NNPC, IOCs Sign $1.78bn Alternative Financing Agreements for JV Projects

•  FG to earn $16 billion

Chineme Okafor in Abuja

The Nigerian National Petroleum Corporation (NNPC) has said it has signed alternative financing agreements on Joint Venture (JV) oil and gas projects with two International Oil Companies (IOCs), explaining that the projects will boost Nigeria’s reserves and production as well as generate for the federal government, incremental revenues worth $16 billion.

The corporation said in a statement by its Group General Manager, Public Affairs, Mr. Ndu Ughamadu, in Abuja Thursday that the JV agreements were signed on Monday in London between the NNPC and Chevron Nigeria Limited (CNL); and Shell Petroleum Development Company (SPDC) for the development of the NNPC/CNL JV Sonam Project (Project Falcon) and NNPC/SPDC JV Project Santolina.

The agreements for the funding of the two projects, it explained, were signed by its Group Managing Director, Dr. Maikanti Baru; Shell Global Upstream Director, Mr. Andy Brown; and Chairman and Managing Director of CNL, Mr. Jeffrey Ewing.

According to the NNPC, the agreement with Chevron would see to the development of the NNPC/CNL JV Sonam Project (Project Falcon), hitherto financed through cash calls, to incremental proven and probable oil/liquids reserves of 211 million barrels, as well as proven and probable gas reserves of 1.9 trillion cubic feet within in Oil Mining Licences (OMLs) 90 and 91.

The project, it added, was expected to begin to bear fruits in the next three to six months.

Baru, according to the NNPC statement, said the project was envisaged to achieve an incremental peak production of about 39,000 barrels per day of liquids and 283 million standard cubic feet of gas per day (mmscf/d) respectively over the life cycle of the asset.

He added that the JV partners had already expended $1.5 billion representing 97 per cent of project completion costs and that the agreement would cover the remaining $780 million to complete the project’s scope.

Providing a breakdown of the expected funding requirements of the Sonam Project, Baru said $400 million would be used to fund the development of seven wells in the Sonam field (OML 91); the Okan 30E Non-Associated Gas (NAG) well (OML 90); and associated facilities including completion of Sonam NAG Well Platform.

He further explained that $380 million would be required to reimburse the JV partners for the 2016 portion of the funds committed to lenders that had been cashed and paid for.

According to him, the Sonam project alone, on fruition, would net the federal government cumulative incremental earnings of $7.3 billion over its life cycle.

He also said it would be carried out in two phases, with the first phase focused on short term activities involving Oil and Gas Generation (STOGG) programme comprising 128 rigless activities and 10 workovers, while the second phase would focus on medium term activities that would involve further development of EA/EJA fields by drilling 14 new wells and three workover ones.

On the other hand, he said the agreement with SPDC would facilitate the development of the NNPC/SPDC JV Project Santolina, which comprised of 156 development activities across 12 OMLs (OMLs 11, 17, 23, 25, 27, 28, 32, 35, 43, 45, 46 and 79) and 30 different fields in the Niger Delta.

Baru stated that the first phase of the project was estimated to deliver incremental liquid reserves of about 202.9 million barrels of oil and 161.8 billion cubic feet on proven and probable (2P) basis.

He put the total third-party financing for Project Santolina at $1 billion, inclusive of financing cost of which, he said, co-lending amounted to $420 million with the NNPC’s portion being $850 million.

Project Santolina, he added, would generate about $9 billion of incremental revenue to the government over its life cycle and a Net Profit Value (NPV) of $5.2 billion over the loan life at eight per cent discount rate.

Baru explained that NNPC’s objectives in securing third-party financing for the two sets of projects aligned with the government’s aspiration to increase reserves and crude oil and gas production as well as monetise the nation’s enormous gas resources.

He emphasised that the financing option underscored the realisation of one of NNPC’s 12 Business Focus Areas (BUFAs) which is to increase crude oil and gas reserves and production to support government’s ‘Seven Big Wins’ aspiration.
The statement quoted Brown to have stated in his presentation that the alternative funding arrangement was an innovative financing plan that would enable SPDC to commence exploration activities hitherto stalled due to funding challenges.

Also, Ewing said in the statement that Chevron Nigeria Limited was committed to supporting Nigeria’s aspirations of sustaining oil and gas production through innovative strategies as typified by the alternative financing arrangements over which the agreement was executed.

It noted that Nigerian banks comprising Access Bank, Standard Chartered Bank, Union Bank and United Bank for Africa (UBA) and some foreign financial institutions, were part of the consortium of banks involved in the project.