Stakeholders the in oil and gas industry have lauded the government for the courage to exiting the cash call joint venture saying that it is a game changer.
The Nigerian National Petroleum Corporation (NNPC) and International Oil Companies (IOCs) Thursday signed an agreement to end the Joint Venture Cash Call arrangement.
The event which was held at NNPC Towers Abuja will usher in an era in which the NNPC will adopt a more sustainable funding arrangement with IOC Joint Venture operations.
According to the NNPC, “the arrears, payable within 5 years, will specifically be through incremental production revenues without impacting the established base production revenue.”
Under the new funding model, FG will continue to receive royalties, Taxes and profit from its equity share of JV operation.
Maikanti Baru, the Group Managing Director of the NNPC, had early in November at the 34th Annual International Conference of the Nigerian Association of Petroleum Exploration (NAPE), disclosed that the corporation’s under-funding cash calls was to the tone of $2.5 billion.
Speaking further, Baru disclosed that “the Joint Venture (JV) cash call exit model we are pursuing guarantee government most of the revenue that normally accrues to it from the joint venture operations by lifting the royalty and tax oil upfront. This contributes 75 per cent to 85 per cent of the accruable revenues to government. Consequently, the effect on government take will be minimised. We are working assiduously to kick start this from 1st January, 2017.”
Baru hinted that the joint ventures would relieve government of the cash call burden by sourcing for its operational funds estimated at 7-9 billion dollars annually during his presentation at the NAPE conference.
Thursday’s event will fully discharge the NNPC and the Federal government from all accumulated cash call arrears up to Dec 2015 after repayment of agreed settlement.
According to Ibe Kachikwu, Minister of State for Petroleum , he said the move which will restructure the financing template for oil earnings, increase investments will also boost government revenues.
“The historic agreement which will bring clarity and stability to the management of the country’s main revenue source was announced by the Minister of State, Petroleum Resources while giving an account of key achievements of the Ministry in 2016 yesterday has already received the approval of the Federal Executive Council”, he said.
He said It is part of new measures and strategies aimed at eliminating the burden of Joint Venture Cash Call arrears and securing future funding for the Upstream Petroleum Sector.
“These strategies which are fully supported by the National Economic Council (NEC) will lead to an increase in national production from the current 2.2mbpd to 2.5mbpd by 2019, as well as reduction to 2.5mbpd by 2019, as well as reduction in Unit Technical Costs from $27.96/Barrel Oil Equivalent (boe) to $18/boe.
The net payments to the Federation Account is expected to double from about $7Billion to over $14Billion by 2020 and the immediate effect of the new cash call policy will increase net FGN Revenue per annum by about $2billion.
Also commenting on this development, Thomas Dada, president of the Nigeria Gas Association (NGA) said the development is a very good thing for the country as it would for efficient use of resources.
He the idea of arrears, payable within 5 years, through incremental production revenues is to encourage those holding the assets to work the fields for maximum benefits of the country, saying that it is a good caveat for the asset holders and it make sense also as that would help to boost the county’s production.
The big picture is that the country has finally bided the cash call problem bye bye for good while it hoped that the money from that would be deployed into meaningful ventures for benefits of the entire country.
He however want the government to address the issue of security as it would amount to wasteful exercise if operations are threatened or hampered after reaching such wonderful milestone as regards cash call issue and the companies are able to operate.
Emeka Eni, the immediate past President of the Nigerian Petroleum Technology Association of Nigerian PETAN said the new arrangement is a game changer as it would make more efficient companies to function better to the advantage of the country’s economy.
He said funding the industry has been a challenge for the past 10 years but cautioned the government not allow the new arrangement to impact negatively.
