FG may raise $34bn from reducing JV oil assets stake to 40%
Equivalent to 401,250 bpd from the six oil majors
President Muhammadu Buhari’s decision to reduce government stake in Joint Venture ( JV) assets to 40 percent in 2019 may help the treasury rake in as much as $34 billion in revenue in 2019, according to Businessday estimates.
President Buhari ordered the government to reduce all shares in the country’s JV assets with International Oil Companies (IOC) to 40 percent this year, a restructuring plan that will earn the Nigerian government additional revenue, according to budget documents released on
Tuesday.
Joint venture agreements in the oil sector occur where two or more parties combine to execute an oil and gas transaction and mitigate risk associated with the business.
Six major IOCS such as Shell, Chevron, Mobil, Agip, EIF, and Texaco, which account for a large chunk of Nigerian oil exploration and production, are in joint venture agreement with Nigeria through the Nigerian National Petroleum Corporation (NNPC) which owns 55 percent stake in its joint venture with Shell and 60 percent stakes with other joint venture companies.
Businessday calculations of the potential value the FG can get for selling down its stake compared the relative valuation of Saudi Arabia’s Aramco which boasts of an average oil production of 11.6 million and a $2 trillion valuation envisaged by Crown Prince Mohammed bin Salman, though the market later valued it at $1 trillion.
The plan of reducing government shares to 40 percent is expected to generate additional revenue for the Federal Government which will be selling a total of 401,250 bpd from the six oil majors that will generate a total of $34 billion to the Nigerian treasury.
For example, shell petroleum Development company of nigeria Limited’s new 15 percent gap in Joint Venture agreement with NNPC translates to 134,850bpd from its total oil production of 899,000 barrels per day (bpd). Previous NNPC’S 55 percent translates to 494,450bpd, while the new 40 percent translates to 359,600bpd.
NNPC’S 20 percent gap translates to 80,000 bpd in a joint venture agreement with Chevron Nigeria Limited, the second-largest producer (approximately 400,000 bpd), compared to the previous 60 percent stakes of 240,000 bpd.
For Mobil Producing Nigeria Unlimited, NNPC’S 20 percent gap translates to 126,000bpd from its Joint venture agreement, which operates in shallow water off Akwa Ibom State in the south-eastern delta with an average production of 632,000 bpd. NNPC’S 60 percent translates to 379,200bpd while the new 40 percent translates to 252,800bpd.
Also, NNPC’S new 20 percent gap translates to 30,000bpd stake in Joint venture agreement with Nigeria Agip Oil Company Limited with a total production capacity of 150,000 bpd.
For Elf Petroleum Nigeria Limited, NNPC’S 20 percent gap translates to 18,000bpd which produced approximately 125,000 bpd from both onshore and offshore. Currently NNPC’S 60 percent translates to 54,000bpd, the new 40 percent translates to 36,000bpd.
Finally, Texaco Overseas Petroleum Company of Nigeria’s 20 percent gap translates to 12,000bpd. It currently produces about 60,000 bpd from five offshore fields.
Energy and financial experts have described the decision by the government to sell some of its stakes in JV oil assets as a welcome development.
Abimbola Omotola, macro & fixed income analyst at Chapel Hill Denham, noted that the restructuring will help the government generate more revenue to finance some capital projects and liquidity to finance its budget deficit.
According to Omotola, the success story recorded in the NLNG could also be translated to other JVS in the country and also improve efficiency in IOCS.
A yo de leo ni, partner, energy practice group, Bloomfield Law Practice, said the development will reduce revenue the government realises from the JVS but noted that the cash real is ed from the sale could be channelled to fund capital projects.
Over the years NNPC, which functions as an operator in the upstream, midstream and downstream sectors; a joint-venture partner to private sector exploration and production companies; and a regulator has failed to meet its share of cash call obligations for many years, resulting in significant debts owed to oil companies.
NNPC, in its latest monthly report, said total oil and gas export receipt of $381.70 million was recorded in January 2018 as against $345.68 million in December 2018.
It said, “Of the export receipts, $156.11 million was remitted to the Federation Account while $225.60million was remitted to fund the JV cost recovery for the month of December to guarantee current and future production.”
The debt office in 2017, had announced the government’s plan to raise N710 billion ($2.32 billion) through restructuring its equity in joint venture oil assets, which reflected in the 2018 budget.
The Group Managing Director, NNPC, Maikanti Baru, said in June last year that the corporation had settled all its outstanding cash call arrears amounting to $5 billion, and that it had restored confidence in the country’s oil and gas industry.
Recall last year, cash call payment for the development of joint venture oil and gas assets ate into the Federal Government’s revenue as a total of N1.829trillion was paid.
In December 2018, a total of 59.05 million barrels of crude oil & condensate was produced representing an average daily production of 1.90million barrels. This translates to an increase of 5.63percent in the average daily production compared to November 2018 average daily performance.
“Of the December 2018 Production, Joint Ventures (JVS) and Production Sharing Contracts (PSC) contributed about 32.77percent and 37.09percent respectively. While AF, NPDC and Independents accounted for 13.19percent, 7.99percent and 8.96percent respectively,” NNPC said in its latest financial record.