FG Owes Oil Firms $8.1bn in Cash Calls

The Federal Government owes oil companies at least a total of $8.06bn in unpaid cash calls, as the Nigerian National Petroleum Corporation failed to pay $3.06bn in the first seven months of the year.

The nation’s oil and gas production structure is majorly split between Joint Ventures onshore and in shallow water with foreign and local companies and production sharing contracts in deepwater offshore.

The NNPC owns between 55 per cent (for JVs with Shell) and 60 per cent (for all others) and the JVs are jointly funded by the private oil companies and the Federal Government through the corporation.

The latest monthly report of the NNPC showed that the corporation paid a total sum of $1.932bn from January to July this year, as against $4.987bn expected to be paid for the period.

It paid $407,857,571 in January, $236,700,314 in February, $141,868,647 in March and $300,590,276 in April. The corporation paid $149,876,805 in May, $214,398,900 in June and $168,129,620 in July.

In July, N61,615,100,170 (equivalent to a functional dollar of $312,767,005.94 at a budgeted exchange rate of N197/$) was transferred to joint venture cash call from domestic crude oil receipts of N90,815,444,663 in addition to the $168,129,620.

The NNPC is expected to pay $712.46m to its joint venture partners monthly for the development of oil and gas assets, translating into $8.55bn for the year, up from $7.39bn in 2015.

Last year, the corporation recorded a shortfall of $3.3bn in its cash call payment as it was only able to pay $4.13bn to the JV partners.

In January, industry stakeholders including the Managing Director/Chief Executive Officer, Chevron Nigeria Limited, Mr. Clay Neff, said the cash call arrears owed by the NNPC was over $5bn.

The NNPC in the report said, “Total export crude oil and gas receipt for the period of August 2015 — July 2016 stood at $3.21bn. Out of which the sum of $3.16bn was transferred to JV cash call in line with 2015/2016 Approved Budget and the balance of $0.49bn was paid to Federation Account.

“However, this amount falls short of the calendarised appropriated amount of $615.80m and $712.46m for 2015 and 2016 respectively. This is due to worsening production and fall in crude oil price.”

According to the NNPC, the JVCC funding is a first-line priority statutory provision in the 2016 Budget.

“Funding approved JVCC commitments is necessary to protect current and future production and the vice versa is detrimental and unlawful,” it said.

The funding problem, which has lingered for over two decades, has been exacerbated by the steep fall in global oil prices which drove down the country’s earnings from the commodity, its major revenue-earner.

Production from JV assets has over the past few years seen significant decline, partly due to funding constraints occasioned by the NNPC’s inability to meet its share of cash call obligation.

An industry source had in June said as of January this year, about $5.5bn cash call arrears had not been paid to the International Oil Companies, while $1.1bn is owed to the indigenous companies.

The Group Managing Director, NNPC, Dr. Maikanti Baru, on Tuesday said it had started working out modalities that would enable it to exit JV cash call arrears by ensuring that outstanding and future payments were liquated from oil and gas royalties and taxes under a first-line charge model.

The Federal Government must get out of paying so-called cash calls to joint ventures with oil and gas companies to stand a chance of pulling its ailing economy out of recession, the Finance Minister, Kemi Adeosun, said this month.

The minister said the NNPC had spent N110bn ($360 million) on cash calls this month, which dwarfed the country’s N41bn income from oil production over the same period.

“We are already working to see how we can get out of the cash calls. And that is very fundamental to the economy,” Adeosun told a press conference.

“We are working with the Ministry of Petroleum Resources and NNPC … that’s a long-term plan: To allow those joint ventures to borrow money that they need rather than taking money out of the Federation Account.”