NNPC, JV incorporation will boost exploration devt – Experts

The approval by President Muhammadu Buhari for the Nigerian National Petroleum Corporation’ (NNPC) exploration joint ventures to have control over their own budgets is likely to boost funding exploration and development activities in the country, Ecobank energy experts have said.

Last week, President Buhari reportedly gave approval for the country’s joint ventures (JV) with international oil companies (Shell, Total, Chevron, ENI and ExxonMobil) to be converted into self-funding ventures, similar to the Nigerian LNG plant in Bonny.

The new policy direction is expected to lead to the conversion of these

unincorporated joint ventures into incorporated concerns, which will function like private companies, with their own boards of directors and other necessities.

Energy analysts at Ecobank said the policy is likely to give financiers more confidence to lend directly to these joint ventures and improve financing for oil and gas exploration in Nigeria.

“The move is quite critical, especially as the JVs, which once accounted for over 70 per cent of Nigeria’s oil output (2008), now account for less than 35 per cent of output. Their production volumes have fallen by over 50 per cent from a high of 1.5m barrels per day in 2008, on account of divestments, disturbance from aggressive host communities and militants and more importantly, lack of funding for exploration and development projects,” they said in a report.

Analysts in the bank’s October Speed Note posited that the move is likely to boost funding support as financiers will find direct access to the proceeds from the fields directly very attractive. “More importantly, this will resolve the NNPC’s difficulty in raising its share of cash calls as financiers will be looking more at the operators, the IOCs and not having exposure to the NNPC directly. The reduction in the NNPC’s stake will reduce the political influence of the government on these companies also.”

It noted, however, that the policy is only the first step towards resetting the industry on the path to accessing more funds for its projects.

“The move is likely to face some challenges as the NNPC has significant debts to the IOCs, which it will have to clear for this new initiative to move ahead. Furthermore, incorporating the JVs and creating a degree of transparency around payments for projects to contractors to the regulators and will require time and establishment of some processes not yet in place.”