The financial quagmire afflicting the operations of the Nigerian National Petroleum Corporation (NNPC) and Shell Petroleum Development Company (SPDC) Joint Ventures (JVs) may have finally come to an end with the sealing of a financing agreement between the two parties to the tune of $3.1 billion.
This arrangement is in furtherance of NNPC�s efforts at evolving alternative funding for the development of the oil and gas sector. The money will be used to finance their upstream joint venture projects.
Under the agreement, SPDC will finance NNPC up to the tune of $1.3 billion which will cover the shortfall in government�s equity contributions in the 2008 operations of the NNPC/SPDC with Nigerian-Agip Oil Company (NAOC) and Elf Petroleum Nigeria Limited (EPNL) joint ventures, while a “bridge loan of $1.8 billion will finance NNPC�s outstanding payments for 2006/07 JV cash calls.”
The money will mostly be used to settle payments due to local contractors and suppliers.
It is hoped that this arrangement would bring to a halt the move by Shell to sack over 3,000 people from its work force in Nigeria.
The issue of under funding has generated a lot of bad blood between the multinational oil company and it joint venture partner, NNPC.
A good number of projects had also been suspended because of lack of funds.
Nigeria, through NNPC, has 55 percent interest in NNPC/SPDC JVs, with SPDC, NAOC and EPNL having interest of 30 percent, 10 percent and five percent respectively.
The signing of the financing agreement between NNPC and SPDC brings to three the number signed between NNPC and its JV partners, the first two having been signed with EPNL and Mobil Producing Nigeria (MPN).
NNPC�s group managing Director, Abubakar Lawal Yar�Adua, signed on behalf of NNPC, while Mutiu Sumonu, managing director SPDC, appended his signature on the deal on behalf of his company.
In November last year, NNPC management presented the oil and gas industry budget for upstream operations for the year 2008 to President Yar�Adua for review and consideration.
The budget estimate presented to government was $15.2 billion with the Federal Government expected to contribute $8.8 billion. However, President Yar�Adua directed that government would provide $4.9 billion through allocation from the 2008 budget while the balance $3.8 billion should be sourced by NNPC and the ministry of finance from NNPC�s JV partners and commercial banks, including the sum of $2.9 billion outstanding for 2006 and 2007.
In carrying out the directive, NNPC�s management set up a committee to negotiate the required funding gap with its joint venture partners and commercial banks. The in-house team had engaged the respective JV partners in negotiating the required funding in the last few months.
It signed a $2 billion deal with Exxon Mobil last Monday, days after striking a similar $1 billion agreement with French energy group Total.
NNPC hopes the deals will help Nigeria unlock significant shut-in output potential and has said they will help ensure the country meets or exceeds its OPEC quota � currently 2.2 million barrels per day � over the next one to two years.
Partner financing through Carry Arrangements between NNPC and its JV partners is not new. However, the scheme has been modified to make the compensation to the joint venture carrying party a “cash-based transaction as against the current arrangement where repayment and compensation are based on oil.”
SPDC has now joined other IOCs in the industry in reaching agreement with NNPC on the financing arrangements. This agreement also provides a sound structural financing framework for all future upstream activities.
The financing arrangements have put to rest the funding challenges of cash calls in the industry.