The Federal Government said it had released $400m to settle outstanding Joint Venture cash call debts owed International Oil Companies (IOC).
Minister of State for Petroleum Resources, Dr Ibe Kachikwu, made this known in Houston, U.S. on Tuesday while speaking to reporters on the sidelines of ongoing 2017 Offshore Technology Conference.
Kachikwu said that the money was paid to the IOCs last week and that the balance would be defrayed within a year.
He explained that the payment was part of a $1.2bn cash call debt owed the IOCs in 2016.
He explained that it was different from the discounted $5.1bn cash call arrears it negotiated in December 2016 with the IOCs.
“At the time that we did the joint venture review that we came up with, we had two components to it. The first was the $6.8bn arrears covering about six years which were owed the oil companies.
“In our negotiations, we were able to trim that down to about $5.1bn; so, we knocked off $1.7bn out of it and then spread the $5.1bn over the next five years.
“This is to be paid from incremental production, not from existing production.
“In other words, they will have to go and find new oil and from that new oil, we pay that money because we didn’t want to imperil the 2.2 million barrel that everybody was already used to,” he said.
The minister also said that the second tranche of the money which was not in the $6.8bn or the $5.1bn, “depending on where you land, was a figure of about $1.2bn which represented only 2016 arrears’’.
He, however, said that the oil companies insisted that the money needed to be paid out completely because they couldn’t begin to add that to the $5.1bn.
“We eventually agreed to pay several tranches; $400m out of that for the first tranche and then, the remaining $700m paid in monthly instalments for a period of one year.
“In other words, that will roughly be about $60 or $70m every month after the first $400m.”
Kachikwu said that the payment was a milestone that would redeem investor confidence in Nigeria’s abilities to keep to her word.
According to him, the payment of the first $400m will jump-start the whole process of crystallising agreements that have been reached on Joint Venture funding.
“We have made provisions through the Central Bank for the payment of the balance on a monthly basis. This will stimulate IOCs to pick up their appetite to invest in existing and new projects in the country.”
The IOCs involved, he said, were ExxonMobil, Shell, Nigeria Agip Oil Company, Chevron and Total.
Kachikwu also disclosed that the country’s oil production could increase by 700,000 barrels per day (bpd) by 2018 from this development.
He said that the structure of the joint venture cash call previously was that all income went back to the Federation Account and from there budget was made.
He, however, stated that “even with the budget, monies were not remitted hence the cost and revenue were squandered’’.
“What this has done now is to skew that to the other direction – that from production, after royalty, you take away the cost of production on a budgeted basis.
“Then, the balance goes back to the federation account. Hopefully, going forward we shouldn’t have that problem again.
“What we cannot cover in terms of budget, the oil companies will go out to raise a loan from third parties to enable them continue their much more aggressive exploration and production.
“We have today cumulative number of projects that are coming back which should between now and next year, give us additional 700,000 barrels, over and above the 2.2 million barrels per day.
“That is why I can say with confidence that we are in a position to move up to three million barrels very quickly,” Kachikwu said.