It was gathered that the Federal Government on Thursday disclosed that it plans to end the era of joint cash calls with oil companies by next year.
The move, the Government said would result in investments in excess of $15 billion by oil companies.
The Minister of State for Petroleum, Dr. Emmanuel Ibe Kachikwu, briefed State House correspondents after making presentation to the National Economic Council (NEC) meeting.
The Minister sought NEC’s endorsement for the proposal already approved by the Federal Executive Council (FEC), towards changing the funding configuration of Joint Venture (JV) for upstream companies.
According to him, the current cash call arrears in the oil sector over the last five years up until December 2015 was about $6.8 billion unpaid.
He said that the government had accumulated unpaid cash call arrears of over $2.5 billion as at 2016.
The debt, he said, became accumulated due to failure to pay the joint cash calls when oil was selling for $110 -$120 per barrel.
He said: “There really wasn’t any justification why these monies shouldn’t had been paid in terms of the five years arrears.”
He said that it had become difficulty to pay the debts as a result of militancy and the drop in oil prices from $110 to $40.
The implication of this, he said, was government’s inability to meet its cash call obligations.
“When that happens, you find that your reserve begins to deplete, your ability to maintain production at current level will begin to dissipate and cost of per barrel of production at joint ventures continues to rise because of the very little volumes chasing the cost and at the end of the day the investors’ confidence begins to wane. So a lot of the projects that ought to have happened in this country basically abandoned.”
He said that sometimes this year, government took on an initiative working with NNPC and the Ministry of Petroleum to try and find a sustainable solution for funding JV cash call.
He said: “We have been able to find that solution. What we have been able to put together has enabled us to shave over $1.7 billion savings for the government on the $6.8 billion that was previously owed. So we are going to be owing only $5.1 billion as oppose to $6.8 billion dollars.”
According to him, the $5.1 billion will be paid within five years interest free and the barrels to pay will come from incremental barrels generated by the oil companies not on the current 2.2 million barrels.
He explained that if for any reason government did not meet those thresholds, it would not be able to pay the $5.1 and the $2.6billion outstanding for this year.
He added: “We are trying to cover that through three thresholds: one is to continue to do an accelerated cash call payments between October and December hopefully that will bring the figure down to about $1.5 billion and that $1.5 billion was sinking resources from FG either through some of our reserve or Nigeria LNG or a combination of that and alternative funding to try and train staff that should be completed hopefully by December.
“Beginning next year, if this goes into place the issue of cash call era would have had disappeared. The effect of what this is that investments in excess close to $15 billion are likely to be announced by the oil companies bringing back most of the projects within couple of weeks once this is signed.
“For the first time the oil industry will take responsibility for arranging their own funding and being able to produce oil and save the fg the whole nightmare of cash calls every year.
“So this is a very dramatic move in the oil industry we are still going to make presentation to the National Assembly for them to understand this,” he said.
The new financing regime, he said, would help to save at least $1billion from 2017.
According to him, government would be looking at reducing the cost of barrel per production from the current 27 dollars per barrel which he said was one of the highest in the world to figure within the threshold of 18 dollars per barrel over the next two years ultimately to about 15 over the next four years.
He expected the barrel reserve production to increase to about 2.5million by 2019 and potentially to about 3 million barrels by 2021.