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Ibe Kachikwu, Nigeria’s minister of state for petroleum resources says Nigeria has paid $400 million as part of a $1.2 billion cash call debt owed the International Oil Companies (IOCs) comprising ExxonMobil, Shell, Nigeria Agip Oil Company (NAOC), Chevron, and Total in 2016.
Addressing reporters on the sideline of the ongoing 2017 Offshore Technology Conference (OTC) in Houston, Texas, USA, Kachikwu also explained that the payment was different from the discounted 5.1 billion dollars cash call arrears Nigeria negotiated in December 2016 with the IOCs which was supposed to be settled through production volumes.
“At the time that we did the joint venture review that we came up with, we had two components to it. The first was the 6.8 billion dollars arrears covering about six years, which was owed the oil companies.
“In our negotiations, we were able to trim that down to about 5.1 billion dollars; so, we knocked off 1.7 billion dollars out of it and then spread the 5.1 billion dollars over the next five years.
“This is to be paid from incremental production, not from existing production.In other words, they will have to go and find new oil and from that new oil, we pay that money because we didn’t want to imperil the 2.2 million barrels that everybody was already used to,” he said.
The minister also said the second tranche of the money which was not in the 6.8 billion dollars or the 5.1 billion dollars, “depending on where you land, was a figure of about 1.2 billion dollars which represented only 2016 arrears’’.
He however, said that the oil companies insisted that the money needed to be paid out completely because they couldn’t begin to add that to the 5.1 billion dollars.
“We eventually agreed to pay several tranches; $400 million out of that for the first tranche and then the remaining $700 million paid in monthly instalments for a period of one year.
“In other words, that will roughly be about 60 or 70 million dollars every month after the first 400 million dollars.”
Kachikwu said the payment was a milestone that it would redeem investor confidence in Nigeria’s ability to keep to her word.
According to him, the payment of the first $400 million will jump-start the whole process of crystallising agreements that have been reached on Joint Venture funding.
“We have made provisions through the Central Bank for the payment of the balance on a monthly basis. This will stimulate IOCs to pick up their appetite to invest in existing and new projects in the country.”
By this move, Nigeria’s oil production is expected to increase by 700,000 barrels per day (bpd) by 2018 and investor confidence in the sector will be restored, raising hopes for new production.
Analysts have expressed worry that a failure to resolve cash call may negatively impact the economy.
“A default is definitely not good for investor confidence especially at this time when government is planning to optimise the debt portfolio by borrowing more from the international market,” Taiwo Oyedele, Head of Tax at PwC, Nigeria, a professional service firm told BusinessDay.
The implementation of the cash call exit plan was supposed to be the catalyst to ramp up activities in the oil and gas industry, shoring up dollar incomes to lift Nigeria out the current recession.
“What this has done now is to skew that to the other direction – that from production, after royalty, you take away the cost of production on a budgeted basis.
“Then, the balance goes back to the Federation Account. Hopefully, going forward we shouldn’t have that problem again,” Kachikwu said.
He further said, “What we cannot cover in terms of budget, the oil companies will go out to raise a loan from third parties to enable them continue their much more aggressive exploration and production.
“We have today, a cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels, over and above the 2.2 million barrels per day.
“That is why I can say with confidence that we are in a position to move up to three million barrels very quickly,” Kachikwu said.
