The Nigerian National Petroleum Corporation (NNPC) has proposed to pay disputed arrears of between $8 billion and $10 billion to its joint venture partners, saying that oil production shortfalls “could cripple” the industry if left unaddressed.
A letter from Dr. Ibe Kachikwu the Minister of State for Petroleum Resources, to the Managing Directors of Chevron, Shell and the Nigerian subsidiaries of Exxon and Eni named three “unresolved challenges”: arrears from the joint ventures; the payment structure of the joint ventures; and a dispute related to production-sharing contracts.
The letter, dated March 31 and seen by the London-based Financial Times (FT) newspaper, also laid out “guidelines” for NNPC and the oil majors to resolve these issues by mid-May.
However, according to FT, insiders say this deadline is unrealistic, particularly because of a lack of guarantees about NNPC reforms.
Various drafts of the Petroleum Industries Bill have remained stuck in the national assembly, for the past eight years.
“Who in their right mind will make investments without rules, terms and conditions?” Ms. Onadeko said. “Money is scarce with low oil prices and people would rather put their money in a place where they know what their risks are and can mitigate them.”
Concerns that Nigeria’s oil output is set to decline sharply over the next decade, because of uncertainty over promised reforms to the cash-strapped and debt-laden NNPC have become widespread.
President Muhammadu Buhari came to power a year ago partly on a vow to shake up Nigeria’s oil industry, where corruption and mismanagement have long held back production. With 37 billion barrels of crude, Nigeria is Africa’s top oil producer and has the 11th-largest oil reserves in the world.
However, details of a promised overhaul of NNPC remain unclear, putting investment on
The oil price collapse that began in mid-2014 has forced companies to cut investment worldwide, but there has been even less incentive to back Nigerian projects because of the country’s policy uncertainties.
A drop in production would be another blow to government finances, as low crude prices have sparked the country’s worst economic slowdown in 15 years.
Global oil companies are concerned that NNPC will continue to fail to fund its share of joint ventures. Oil executives argue that the target would be achievable if NNPC were freed from direct government control and run as a commercial enterprise. About $15 billion of investment is needed just to maintain current production levels and compensate for a natural decline in production of about 250,000bpd each year as some oilfields mature, according to insiders.