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Nigeria’s revenue: Walking a tight rope



Nigeria’s revenue: Walking a tight rope

Banking on marginal growth in the oil sector, the Nigerian National Petroleum Corporation (NNPC) jacked up 2018 oil revenue projection to N38 billion. But there are hurdles to achieving this humongous target writes ADEOLA YUSUF

Basking in the euphoria of the $3.7 billion Alternative Financing Agreement, which it secured for oil in the last three years, the last Wednesday, raised the 2018 oil revenue projection to N38 billion.

Its Group Managing Director, Dr. Maikanti Baru, who said this at the 35th Annual Conference of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos, maintained that Corporation, which secured the $3.7 billion deal on behalf of  government, had also set machinery in motion to achieve the revenue projection.

Securing external funding arrangement, he said, was crucial to sustaining oil and gas production in Nigeria and ensuring the survival of Nigeria’s energy future.

“Within the last three years, we have embarked on several successful alternative funding programmes to sustain and increase the national daily production and producibility,” Dr. Baru told delegates at the annual conference.

Breakdown of funding

According to the GMD, the $3.7 billion financing package included the $1.2 billion multi-year drilling financing package for 23 onshore and 13 offshore wells under NNPC/Chevron Nigeria Limited Joint Venture termed Project Cheetah and the $2.5billion alternative funding arrangements for NNPC/SPDC JV ($1Billion) termed Project Santolina; NNPC/CNL JV ($780million) termed Project Falcon as well as the NNPC/First E&P JV and Schlumberger Agreement ($700million).

Project Cheetah is expected to increase crude oil production by 41,000bopd and 127Mmscfd with a Government-take of $6billion over the life of the Project.

Also, Projects Santolina, Falcon and the NNPC/First E&P JV and Schlumberger Funding Arrangement are expected to increase combined production of crude oil and condensate by 150,000bopd and 618MMscfd of gas with a combined Government-take of about $32Billion over the life of the Projects, Dr. Baru added.

He observed that evolving a new funding mechanism for the JV operations was a critical part of President Muhammadu Buhari’s far-reaching reforms aimed at eliminating cash call regime, enhancing efficiency and guaranteeing growth in the nation’s oil and gas industry.

Alternate funding

Explaining further, Baru noted that as a result of the cash call underfunding challenge, which rose to about $1.2 billion in 2016 alone, NNPC and its JV partners began exploring alternative funding mechanisms that would allow the JV business finance itself in order to sustain and grow the business.

He added that with average JV cash call requirement of about $600 million a month, coupled with flat low budget levels over the past years, the budgeted volumes were hardly delivered.

“The truth is that it is difficult to deliver the volumes without adequate funding. The low volumes and by extension low revenues had resulted in the underfunding of the Industry by Government, which has stymied production growth,” he observed.

Today, with the new Alternative Funding Arrangement in place, JVs will now relieve government of the cash call burden by sourcing for funds for their operations (estimated at $7-$9 billion annually).

Baru, who spoke on the theme: “Review of the Current State of Funding for the Upstream Sector and the need for a New Policy Initiative,”commended NAPE for its contributions towards shaping the oil and gas landscape in Nigeria, said it was incumbent on NNPC to associate with such a professional body for the benefit of the nation.

“It is on record that key pieces of legislation such as the Marginal Fields Act and the Deepwater Fiscal Policies, the Nigerian Content Act, as well as the Unitization Policy were all based on templates that came out of previous NAPE Conferences,” he said.

Surmounting the roadblock

There are challenges to the realization of the projection and one of those who nshouldn know about this, a former GMD of NNPC, Funsho Kupolokun, called for fresh approaches such as the involvement of more indigenous participation to address the challenges of funding upstream operations in the country.

Expressing optimism that the revenue target could be met, Kupolokun maintained that participation of indigenous firms would go along way to guarantee success for the projections.

Similarly, the President of NAPE, Mr. Abiodun Adesanya, described the challenge of cash call as very critical because it affects all the objectives and targets of growing the reserves and increasing crude oil production in the country.

The Niger Delta question

The unrest in the Niger Delta has always been a major challenge to revenues projection by the government and as such, the Minister of State, Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, has said that for a lasting peace to be achieved in the Niger Delta region, oil bearing communities must be involved in oil and gas exploitation in their areas.

The Minister made the assertion at the closing of the 2nd National Council on Hydrocarbons summit held in Uyo, Akwa Ibom State, noting that from a peak production of 2.35 million barrels per day recorded last year there was decline to 1.1 million barrels per day due to incessant vandalism.

However, Kachikwu observed that due to sustained engagements with the Niger Delta, production has ramped up to about 2.1 million barrels per day (mbpd) from 2016 crude oil production average of 1.85 mbpd.

From the horses’ mouth 

To address the challenges, Mr. Udom Emmanuel, Governor of Akwa Ibom State, one of the oil producing states, advocated for the establishment of the National Council on Hydrocarbons. This, he said, would help to address the crisis and agitations experienced in the oil and gas sector.

“I strongly believe that if we had a platform of this nature before now, where key players and stakeholders often converge to develop policy thrust to drive the industry, the crisis and agitations we have experienced in the sector would have long been addressed,” he said.

He said it was wrong for some Federal Agencies as well as some oil companies to carry out some interventionists’ projects without consulting the State Government or its agencies.

“This kind of action usually engenders mistrust, generates restiveness, which is not helpful in ensuring smooth operations of the industry,” he stressed.

For example, he said out of 2,198 names of youths from the Niger Delta region trained in welding and fabrication under the Presidential Amnesty Programme, the 107 names allocated to Akwa Ibom State, 26 of those youths were not from the State.

He equally noted with concern that despite pressure from all angles for the multinational oil companies to relocate their headquarters to Akwa Ibom State, nothing has been done.

“I think that the Federal Government should compel compliance of oil companies with immediate effect. Some of the oil companies operating in the region still neglect some vital processes of ensuring peace such as the signing of Memorandum of Understanding (MOU) with their host communities,” he said.

Last line

The Federal Government, nay NNPC, should rally all stakeholders to ensure that all obstacles to revenue projection are quashed. Only this could make the country savour all the benefit accruable from it crude recvenues.

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