Nigeria’s oil and gas assets being developed through joint ventures between the Nigerian National Petroleum Corporation and private firms are suffering funding shortfall, as cash call payment by the NNPC has hit a record low.
Amid the coronavirus-induced sharp drop in its revenues, the Federal Government, through the NNPC, reduced its spending on the JV assets to $91.52m in August, the lowest in at least one year, from $94.84m in July.
Prior to the collapse in oil prices and demand, cash call payment by the NNPC stood at $684.44m in January, $258.69m in February and $476.64m in March, according to data obtained from the corporation.
The NNPC, which represents the Federal Government in the JVs, has an obligation to make cash call payment for the development of the assets.
The nation’s oil and gas production structure is majorly split between the JV (onshore and in shallow waters) and the Production Sharing Contracts in deepwater offshore.
Under the JV arrangement, both the NNPC and the private firms contribute to the funding of operations in the proportion of their equity holdings and generally receive the produced crude oil in the same ratio.
In addition to the dollar allocation of $59.66m to the JV cash call account, the naira portion of N12.45bn ($32.86m) was transferred to the account from domestic crude oil receipts in August, according to the NNPC.
In July, the dollar allocation to the JV cash call account was $54.98m while the naira portion was N14.35bn ($39.86m).
Production from the JV assets has declined over the past few years, partly due to funding constraints occasioned by the NNPC’s inability to fulfil its cash call obligations as and when due.
The JVs accounted for 31.26 per cent of the average daily production of 1.69 million barrels recorded in July, compared to 33.20 per cent in June, according to NNPC data.
The federation crude oil and gas lifting is classified into equity export and domestic, both of which are lifted and marketed by the NNPC and the proceeds remitted into the Federation Account.
The equity export receipts, after adjusting for the JV cash calls, are paid directly into the Federation Account domiciled in the Central Bank of Nigeria.
Domestic crude oil of 445,000 barrels per day is allocated for refining to meet domestic product supply.
Payments are effected to the Federation Account by the NNPC after removing crude and product losses, pipeline repairs and management costs incurred.