A Review of the FG’s Oil & Gas Enterprise

Oil & Gas
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp

Tuesday, October 18, 2016 11:20am / FBNQuest Research

The underfunding of Joint Venture (JV) cash calls by the federal government (FG) is a major problem in the oil & gas sector, alongside militancy in the Niger Delta region. JV cash call funding is a first-line priority statutory provision in federal budgets and as such had become a major strain on national expenditure.

According to the minister for finance, Kemi Adeosun, the FG has recently signed an agreement with oil majors through the NNPC to unlock private capital. From all indications, we believe this will be in the form of a modified arrangement where the local debt markets could be accessed to fund JV projects.

The move is in line with a decision reached last year to grant financial autonomy to some JV oil companies, giving the JVs control over their budget, empowering them to source for funds and remit taxes, royalties and dividends to the government.

As at January 2016, cash call arrears owed by the NNPC were estimated at slightly over US$5bn. Given the shortfall in oil revenues, this figure could be much higher presently. The latest monthly report of the NNPC showed that the corporation paid a total sum of US$1.93bn from January to July 2016 compared with US$4.99bn expected to be paid for the period.

Funding issues which have lingered for over two decades have limited the nation’s oil production growth. Additionally, production from JV assets has significantly declined over the last decade, partly due to funding constraints as the NNPC struggled to meet its share of cash call obligations.

Furthermore, figures from the NNPC indicate that output from Production Sharing Contracts (PSC) now accounts for more than half of the country’s daily national production.

We however note that JV production which is mainly onshore and in shallow water territory is the primary victim of recent militant activities. PSC assets are primarily located offshore, in deep water fields.

Recently, there have been suggestions of an impending asset sale by the FG. Some of the mentioned assets have included the government’s interests in JV oil assets, NLNG and airports.

Although the public outcry against such sales was significant, we believe a reduction in the government’s financial and operational commitments to the oil & gas sector should be explored. In our view, allowing the private sector to invest and grow the oil & gas industry would be mutually beneficial for both private enterprise and the FG. A positive outcome could ultimately lead to more effective public expenditure and improved tax revenues. 

Related News 

1.       Nigeria Attracts Infrastructure Investment in Oil & Gas;Signs MOUs with Chinese firms worth $80bn

2.      Rethinking the Oil Market

3.      Average Kerosene Price Drops to N288.68 in Sep’16 from N298.19 in Aug'16

4.      Average Diesel Price Drops to N192.69 in Sep'16 from N196.53 in Aug'16

5.      Average Petrol Price Drops to N146.3 in Sep’16 from N147.3 in Aug'16

6.      For How Long Can OPEC Talk Up Oil Prices?

7.      Uneasy Times for Petroleum Marketers

8.     Oil & Gas Sector Commentary - OPEC Reaches a Decision on Output Freeze

9.      Oil & Gas Sector Update - Capitalising on Market Dislocations

10.  Where Will Oil Prices Go After Algiers?

11.   Frack Sand: The Unsung Hero Of The OPEC Oil War

12.  The Next Sector To Recover From The Oil Price Crash

13.  The choice to change Africa oil & gas review - pwc

14.  OPEC's Output Freeze: What Has Changed Since Doha?

15.   An Oil Company Struggling to Produce Oil

16.  Today's Downturn Sets Markets Up For A Dramatic Oil Price Spike

17.   Oil Market on the Brink of Stability?

18.  Deficit Reduction at the NNPC

19.  Bill Gates And Other Billionaires Backing A Nuclear Renaissance

20. The new normal in retail fuel pricing

21.  Dangote Lekki Refinery, Petrochemical projects will boost Nigeria's economy- Ambode

22. 55% of Total Domestic Crude Oil supply in April 2016 was via Direct Sales Direct Purchase Agreement

Related News