within and outside the petroleum producing community.
The agreement is said to be part of new measures and strategies aimed at eliminating the burden of Joint Venture Cash Call arrears and securing future funding for the Upstream Petroleum Sector.
These strategies which are fully supported by the National Economic Council, NEC, will lead to an increase in national production from the current 2.2mbpd to 2.5mbpd by 2019, as well as reduction in Unit Technical Costs from $27.96/Barrel Oil Equivalent (boe) to $18/boe.
The net payments to the Federation Account is expected to double from about $7Billion to over $14Billion by 2020 and the immediate effect of the new cash call policy will increase net FGN Revenue per annum by about $2billion.
It would be recalled that based on historical records, the current Cash Call system has been structurally defective and has failed to address the perennial Joint Venture funding challenges being experienced in the industry where the Federal Government underfunding of the industry through JV Cash Calls stood at $9.125 billion by September 2016. This arrangement will guarantee payments of statutory Oil and Gas Royalties and taxes by NNPC and its JV partners as well as profit from its investments in the Joint Ventures.
At US$42.5 per barrel Oil price which the 2017 budget is predicated on and US$24 per barrel fiscal cost recovery proposed for 2017 in the Medium Term Expenditure Framework, MTEF, recently submitted to the National Assembly, over US$13 per barrel will accrue to Government as Royalties & Taxes from Joint Venture Oil and Gas Production apart from US$2.8 per barrel estimated as Government share of profit, at 57 per cent equity.
This will restore investors’ confidence and achieve accelerated production growth in the Joint Ventures as new governance processes will equally be introduced.
Some of the achievements recorded in 2016 were listed as follows…
Successful tenureship and handover of the Presidency of four key international energy organisations namely:
– The Gas Exporting Countries Forum (GECF)
– Organisation of Petroleum Exporting Countries (OPEC);
– African Petroleum Producers Association (APPA); and
– West African Gas Pipeline Authority (WAGPA).
Successful election of Mohammed Sanusi Barkindo of Nigeria as the Secretary – General of the OPEC
Successful mobilization of OPEC members and Non-OPEC Oil Producers to dialogue on the stabilization of the global market in Doha; Algiers which culminated into the achievement of freeze on production at the 171st conference in Vienna
Rise in oil prices to US$55/per barrel for the first time in 16 months after negotiations with non-OPEC producers
Nigeria’s successful negotiation of an exemption from the production freeze;
Successful hosting of the 52nd Conference of Ministers of African Petroleum Producers Association in March 2016 (APPA);
Provided leadership and support to other APPA members in the development of legislation, institution and systems for local content in Africa
The Minister went on pledge that the Ministry will continue to drive innovation and change in its approach to delivering an oil and gas industry that is internationally competitive and is governed by open and transparent processes to ensure security of investment for both domestic and international investors.
