Poor Funding Poses Threat to NNPC’s Joint Ventures

The need to discard with the Nigerian National Petroleum Corporation, (NNPC) Joint Venture arrangement has been brought to the fore following poor funding that has threatened NNPC’s ability to meet its cash call responsibility to joint venture partners, now worsened by the significant fall in oil revenue.
Concerned Industry players and analysts have canvassed that the combination of reduced funding from the NNPC, cut in oil firms’ capital expenditures and rising technical costs may act as a constraint on several JV projects, while technical cost in the sector is said to have been increasing by 10 per cent in the last few years.
The nation’s oil and gas production structure is majorly split between joint venture with NNPC onshore and in shallow water, and production-sharing contracts (PSC) in deepwater offshore.
There are several joint ventures between the NNPC and International Oil Companies, including Shell, ExxonMobil, Chevron, Total and Eni. The JVs are jointly funded by the oil majors and the government through NNPC with the corporation owing between 55 per cent for JVs with Shell and 60 per cent for all others.
The Head of Energy, Ecobank Capital, Mr. Dolapo Oni, said it would be difficult for the government to meet up with JV cash calls this year because revenue had reduced and would likely continue to reduce adding that “Over the last seven months, government revenue has fallen by 28 per cent, and by our estimate, we are likely to see about 30 to 35 per cent fall in revenue this year..”
According to Oni “Around the world, they don’t use JVs anymore.
They use production-sharing contracts. So, as an IOC sells an asset to another company, the company owns the field and can sell part of it if it wants; but most importantly, it will handle all the costs associated with that field.
The Managing Director and Chief Executive Officer, Seplat Petroleum Development Plc, Mr. Austin Avuru, had at an industry forum in January noted that the NNPC was not adding value to the oil and gas industry in the country. “We should accept that it is time to look inwards and accept the truth. Government and its agencies must withdraw from the industry and restrict itself to proper revenue collection and management of the revenue for the interest of this and future generations.”