• Implements JV exit model January 1 •Records over 1,500 cases of pipeline vandalism in 2016
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, has stated that following the acquisition and processing of over 1,900 square kilometres of new three-dimensional seismic in the Chad Basin, the corporation will commence drilling in early 2017 after evaluating the results collated from the interpretation of the data.
In his keynote address delivered yesterday in Lagos at the 2016 conference of the Nigerian Association of Petroleum Explorationists (NAPE), Baru also stated that the corporation would begin the implementation of the Joint Venture (JV) cash call exit model by January 1, 2017.
The NNPC boss further added that in 2016 alone, the corporation has already recorded over 1,500 cases of vandalism of its pipelines, adding that the cost of repairs was quite mind-boggling.
Baru said the corporation would resume oil exploration activities in some of the inland basins, which include the Chad Basin and the Benue Trough because Nigeria’s neighbours in Niger and Chad had successful commercial discoveries of oil and gas within their portions of the Chad Basin and have since been producing from these fields.
“There is no need re-inventing the wheel. We are now progressing with the use of exploratory techniques that have worked on their own side of the Basin to prove up our side. This will also provide a vista for NAPE and its professionals to further analyse the concept of oil generation, expulsion and entrapment in rift basins which we now know is different from the Niger Delta Basin that we are used to,” he explained.
Baru said by commencing drilling in the Chad Basin, the NNPC would have diversified the country’s production mix and terrain of operation.
He lauded Yinka Folawiyo Petroleum for its successful pioneering efforts in the exploration and development in the Dahomey Basin, adding that the feat has opened up the basin for further exploration and development.
Baru also stated that the chronic JV funding shortfalls being experienced in the industry have resulted in declining JV oil production from about 1 million barrels of oil per day three – five years ago to about 800,000 barrels of oil per day.
“In contrast, production from the Production Sharing Contracts (PSCs) arrangements where NNPC does not provide the funding for the production has increased almost proportionately to the JV production decline over the same period thereby making the national oil production relatively flat,” he added.
Baru said he was working assiduously with the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu and the Joint Venture partners to see that Nigeria exits the JV cash call system and also clear the funding arrears.
To address the JV funding problem, Baru said the corporation was exploring alternative funding mechanism that allows the Joint Venture Business finance itself by retaining its operating costs and Capital Allowances (Fiscal Costs) in order to sustain and grow the business.
According to him, “where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the JV, part of the profit margin could be retained to fund the budget and where necessary, external financing could also be sought to finance commercially viable and bankable Capital projects without recourse to government treasury”.
“The import of the above is that the Joint Ventures will relieve government of the cash call burden by sourcing for its funds for its operations (estimated at $7billion-$9billion annually). In 2016 alone, underfunding of NNPC Cash Calls is estimated to be about $2.5 Billion. This is aside the inherited arrears estimated at over $6 Billion,” he added.
Baru said the JV cash call exit model being pursued would guarantee government most of the revenue that normally accrues to it from the JV operations by lifting the Royalty and Tax Oil upfront.
According to him, this contributes 75 per cent to 85 per cent of the accruable revenues to government.
“Consequently, the effect on government take would be minimised. We are working assiduously to kick start this from 1st January, 2017,” he added.
He added that in 2016 alone, the corporation has recorded over 1,500 cases of pipeline vandalism.
“What are we doing? During my visit to the Chief of Defence Staff, a few weeks ago, I informed him of my intention of setting up an all-inclusive Advisory Council on Security mainly to address all security and host community agitations at the Industry level. The Advisory Council is expected to be made up of representatives of key stakeholders,” he explained.