NNPC and SPDC sign $ 3.1 bn pact

The NNPC in Abuja sealed a $ 3.1 bn financing agreement with Shell Petroleum Development Company (SPDC). The signing was in furtherance of the corporation's effort to seek alternative funding for the development of the oil and gas sector.
The money will be used to finance their upstream Joint Venture (JV) projects. Under the agreement, SPDC would finance NNPC up to the tune of $ 1.3 bn, to cover the shortfall in government's equity contributions in the 2008 operations of the NNPC/SPDC/NAOC/EPNL JV.

The group general manager (public affairs) of NNPC, Dr Levi Ajuonuma, explained that a "bridge loan" of $ 1.8 bn would finance NNPC's outstanding payments for 2006/2007 JV cash calls.
"This money will mostly be used to settle payments due to local contractors and suppliers. Nigeria, through NNPC, has 55 % interest in NNPC/SPDC JV, with SPDC, NAOC and EPNL having interest of 30 %, 10 % and 5 % respectively," Ajuonuma said.

The signing of the financing agreement brings to three the number of agreements signed between NNPC and its JV partners. The first two agreements were signed between NNPC and EPNL and Mobil Producing Nigeria (MPN).
NNPC group managing director, Mr Abubakar Yar'Adua, signed the deal on behalf of NNPC, while the managing director of SPDC, Mr Mutiu Sumonu, signed for the British oil giant.

In November 2007, NNPC management presented the oil and gas industry budget for upstream operations for 2008 to President Umaru Yar'Adua for review and consideration. The estimated budget presented to government was $ 15.2 bn, with an expected government contribution of $ 8.8 bn.
Having considered the proposal, Yar'Adua directed that out of the expected government contribution of $ 8.8 bn, it would provide $ 4.9 bn through the 2008 budget allocation.

The balance of $ 3.8 bn, he further directed, was to be sourced by NNPC and the Ministry of Finance from NNPC's Joint Venture Partners and the commercial banks. To this end, Ajuonuma said, the NNPC management set up a committee to negotiate the required funding gap with NNPC's JV partners and commercial banks.
"This in-house team has engaged the respective Joint Venture partners in negotiating the required funding in the last few months. Partner financing through Carry Arrangements between NNPC and its Joint Venture Partners is not new. However, the scheme has been modified to make the compensation to the Joint Venture Carrying party a cash-based transaction. This is against the current arrangement where repayment and compensation are based on oil," Ajuonuma said.

He said: "SPDC has now joined other International Oil Companies (IOCs) in the industry, by reaching agreements 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."