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How NNPC Stalled Upstream Industry Targets

Nigeria’s economic aspirations which drive programmes and policies in the petroleum sector might be may have been stalled by inability of the Nigerian National Petroleum Corporation (NNPC) to meet its counterpart funding in the operations of joint ventures with oil companies.

The government debt overhang in the industry estimated at over seven billion dollars has crippled the capacity if the operators of the joint ventures to realize targets set for the industry, according to Mr. Victor Olaiya who is the General Manager in charge of Venture Relations at Mobil Producing Nigeria Unlimited.

Mr. Olaiya who spoke at a training workshop hosted by PriceWater Coopers in Lagos weekend declared that oil and gas production from the operations of joint ventures with NNPC have seen a steep decline i recent years following inability of government to meet its funding obligations in respect of its overriding interests in the joint ventures.

The UNION reports that ExxonMobil’s affiliates in Nigeria, including Mobil Producing Nigeria Unlimited and sister Esso Exploration and Production Nigeria Limited, form the second highest oil and gas producers for the country.

The national economic targets set for the upstream petroleum industry include building the nation’s crude oil reserves to 40 billion barrels, growing country production to 4.0 million barrels per day, significantly raising the local content profile of the industry, reducing gas flares to lowest possible levels, commercializing the country’s vast natural gas reserves, and meeting industry development obligations to host communities.

Targets and deadlines set for the realization of the goals have been exhausted and overshot by years. The flare down targets was set for 2007 while the rest were set for actualization by 2010. With the failure of the targets, government has shifted the deadline for the goals to 2020 following total modification of the national medium term economic outlook from Vision 2010 to Vision 20:2020.

With barely five years to the new targets, industry work programmes and project outlays post an outlook that fail to guarantee delivery of the aspirations.

Operators blame the development of the haze in the investment climate brought about by the fiscal uncertainty over the highly controversial Petroleum Industry Bill (PIB) and looming review of fiscal arrangements that govern JV operations in the country.

Other reasons advanced by operators for low project packages and overall work programmes include piling debts by government partners in the operated joint ventures and associated slow bureaucratic approval processes that drag on delivery of projects in the country.

According to Managing Director of Seplat Petroleum Development Company Limited, Mr. Austin Avuru, huge gaps in government receivables formed the major setback to the company’s half year performance in 2015.

“So there are no targets, we just operate. And that is why there are companies, including Nigerian companies, small indigenous companies that are growing, that are owed for services rendered for two years. When you have made those commitments and some contractors have worked for you and suddenly government walks up to you and say, ‘sorry, your budget was $700 million but we can only pay $450 million. What can you do? You are forced to quickly adjust your work programme to fit into the new budget.’

“There are no targets because targets can only be driven by budgets that are sacrosanct; and because there are no budgets anymore whenever government walks up to you and say, ‘this is what we have for you,’ you then restructure your entire budget three quarters into the way to fit into the money available. And that is what has been happening.

“Again, these are part of the things that drive up cost because when vendors and service providers are not paid, in the next tender they build in the cost of money, cost of delay and other incidentals costs into it and then cost of operations will go up.”

Mr Olaiya stated weekend that poor funding capacity of NNPC has impacted the overall capability of the joint ventures to unleash broaden the nation’s economic growth and prosperity of its citizens.

He said apart from falling production volumes from joint venture operations, he said, huge government debts have driven up operations cost, worked against gas flare down projects and put overall industry aspirations for the upstream petroleum industry on reverse.

Instead of rising reserves, according to data from the Department of Petroleum Resources (DPR), rising production and natural declines have combined to massively deplete the country crude oil reserves while.

Mr. Olaiya pointed at rising production volumes and reserves profile of assets under the production sharing contracts where government’s funding is not required to drive work programmes and projects.

He pointed out that Nigeria’s crude oil production has hovered above 2.0 million barrels per day mark because of production boost from PSCs operated under a sole funding arrangement with the private companies.

He said viable alternative funding options to the JV arrangement are available in the money market, adding that the industry is engaging the new government to evolve creative funding options to the current cash call arrangements.


– Sopuruchi Onwuka

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