Indigenous investors in the petroleum industry have appealed to government to quickly defray its huge cash call commitment to the operators of joint ventures in order to restore investors’ confidence and save the sector from total collapse.
The debt which accumulated across years of regular underpayments currently stands in excess of over $10 billion (N3.2 trillion), with foreign multinational oil majors that operate the joint venture suffering the biggest impacts while other companies receive impacts according to size of operations.
Annual reports of operating companies in 2015 all pointed at rising NNPC debts as major business challenge in the year, while service providers now grumble that the debt has also transferred devastating impact on them.
A cross section of Chief Executive Officers (CEOs) of foreign and indigenous companies told The UNION in exclusive chats at the ongoing Offshore Technology Conference (OTC) in Houston, Texas, that the inability of the Nigerian National Petroleum Corporation (NNPC) to offset its arrears of cash call commitments to operators remains the biggest single set back in the operating environment.
According to one of the CEOs, government had through NNPC failed to meet its funding commitments to overriding 55 percent stake in majority of the assets operated by Shell, Seplat and a number of other companies that operated assets divested by Shell, Total and Eni in the joint venture.
NNPC also holds overriding 60 percent stake in joint ventures operated by ExxonMobil, Total, Eni and small independent companies that operate smaller assets under the arrangement.
Inability of NNPC to meet its funding commitments to the joint ventures has remained the traditional burden of the industry as the assets operated under the arrangement account for over 70 percent of the total national oil and gas output and proportionate percentage of industry’s annual operations budget.
The government’s debt burden had also compelled evolution of creative funding options captured in several agreements under Modified Carry Arrangements (MCAs) to enable new projects press forward.
However, most of the existing projects and operations are not captured in the MCAs, making it difficult for operators to recover costs incurred on behalf of NNPC.
Our sources said NNPC’s huge debt in the industry has shaken the confidence of the private players in the industry and impacted their capacity to discharge their commitments to contractors, suppliers and sundry service providers.
According to them, the debt overhang has not only spread ripple effect across the full business loop, it is said to have started sparking a new wave of conflicts among key players in the sector, threatening fresh investments and frustrating realization national aspirations, value targets and policy objectives.
Already, some of the service providers are in court with the operators over debt service disputes. Whereas some of the operating companies claim they wait on NNPC to discharge its funding commitments to the joint ventures before paying contractors, the litigants point at rising cost of contract funding as payments continue to delay.
“The situation has become so bad that even if they paid now, we are already suffering losses because the banks are not in sympathy with us. The more interest accumulates the higher the cost of funding. Now who is going to take care of that?” an industry contractor asked.