Nigeria may release greater portion of cash to NNPC next year

Oct 21, 2004 02:00 AM

The Federal Government may release a greater portion of the $ 4.2 bn cash call budgeted for joint venture oil operations next year, to the Nigerian National Petroleum Corporation (NNPC) in naira, the local currency and not in foreign exchange as was the usual practice.
Special Adviser to the President on Petroleum and Energy, Dr Edmund Daukoru, who dropped this hint, disclosed that this move was one of the initiatives the government was perfecting to ensure that the local economy benefited immensely from oil operations next year by promoting local content.

The NNPC has in the meantime, commenced the conversion of oil prospecting licenses (OPLs) granted to multinational oil companies in 1993, to mining leases (OMLs). The conversion, which affected all oil blocks awarded in the deepwater area of the Niger Delta, will see the oil majors losing 50 % the acreage area in line with government guidelines on the conversion of OPL to OML after 10 years of such award.
Speaking on indigenous participation in the Nigerian oil and gas industry at the 2004 International Oil and Gas Conference organized by the Nigerian Economic Summit Group (NESG) in Port Harcourt, Daukoru said that due to the abysmal low level of local content in the oil sector, the Federal Government was considering the use of fiscal (the Joint Venture budget) and other available regulatory measures to ensure that oil multinationals patronize local producers of import substitutes.

"Although NNPC and its partners are devoting increasing level of expenditure to the oil and gas sector, most of this expenditure ends up leaving the country at a huge expense to the local economy," said Daukoru.
With the NNPC holding at least 55 % majority shares in the joint ventures, the Special Adviser said consideration was being given to making the NNPC fund the entire naira portion joint venture budget and "only top the balance of its equity obligation in dollars."
"NNPC's responsibility for the naira portion of joint venture budgets should be closely examined for its merit and further discussion with partners," he added.

NNPC joint venture partners are Shell, Elf, ChevronTexaco, Mobil, and Agip. The ventures account for more than 90 % of Nigeria's daily crude oil output of about 2.6 mm barrels.
In the 2005 budget proposal submitted by President Olusegun Obasanjo to the National Assembly, the Federal Government set aside $ 4.2 bn as joint venture cash call up from $ 3.2 bn for 2004. The total sum, however, includes both the foreign and local components of the joint venture funding.

Stakeholders in the industry began to brainstorm on how the country could raise local content to 45 % next year, from the current 3 % level according to Daukoru. Daukoru said average oil and gas industry spending will peak at about $ 10 bn annually over the next five years, made up of $ 7 bn per annum for joint venture operations in the onshore and shallow water areas and $ 3 bn for PSC operations in the deepwater.
Government's desire to raise local content according to him, include the need to achieve:
-- cost competitiveness of local inputs;
-- proximity and accessibility of local inputs to end-use applications;
-- enhancement of security of supply;
-- conservation of foreign exchange/import substitution;
-- potential for forward or backward linkages;
-- potential of locally-derived goods and services to progress from import substitution to full export status, and
-- potential to transform the nation's economy from a monoculture into macro-economic diversification.

Speaking on the move to have NNPC cash call disbursed in naira, the Managing Director of Chevron Nigeria, Mr Jay Pryor, said the idea was one that will give an opportunity to local businesses to be more competitive.
"So you are not looking at converting the currency to dollars, euros and pounds back and forth. It is a good idea and not a big issue for us," Pryor told.
Meanwhile, NNPC Group Managing Director, Engr. Funso Kupolokun, said some of theoil blocks affected by the conversion from OPL to OML include Shell's Bonga field, ExxonMobil's Erha field, Abo of Nigerian Agip and ChevronTexaco/Famfa Agbami deepwater oil field.

Kupolokun noted that about 100 wells have been drilled since 1993 when the campaign for the deep water exploration and production of oil and gas took off in the country.
"We are now converting the first set of deepwater oil blocks -OPL to OML but the operator will give up 50 % of the acreage," he said.
According to him, about 19 oil blocks were awarded in the first exercise in the early 90's out of which 12 went to oil multinationals and the balance of seven awarded to indigenous firms. He said that since government wanted to encourage the participation of all in the deepwater venture the signature bonus was put at between $ 5 mm and $ 30 mm. He said that based on the type of PSC that existed at that time, work obligation by the prospective winners of the blocks was put at $ 114 mm.

Kupolokun pointed out that in 2000/2004 about eight blocks were awarded, adding that as part of government efforts to increase the tempo of oil activities in the deepwater terrain, 27 blocks will be awarded in 2005.
"We are making progress in the deepwater area as government now plans toward 27 blocks next year under an international competitive bidding process. This will surely bring more players into the deepwater area, and it will not only increase our reserves but technological skill in deepwater production."

He said that with the level of discoveries so far, Nigeria has about 1.1 mm barrels production potential in the deepwater and that if that figure is added to the current production capacity of 2.3 mm barrels, then the nation's output will be 3.4 mm barrels. He added that next year's production projection has been put at 2.7 mm bpd stressing that government is doing everything possible to get more quota allocation from OPEC.
He said the government is also looking at the existing PSC arrangement with a view to make it more beneficiary to the country citing the changes in the share of profit oil from ratio 80:20 in 1993 to 70:30 in the 2000 PSC agreement. Kupolokun said though a lot was achieved in the area of local content within this period he pointed out that government will ensure that 30 % local content is effectively in the execution of the Chevron/Famfa Agbami field, adding that it has been estimated that about 300 man hours will be done locally.

Source: This Day
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