Rising NNPC Unpaid Bills Threaten Oil Production

Crude oil and gas production in Nigeria will decline further amid the $7bn cash call which the Nigerian National Petroleum Corporation has yet to pay to its joint venture partners, industry experts have said.

The funding problem, which has lingered for over two decades, has been exacerbated by the steep fall in global oil prices which drove down the country’s earnings from the commodity, its major revenue-earner.

The nation’s oil and gas production structure is majorly split between Joint Ventures onshore and in shallow water with foreign and local companies and production sharing contracts in deepwater offshore.

The NNPC owns between 55 per cent (for JVs with Shell) and 60 per cent (for all others) and the JVs are jointly funded by the private oil companies and the Federal Government through the corporation.

Production from JV assets has over the past few years seen significant decline, partly due to funding constraints occasioned by the NNPC’s inability to meet its share of cash call obligation.

An industry source noted that the unpaid bills had been piling up in recent months, adding, “Every year, the industry gets less than it needs to function.”

“In 2005, JV production was more than two million barrels per day; today, we can barely produce one million bpd.

The source said as of January this year, about $5.5bn cash call arrears had not been paid to the International Oil Companies, while $1.1bn is owed to the indigenous companies, with an additional $400m estimated as being unpaid between January and May.

He said since January, the NNPC was only paying 30 per cent of the cost of production, as against 60 per cent, while it took its full share of production.

“Until the funding problem is solved, production will continue to decline. If government provides the money at the budget level, production will still decline precipitously. At the current funding level, if government pays, production will have declined by at least 200,000bpd in the next two to three years. We will need to spend $29bn between 2016 and 2019.

“If government continues not to pay, operators will have to operate at the level government can afford, and production will have dropped by at least 400,000 bpd in the next two to three years. At the level we are now, gas production will decline by 2019.”

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, told our correspondent, “The funding problem is affecting investment in new fields and we need those fields to be able to sustain production at two million barrels per day, after we resolve the security issue in the Niger Delta.

“We need to consider reducing our stakes in some of those fields by allowing other private companies to come in to fund them. We need to consider the option of listing those JVs so that we can raise funds on the stock exchange. Those are the key options.”

The country recently lost its status as Africa’s top oil producer on the back of renewed attacks on installations in the Niger Delta.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had recently said the nation’s oil output had dropped to 1.4 million bpd, up from 2.2 million bpd.


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