Government could quickly grant administrative and financial autonomy to the multiplicity of petroleum exploration and production joint ventures (JVs) in order to relinquish its funding obligations, arrest investment decline and accelerate activities that translate to enhanced economic benefits to the country.
Managing Director of Seplat Petroleum Development Company (SPDC) Limited, Mr. Austin Avuru, said at a forum in United States that financial autonomy for the ventures is already inherent in the existing Joint Operating Agreements and only needs activation without necessarily going through the highly advertised joint venture incorporation proposed in the nebulous Petroleum Industry Bill (PIB) which has stuck in a legislative process for over a decade.
Mr Avuru’s proposal came in response to earlier presentation by the Group Executive Director and CEO in charge of Gas and Power at the Nigerian National Petroleum Corporation (NNPC), Mr Saidu Mohammed, who had declared that the corporation was indebted to its JV operators by over $5.0 billion (N1.5 trillion).
Mr. Mohammed, an engineer, represented the Minister of State for Petroleum Resources/Group Managing Director of NNPC, Dr. Ibe Kachikwu, at the event.
Mr Mohammed had advanced some of the challenging realities facing the Nigerian petroleum industry to include insecurity, high rate of vandalism, widespread poverty in industry host communities, huge government debt burden, funding gaps and rising production cost.
He said government was currently engaging its joint venture operators on how to bridge funding gaps following growing incapacity of NNPC to be timely with equity funding commitments in their operations.
Mr Avuru who is part of eminent industry players and experts who proposed policy options at a panel session organized for the Nigerian contingent at the ongoing Offshore Technology Conference (OTC) in Houston, Texas, advised NNPC to change its current JV funding arrangement.
In strongly pressing for creative funding options for the joint ventures, he said the myriad of socio-political interferences have encumbered activities in the upstream petroleum sector, created funding gaps and slowed down processes.
The result he pointed out is that production from the JV has declined rapidly from 2.2million barrels per day (bpd) to 1.2million bpd due to poor JV funding.
“Go and check production records, you will discover that JV production has declined from 2.2million bpd to 1.2million bpd. The only reason we are still doing 2.0 million bpd is that deepwater production made up for the gap.
“In the next five years, our deepwater production will also be declining and the real impact of poor funding of the JV will start to manifest when as a nation, we will producing not more than 1.6million bpd.”
The cumulative impacts on the industry, according to him, are unsustainable margins that become increasingly insufficient for partners and stakeholders at the prevailing low end of oil price cycle.
“So we must begin to address the challenges by doing the right thing,” he said.
Mr Avuru who is one of the most versatile industry leaders in the petroleum sector insisted that government must design a structure that would give each JV sufficient operational and financial autonomy.
At this point, according to Mr Avuru, government’s burden on joint venture operations requires an urgent and permanent resolution to enable operators drive processes at faster pace and lower cost, arguing that financial and administrative autonomy would also insulate the in the industry from extra-business exposures.
He pointed out that the structure of the JV and the JOA agreements allow for the self-funding and self accounting mechanisms, explaining that cash call commitment of NNPC could be funded from the JV venture revenue in terms of cost oil.
He noted that cost of JV operations could be dedicated and stashed away from operations revenue into a dedicated account from where operations budgets are funded as soon as the parties sign off on work programmes.