NNPC seeks fund to pay cash call arrears

Nov 18, 2002 01:00 AM

The Nigerian National Petroleum Corporation (NNPC) is in search of funds to pay N 26 bn being the naira portion of arrears of cash call owed to its six joint venture partners. This followed emerging indications of significant drop in exploration and production activities by the oil companies over the inability of the NNPC to settle the arrears as well decline in the funding of the joint ventures.
The debt covered the period 1994 to May 1999. Also pending is the $ 500 mm foreign exchange component of the cash call arrears. "The NNPC is in search of funds to pay at least the naira portion of the cash call arrears, even if we can't get to pay the foreign exchange portion for now," a senior NNPC official said in Lagos.

Relations between the NNPC and its multinational joint venture partners namely Shell, Mobil, Chevron, Agip, Elf and Texaco had thawed lately due to funding problem for the ventures. Following a 20 % cut in the budget for joint venture oil operations for this year, the oil firms had slowed down the pace for the search for more crude oil in the country in the past four months.
First was the biggest of the joint ventures, Shell Petroleum Development Company (SPDC) which had already stated that it was cutting back its production target earlier set for this year by 25 % to 675,000 bpd from a target of 900,000 bpd. Chevron, Nigeria's third largest oil producer, reduced drilling rigs in operation from four to two.

Cash call refers to Federal Government's contributions toward financing its average 57 % equity holdings in the joint venture oil businesses that are operated by the oil companies. The budget for the six joint ventures had first been reduced earlier in the year by the National Assembly to $ 3.065 bn from the approved budget of $ 3.5 bn.
The budget was further slashed by $ 260 mm mid-year following Federal Government's dwindling revenue. NNPC sources said plans to pay at least $ 300 mm of the $ 500 mm arrears this year, hit the rocks following the budget cut.

Oil exports account for more than 90 % of Nigeria's foreign exchange income. Official statistics have so far showed that income from the sector was on decline. The Central Bank of Nigeria (CBN) half-year report for 2002, said total oil receipts fell by 36 % below the corresponding period of 2001, where export was $ 6.4 bn compared to $ 10.9 bn. Consequently, external reserves dipped to $ 8.67 bn as at the end of June from end December 2001 level of $ 1045 bn.
The joint ventures account for about 90 % of Nigeria's total oil output of around 2.0 mm bpd. NNPC Group Managing Director, Mr Jackson Gaius-Obaseki said in Abuja that the corporation, though up to date on current cash call payments, but was concerned about the unsettled arrears.

The debts, incurred while the military held sway, was at a time a subject of disagreement between the NNPC and its partners. While the latter were claiming total arrears of $ 1 bn, NNPC said its verification of the claims put the figure at $ 500 mm. "This ($ 500 mm) is what we will pay," said Gaius-Obaseki.
Increased funding and prompt payment of cash had raised Nigeria's oil reserves to 32 bn barrels from 25 bn barrels and output capacity to 2.6 mm bpd. Reduction in Nigeria's official production quota assigned by the OPEC from 1.911 mm bpd last year to 1.787 mm bpd this year, has however, hit government's revenue.

Meanwhile, anxiety is mounting in the oil industry over the passage of the onshore/offshore bill, as operators feared that President Olusegun Obasanjo's vetting of the bill as passed by the National Assembly, would have a significant impact on budget for oil operations next year.
Said an official: "We are already talking of reduced budget for 2002. If fund accruing to the Federal Government is affected by this law, then next year may be worse for the industry."

Obasanjo has put off the signing of the harmonised report on the bill as presented by the National Assembly, insisting that the term, Continental Shelf be replaced with the original clause "contiguous" as sent to the assembly.
By continental shelf, this would allow the 13 % of oil revenues earmarked from the derivation fund to accrue to coastal states, including production in the Exclusive Economic Zone, which lies beyond territorial waters. The passage of the bill was expected to douse the controversy generated by the April 5, 2002 judgement, which declared that the states have no legal right to revenue accruing from oil production offshore.

Source: This Day
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