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FG Pays IOCs $400m as Part Settlement of Cash Call Debt

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oil
  • FG Pays IOCs $400m as Part Settlement of Cash Call Debt

The federal government has begun redeeming its pledge to settle outstanding joint venture cash call debts it owes international oil companies (IOCs), with $400 million released to them last week, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has disclosed.

Kachikwu told reporters on Tuesday on the sidelines of the 2017 Offshore Technology Conference (OTC) in Houston, Texas that the $400 million payment was part of the $1.2 billion cash call debt owed the IOCs in 2016.

This, he clarified, was different from the discounted $5.1 billion cash call arrears it negotiated in December 2016 with the IOCs.

Nigeria produces more than half of its oil under joint operating agreements (JOAs) with five IOCs comprising ExxonMobil, Shell, Nigeria Agip Oil Company (NAOC), Chevron and Total.

The minister also revealed that a monthly repayment plan of $70 million has also been worked out with the Central Bank of Nigeria (CBN) to offset the $1.2 billion debt in one year.

The negotiated $5.1 billion debt, he emphasised, would be repaid from incremental oil production by the IOCs.

The minister explained that on the basis of the payment, the IOCs were beginning to regain confidence in Nigeria’s oil industry, adding that the country’s oil production could increase by 700,000 barrels per day (bd) by 2018 from the development.

“At the time that we did the joint venture review that we came up with, we had two components to it. The first was the $6.8 billion of arrears covering about six years which were owed the oil companies.

“In our negotiations, we were able to trim that down to about $5.1 billion, so we knocked off $1.7 billion out of it and then spread the $5.1 billion over the next five years to be paid from incremental production, not from existing production.

“In other words, they will have to go find new oil and from that new oil, recover their money because we didn’t want to imperil the 2.2 million that everybody is already used to,” said Kachikwu.

He added: “The second tranche of the money which was not in the $6.8 billion or the $5.1 billion, depending on where you land, was a figure of about $1.2 billion which represented only 2016 arrears, and the oil companies insisted that it needed to be repaid completely because they couldn’t begin to add that to the $5.1 billion.

“We eventually agreed to pay in several tranches. $400 million out of that for the first tranche and then the remaining $700 million paid in monthly installments for a period of one year; that will roughly be about $60 or $70 million every month after the first $400 million.”

According to the minister, the payment of the first $400 million would jumpstart the whole process of crystallising the agreement that had been reached on JV funding and which was paid a couple of days ago.

“That was a major milestone and we have made provisions through the central bank for the payment of the balance on a monthly basis,” Kachikwu explained.

He said this would incentivise the IOCs to invest in existing and new projects in the country.

“But more important and significant even more than the payment of the outstanding debt, was the restructuring of the JV cash calls.

“Previously, what happened was that all income went back to the Federation Account and from then you budgeted and sent back to them some money.
“Invariably, even when there was a budget, we never met that, we ate both the cost and revenue.

“What this has done now is to skew that to the other direction such that from production after royalties, you take away the cost of production on a budgeted basis and then the balance goes back to the Federation Account. So, hopefully, going forward, we shouldn’t have that problem again.

“What we cannot cover in terms of the budget, the oil companies will go out to raise loans from third parties to enable them continue with their exploration and production programmes,” Kachkwu explained.

Listing some of the immediate impacts of the restructuring, he said: “What this would do will be that it addresses arrears, current cash call requirements and then investment funding requirements.

“That’s the beauty of what is happening and the net effect over the last two months is that we have seen the Zabazaba signing and Bonga coming back.

“We have today, cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels over and above the 2.2 million barrels per day.

“That is why I can say with confidence that we are in a position to move up to 3 million barrels per day very quickly.”

The Nigerian National Petroleum Corporation (NNPC) also announced on Tuesday that the first batch of the three new gas fired power plants it plans to build in Abuja, Kaduna and Kano with its joint venture partners would be completed by 2019 to boost power generation in the country.

The corporation also stated that within the same period, it would increase the crude oil production of its exploration and production (E&P) arm, the Nigerian Petroleum Development Company (NPDC) to 300,000 barrels per day (bpd), before moving it further to 700,000bpd.

NNPC’s Group Managing Director, Dr. Maikanti Baru, said this on Tuesday at the 2017 edition of the OTC in Houston.

Baru, who was represented by NNPC’s Chief Operating Officer (COO), Gas and Power, Saidu Mohammed, at the conference, added that the three plants combined will generate up to 3,000 megawatts (MW) of electricity.

According to him, NNPC currently has interest in two power plants in Okpai, Delta State and Afam, Rivers State, which were built under its joint venture (JV) partnership with NAOC and Shell, respectively. The two plants collectively generate up to 1,000MW.

Mohammed said the corporation would be providing up to 4,000MW of electricity to Nigeria’s grid when the three plants are completed.

“They will all come at different times but the first batch will come in 2019,” Mohammed said, before explaining that the plants would be built by Incorporated Joint Venture (IJV) companies involving the NNPC, international power firms and Nigerian investors, and taking the business format of the Nigerian Liquefied Natural Gas (NLNG).

