FG to cut stakes in JV with Shell, Chevron, others
The Federal Government plans to cut its stakes in joint oil ventures with international oil companies to 40 per cent this year, the Minister of Budget and National Planning, Senator Udo Udoma, has said.
The government is pushing ahead with efforts to boost revenue to grow an economy recovering from a recession.
The President Muhammadu Buhari-led administration had in its Economic Recovery and Growth Plan released in 2017, said it would reduce its stakes in JV oil assets, refineries and other downstream subsidiaries such as pipelines and depots.
Oil companies including Royal Dutch Shell, Chevron and ExxonMobil, operate in Nigeria through JVs with the Nigerian National Petroleum Corporation.
The NNPC owns 55 per cent stake in its JV with Shell and 60 per cent stakes with others.
The government has considered reducing its majority stakes in these joint ventures for more than a decade but was under little pressure as higher oil prices boosted state coffers.
Udoma was quoted by Reuters as saying in a statement that the government would intensify efforts to improve its finances including the “immediate commencement of the restructuring of the joint venture oil assets so as to reduce government shareholding to 40 per cent.”
He added during a presentation to lawmakers that Buhari wanted the oil restructuring completed this year.
In 2017, the debt office said the government wanted to raise N710bn ($2.32bn) via restructuring of its equity in JV oil assets and that it had captured the proposals in the 2018 budget.
In the past, Nigeria had held talks with oil companies regarding financing agreements for JVs after it struggled to fund its portion of such partnerships through cash calls, which had often been delayed in parliament.
The government has asked the Department of Petroleum Resources to collect past-due oil license charges and royalties, within three months.
The country has also ordered oil majors to pay nearly $20bn in taxes it says are owed to states.
Buhari has presented an N8.83tn budget for 2019, laying out plans to drive growth. He has directed the NNPC to take measures to achieve the targeted oil production of 2.3 million barrels per day this year, Udoma said.
The NNPC said on Wednesday that the oil industry would achieve the 2.3 million bpd target for the 2019 budget, adding that measures had been taken to attain it.
In his presentation to the Senate Committee on Finance on the 2019-2021 Medium Term Expenditure Framework, the Group Managing Director, NNPC, Dr Maikanti Baru, stated that with improved security in oil-bearing communities as a result of sustainable community partnership, the industry was confident of attaining the production target.
Baru, who was represented by the corporation’s Group General Manager, Corporate Planning and Strategy, Mr Bala Wunti, said although the country had a production capacity of over 2.5 million bpd, the unfortunate security situation of the past in areas of operation made it difficult to achieve desired production targets.
He was quoted in a statement from the corporation as saying, “Thankfully, the current administration is strongly focused on engagement and sustainable community partnership, which has resulted in improved security and production.”
On the possible impact of the Organisation of the Petroleum Exporting Countries’ quota on the country’s production target, Baru explained that the production target of 2.3 million bpd was a combination of liquid hydrocarbon production, comprising of crude oil and condensate, noting that the OPEC quota only covered crude oil production.
He further stated that with condensate production currently oscillating between 400,000 to 600,000 bpd, the country was in a good position to attain the overall production target.
Baru said the corporation was working assiduously with other relevant agencies to ensure the attainment of the 2019 budget assumptions.
Meanwhile, energy and financial experts, who spoke with our correspondents in separate interviews, have hailed the move by the government to sell some of its stakes in JV oil assets.
The Managing Director, Financial Derivatives Company, Mr Bismarck Rewane, said, “I think it is a good thing because I have always championed the cause of government exiting. But who are they going to sell their interest to?
“The fact that it would create some more liquidity so that we can use that to fund infrastructure is good. We should have done it five years ago. The earlier we sell those assets, the better. If we had sold them when oil price was higher, we could have got a better return. But it is better late than never.”
The Chairman/Chief Executive Officer, International Energy Services Limited, Dr Diran Fawibe, noted that the proposed sale of oil and gas assets had been an issue over the past two to three years, saying, “It appears the government is determined to push it through instead of going to borrow money. The level of domestic and external loans has been very much criticised.”
The Chief Executive Officer, Economist Associates, Dr Ayo Teriba, said, “Instead of borrowing money and piling up debt that is difficult to stand, it is better to sell assets to attract equity.
“Debt is a liability, equity is also a liability; debt you have to service and repay, which is not so with equity. So, it makes great sense if the Federal Government does more of it – relies more on equity and less on debt.”
Noting that Nigeria only owns 49 per cent in the Nigeria LNG Limited while foreign investors own 51 per cent, he said, “There are similar valuable assets that the government owns 100 per cent like the Pipelines and Product Marketing Company, the Nigerian Gas Company, and the Transmission Company of Nigeria.
“Instead of talking about reducing the 49 per cent in the NLNG, we should talk about reducing the 100 per cent in those valuable assets to cut it to 49 per cent to raise money to bring in competent foreign technical partners to run them and make sure that the assets work.”
The Director, Emerald Energy Institute, University of Port Harcourt, Prof. Wumi Iledare, said, “I think it is long overdue; we suggested that before the price of oil collapsed. My advice is that the government should be selective of who they sell the assets to; there should be a public offering.
“I am also concerned about the proceeds from the sale. It should not be used for recurrent expenditure; it should be used for infrastructure.”