The Nigerian National Petroleum Corporation, NNPC’s under-funding cash calls hit $2.5 billion in 2016, says Maikanti Baru, its Group Managing Director.
Mr. Baru made this known at the 34th Annual International Conference of the Nigerian Association of Petroleum Exploration (NAPE) with the theme “Nigerian Oil and Gas Industry; Tackling our Realities’’ in Lagos.
He said that the joint ventures would relieve government of the cash call burden by sourcing for its operational funds estimated at $7-9 billion annually.
According to him, this is aside the inherited arrears estimated at $6 billion.
“The Joint Venture (JV) cash call exit model we are pursuing guarantees government most of the revenue that normally accrues to it from the joint venture operations by lifting the royalty and tax oil upfront.
“This contributes 75 per cent to 85 per cent of the accruable revenues to government. Consequently, the effect on government take will be minimised. We are working assiduously to kick start this from 1st January, 2017,’’ he said.
Mr. Baru said that it was difficult to deliver the volumes without adequate funding and with an average JV cash call requirement of about $600 million a month coupled with flat low budget levels over the past years.
He said that this had led to under-funding of the industry by government which has become a challenge to production growth.
Mr. Baru said that consequently, managing these funding issues was part of the management’s most immediate challenge.
He, however, appealed to those behind the indiscriminate acts of infrastructure vandalism to put an end forthwith to “these despicable acts of sabotage.’’
Mr. Baru said that the destruction of critical energy infrastructure was a great threat to the environment, the economy and energy security.
He said that the outage of these key infrastructures was detrimental to the development and growth of the oil industry in particular and the country at large.
According to him, it also has a negative effect on the level of funds to be distributed to the various tiers of government resulting in the ripple effect on the economy.
“We have faced challenges relating to low oil prices, production challenges due to infrastructure vandalism, inadequate joint venture funding.
“Others are low reserves replacement, adequacy gap in technology and shortage of skilled manpower among a host of other issues.
“Most critical of all these challenges is the fact that they are all intertwined in a viral fashion,’’ he said.
Mr. Baru also said the low oil price and deferred production challenges would lead to lower government revenues.
He said that the oil sector accounted for approximately 90 per cent of the nation’s foreign exchange earnings, adding that some of the highlighted challenges were part of the root causes of the recession.
Also speaking, Governor Akinwunmi Ambode of Lagos State, disclosed that the state would generate more than 3,000 Mega Watts in the next seven years.
Mr. Ambode, who was represented by Wale Oluwo, the Commissioner for Minerals and Energy Resources, said gas supply was their major challenge.
The governor said that due to lack of gas to power the existing power plants, they were spending thrice the amount being used to get gas.
He said the discovery of oil in the state would increase employment opportunities of young graduates, provide gas supply and improve make electricity supply.
Mr. Ambode said that, “if the Federal Government fulfils its promise of paying 13 per cent derivation for oil, the state would have more money to execute meaning projects.’’
He, however, pledged support for investors in the oil and gas sector in the state.
Nosa Omorodion, the NAPE President, said the story of the oil and gas industry patch in recent times had remained one that can be told by the bold and the brave.
He said that the global industry had lost more than 600,000 jobs, with the oilfield services and exploration and production sector contributing almost 70 per cent of the loss.
Mr. Omorodion said that the industry was faced with the longest period of investment cuts ever witnessed in recent times.