Equally, the NNPC recently said it was already in the process of extending its gas pipelines to connect the cities that would host the power plants, starting from Ajaokuta to Abuja to Kaduna and then to Kano. The line is often referred to as the AKK gas pipeline.

“We are focusing on the transformation that is going on in the NNPC in terms of reforms,” the GMD said.

On NPDC, Baru added: “We are not doing it alone, that’s why we are coming here to showcase to those who have the capacity and competencies to come to Nigeria to invest and increase our reserves and also enhance the only E&P company that we have, NPDC.

“We have a target of raising the production of NPDC within the next two years. We are talking about nothing less than 200,000 to 300,000 barrels per day.

“Essentially we want to raise the entire NPDC production to about 700,000 with other partners, then increase Nigeria’s production to up to 3 million barrels per day.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Nigeria’s Real Estate Sector Shrinks by 8.06% in the Third Quarter -NBS

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Economic uncertainty plunged Nigeria’s real estate sector by 8.06 percent in the third quarter of the year, according to the National Bureau of Statistics (NBS).

Nigeria’s statistics office said “In nominal terms, real estate services recorded a growth rate of –8.06 per cent in the third quarter of 2020, indicating a decline of –11.78 per cent points compared to the growth rate at the same period in 2019, and by 9.12 per cent points when compared to the preceding quarter.

“Quarter-on-quarter, the sector growth rate was 18.92 per cent.

“Real GDP growth recorded in the sector in Q3 2020 stood at -13.40 per cent, lower than the growth recorded in third quarter of 2019 by –11.09 per cent points, but higher relative to Q2 2020 by 8.59 per cent points.

“Quarter-on-quarter, the sector grew by 17.15 per cent in the third quarter of 2020.

“It contributed 5.58 per cent to real GDP in Q3, 2020, lower than the 6.21 per cent it recorded in the corresponding quarter of 2019.”

Nigeria’s economy contracted by 2.48 percent in the first nine months following a 6.10 percent and 3.62 percent contraction in the second and third quarters respectively.

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Economy

Nigeria Requires N400 Billion Annually to Maintain Federal Roads -Senator Bassey

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The Chairman of the Senate Committee on road maintenance, Senator Gersome Bassey, on Friday said Nigeria requires about N400 billion annually to maintain federal roads across the country.

The Senator, therefore, described the N38 billion budgeted for road repairs in the 2021 proposed Budget as grossly inadequate. According to him, nothing meaningful could be achieved by the Federal Roads Maintenance Agency (FERMA) with such an amount.

He said, “For the 35 kilometres federal roads in the country to be motorable at all times, the sum of N400bn is required on yearly basis for maintenance.”

Bassey “What the committee submitted to the Appropriation Committee in the 2021 fiscal year is the N38bn proposed for it by the executive which cannot cover up to one quarter of the entire length of deplorable roads in the country.

“Unfortunately, despite having the power of appropriation, we cannot as a committee jerk up the sum since we are not in a position to carry out the estimation of work to be done on each of the specific portion of the road.

“Doing that without proposals to that effect from the executive, may lead to project insertion or padding as often alleged in the media.”

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Economy

Scarcity of Day-Old-Chicks Cripple Poultry Farmers in Akwa Ibom

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Despite billions of Naira spent on Akwa Prime Hatchery and Poultry Limited by the Executive Governor of Akwa Ibom State, Udom Emmanuel, poultry farmers in the state said they had to order day-old-chicks from outside the state as the 200,000 capacity poultry farm developed specifically to make day-old-chicks and other poultry products available at affordable prices is almost empty at the moment.

The farmers expressed frustration over many challenges they face in the course of bringing day-old-chicks from outside the state. Usually, Ibadan, Enugu and sometimes as far as Kaduna, while the hatchery built and inaugurated in 2016 remains idle.

Mr Ekot Akpan, one of the poultry farmers who spoke with the pressmen said the state had not had it this bad.

Akpan said: “For the 12 years that I have been in poultry farming, this is the first time that poultry farmers have been so harshly affected by both economic and non-economic factors. And, quite unfortunately, nobody is available to offer any explanation.

“Farmers have been left at the whims and caprice of owners of the means of production.

“There seems to be no government regulation of the poultry industry. How, do you explain a situation where you wake up suddenly and the price of a day old chick is selling for N600, a bag of feed goes as high as N6,000.

“And, in a state that government claims to be pursuing agriculture as one of his cardinal programmes.

“For instance, in 2016, the state government said it has constructed an hatchery, and the intention according the government was to ensure availability of day old chicks at affordable price to farmers, but, quite, unfortunately, that effort has not yielded any tangible result.

“Farmers are still getting their day old chicks from Ibadan, Kaduna, and Enugu. So, the question now is where is the hatchery?

“One would have expected that farmers would be buying old chicks at humane prices, but, from all indications they acclaimed hatchery is a ruse. So, which one is the Akwa Prime Hatchery producing,” he said.

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