Ejiofor Alike with agency reports
The federal government has reached an outline settlement to resolve a protracted dispute with five international oil companies (IOCs), under which the oil firms will be paid $5 billion as arrears of cash calls to cover exploration and production costs.
Financial Times reported that Shell, ExxonMobil, Eni, Chevron and Total have signed deals relating to this settlement of costs incurred between 2010 and 2015, as they also seek to forge new financing arrangements for their joint ventures (JVs) in Nigeria.
The settlement, which would be a haircut on the over $6 billion the IOCs claim they are owed by the federal government needs the approval of two government bodies and final sign-off from President Muhammadu Buhari.
Financial Times quoted the Minister of State for Petroleum, Dr. Ibe Kachikwu, as saying that the settlement had been “accepted” by the five companies, adding that the deal can be finalised before the end of the year.
Exploration and production costs are supposed to be split in the partnerships between the Nigerian Natinal Petroleum Corporation (NNPC) and the IOCs, but western companies have accused NNPC of failing to pay its portion of the JV cash calls, prompting the firms to hold back on vital investment.
The failure of the NNPC to meet its cash call obligations had led to the introduction of another fiscal regime – Production Sharing Contract (PSC), modelled after Indonesia’s PSC, where the oil firms provide all the exploration and production costs.
NNPC has repeatedly queried the amounts it owes the western companies, but the settlement is an attempt to draw a line under the dispute. NNPC’s financial obligations to the joint ventures, known as “cash calls”, have long been a problem.
According to Kachikwu, the $5 billion of payments will be made in the form of barrels of new crude production over the next five years.
The settlement also addresses $1billion the western companies say is due from NNPC for costs incurred this year in the joint ventures. The firms are expected to receive a one-off cash payment from the federal government to cover this amount.
Both sides were said to have agreed in principle to new financing arrangements, starting from 2017 which involve the setting up of an escrow account for each joint venture, from which costs can be recovered and taxes paid to the state.
Shell, Total, Exxon and Chevron declined to comment. Eni did not immediately respond to requests for comment.
Speaking recently in Abuja on the expected impact of the “7 Big Wins” launched by President Buhari to grow Nigeria’s oil and gas sector, Kachikwu said investments in Nigeria’s oil and gas sector, which took a downturn in recent past, would soon pick up following the conclusion of a review of the country’s JV framework.
According to him, on the back of the review, a lot of oil and gas investors are pushing to come back and invest heavily in the country’s oil and gas sector.
He said each time he projected a rise in the country’s oil production to 2.2 million barrels per day (mbpd) and 3mbpd, they were based on the fact that the JV structure had been reviewed and funding issues sorted out.
“On the issue of JV cash call, we have done a yeoman’s job. We are nearing completion of those negotiations, it would go to the FEC and it does not require a law. Those things are basically memorandum of Understanding (MoUs). We are going to structure the MoUs to enable them find the funding they require.
There is even a budgeting process in terms of what we approved should be done, but how you now sequence the distribution of the funding is where the catch is,” Kachikwu had explained.
He said the government had made a lot of progress on funding, explaining that over $1.2 billion would be saved.