The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has said the corporation has secured a total of $3.7 billion in Alternative Financing Agreement in the last three years.
Speaking yesterday in Lagos at the 35th annual conference of the Nigerian Association of Petroleum Explorationists (NAPE), Baru said securing external funding arrangement was crucial to sustaining oil and gas production and ensuring the survival of Nigeria’s energy future.
“Within the last three years, we have embarked on several successful alternative funding programmes to sustain and increase the national daily production and producibility,” Baru said.
According to him, the $3.7 billion financing package included the $1.2 billion multi-year drilling financing package for 23 onshore and 13 offshore wells under NNPC/Chevron Nigeria Limited Joint Venture termed Project Cheetah and the $2.5 billion alternative funding arrangements for NNPC/SPDC JV ($1billion) termed Project Santolina.
Others include: NNPC/CNL JV ($780 million) termed Project Falcon and the NNPC/First E&P JV and Schlumberger Agreement ($700 million).
Project Cheetah is expected to increase crude oil production by 41,000 bopd and 127Mmscfd with a government-take of $6 billion over the life of the project.
Baru added that projects Santolina, Falcon and the NNPC/First E&P JV and Schlumberger Funding Arrangement are expected to increase combined production of crude oil and condensate by 150,000 bopd and 618 million standard cubic feet per day (MMscfd) of gas with a combined government-take of about $32billion over the life of the projects.
He noted that evolving a new funding mechanism for the JV operations was a critical part of President Muhammadu Buhari’s far-reaching reforms aimed at eliminating cash call regime, enhancing efficiency and guaranteeing growth in the nation’s oil and gas industry.
Baru explained that as a result of the cash call underfunding challenge which rose to about $1.2bn in 2016 alone, NNPC and its JV partners began exploring alternative funding mechanisms that would allow the JV business finance itself in order to sustain and grow the business.
He added that with average JV cash call requirement of about $600 million a month, coupled with flat low budget levels over the past years, the budgeted volumes were hardly delivered.
“The truth is that it is difficult to deliver the volumes without adequate funding. The low volumes and by extension low revenues had resulted in the underfunding of the industry by government, which has stymied production growth,” he said.
According to him, with the new Alternative Funding Arrangement in place, JVs will now relieve government of the cash call burden by sourcing for funds for their operations (estimated at $7-$9 billion annually).
Baru, who spoke on the theme: “Review of the Current State of Funding for the Upstream Sector and the need for a New Policy Initiative,” commended NAPE for its contributions towards shaping the oil and gas landscape in Nigeria, stressed that it was incumbent on NNPC to associate with such a professional body for the benefit of the nation.
“It is on record that key pieces of legislation such as the Marginal Fields Act and the Deepwater Fiscal Policies, the Nigerian Content Act, as well as the Unitization Policy were all based on templates that came out of previous NAPE Conferences,” he said.
Also speaking on alternative funding, a former Group Managing Director of NNPC, Mr. Funsho Kupolokun, called for fresh approaches such as the involvement of more indigenous participation to address the challenges of funding upstream operations in the country.
In his speech, the president of NAPE, Mr. Abiodun Adesanya, described the challenge of cash call as very critical because it affects all the objectives and targets of growing the reserves and increasing crude oil production in the country.