NNPC, JV in­cor­po­ra­tion will boost ex­plo­ration devt – Ex­perts

Daily Trust - - BUSINESS - By Daniel Adugbo

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.”

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