We hope that you find the insights in the publication useful in making your business decisions.

Update on cash call arrears

The Federal Government of Nigeria (FGN), through the Nigerian National Petroleum Corporation (NNPC) owns majority stakes in all of the Joint Venture (JVs) arrangements with the international oil companies (IOCs) operating in the country, owed the IOCs about USD$6.8billion in unpaid counterpart funding (cash calls) as at 20161. This had impacted the ability of the IOCs to continue to invest in oil field development in the country. In December 2016, the FGN commenced negotiations with the IOCs and was subsequently able to obtain a discount of USD$1.7billion from the outstanding amount.

The NNPC had, through its former Group Managing Director (GMD) in his valedictory speech on 8 July 2019, stated that USD$2.3billion (an estimated 47%{sic})2 of the re-negotiated debt had been settled as at the end of June 2019 using cash obtained from incremental oil production.

The NNPC also reiterated plans to introduce the Incorporated Joint Venture (IJV) model in conjunction with the IOCs. The IJVs will operate as independent entities with the ability to raise capital through equity or debt to finance cash call obligations. However, the 2020 budget does not seem to contain any details about the restructuring of the existing JVs.

The settlement of outstanding cash calls, which have been a perennial issue in the industry, as well as the setup of a new funding mechanism to address this issue going forward, should restore the confidence of the IOCs, increase investments in oil field developments and improve reserves growth. However, this will be highly dependent on development and implementation of the right fiscal framework to improve and sustain investments in the sector through the passage of the components of the overdue Petroleum Industry Bill (PIB).

Click to download and read more on the KPMG's second edition of the Nigerian Oil and Gas Update.