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by STANLEY LAWSON Group Executive Director Finance & Accounts Nigerian National Petroleum Corporation NEITI WORKSHOP PH- 28th July, 2005
AND WHAT IS CASH CALL? FUNDING UN-INCORPORATED JVs UN SHARE IMPUT COSTS, SHARE OUTPUT GAINS CASH CALLS IN NIGERIAN OIL JVsJVsTHE JOINT OPERATING AGREEMENT
J O A
SETS OUT OPERATING PROCEDURES
CASHCALL COMMITTEE
NAPIMS
CBN
GFAD INSTRUCTS CBN TO FUND NAPIMS JVCC ACCOUNT
GED F&A
ACCUMULATED BUDGET FUNDING SHORTFALLS FROM NNPC/GOVERNMENT COST OF FUNDING GAP TO THE OPERATORS TOTAL REFUNDED IN 2001 APPROVED BUDGET
=N=m 60,514,601
US $m 266,338
36 billion bbls Reserves and 4 million b/d production by 2007 Maximising sector value and fair share for Nigeria Improving Nigerian capacity and Content 40 billion bbls reserves and 4.5 million b/d production by 2010 Develop domestic market and end flaring by 2008 Capture economic value and generate as much revenue from gas as from oil by 2010
Oil Receipts ($MM) GAS ($MM) Total (Oil & Gas) ($MM) CashCash-Call ($MM) CC TO TOTAL REVENUE % RESERVE ADDITION (MMBLS)
PLATFROM UPGRADE EAST AREA INTEGRATED PROJECT OKRIKA JETTY ESCRAVOS GAS PROJECT FORCADOS YORKI INTEGRATED PROJECT ETIM/INIM/UTUE PIPELINE & PRODUCTION GTL PROJECT EA/EJA
AMENAM KPONO BONNY NAG SOUTH FORCADOS AGG CAWTHORNE CHANNEL YOHO FIELD DEVELOPMENT MOBIL POWER & GAS FLARE OUT PROJECTS SHELL AFAM / ABUJA POWER & LNG PROJECTS AGIP POWER & LNG PROJECTS
GAS CAPEX
OIL CAPEX
4,000 3,000 2,000 1,000 0
OPEX
2004
2005
2006
2007
2008
CONTRIBUTION OF ONE OR MORE OF THE JV PARTNERS OTHER THAN THE CASH CALL METHOD PROVIDED IN THE JOA-JOA---TO AUGMENT FUNDING SHORTFALL --TO
FUNDING OPTIONS
CASHCALL ALTERNATIVE FUNDING CAPITALISATION/EQUITY 3RD PARTY LOAN CARRY ARRANGEMENT OTHERS/COMBINATION OF THESE
CASHCALL FUNDING
GOVT FUNDS ITS OWN SHARE OF JV OPERATIONS DIRECTLY THROUGH ANNUAL BUDGETING AND REVENUE OFFSET NNPC MARKETS ALL GOVT EQUITY CRUDE OIL PRODUCTION AND REMITS PROCEEDS (100%) INTO FEDERATION ACCOUNT NET OF COST OF PRODUCTION (JVCC).
CASHCALL FUNDING
CASHCALL FUNDING
FUNDING IS READILY AVAILABLE IF EXPENDITURES STAY WITHIN APPROVED BUDGET, AND ALSO REVENUES NO FINANCIAL OR ENCUMBERANCE ON GOVERNMENT ASSETS
LOAN FUNDING
GOVT SOURCES FOR FUNDS TO PAY FOR ITS OWN SHARE OF JV OPERATIONS FROM THIRD PARTY OR EXTERNAL SOURCES NIGERIAN EQUITY CRUDE OIL PRODUCTION WILL BE ENCUMBERED BY DEMANDS OF LENDERS PRICING AND OFFTAKER CHOICE WILL BE AN ISSUE IN ADDITION TO THE FOREGOING, LENDER MAY REQUIRE ADDITIONAL COLATERAL AND/OR GOVT GUARANTEE
LOAN FUNDING
LOANS ARE RESTRICTIVE AND INFLEXIBLE AND INVOLVE VARIOUS FINANCIAL CHARGES VIZ:
UPFRONT
FEES COMMITMENT FEES LEGAL FEES INTEREST CHARGES ON PRINCIPAL AND OUTSTANDING INTEREST
THE FOREGOING CHARGES ARE ADDITIONAL TO THE REPAYMENT OF PRINCIPAL (SAME SIZE AS CASHCALL)
LOAN FUNDING
LENDING TO NNPC MAY ATTRACT HIGHER THAN MARKET INTEREST RATES DUE TO LOW OR NO CREDIT RATING AND LACK OF LENDING TRACK RECORD FUNDING THRU LOAN MAY REDUCE NET GOVT REVENUE AS EXCESSIVE FINANCIAL CHARGES ADDL TO FUNDING REQUIREMENT.
CASHCALL:
PROD BASED ON PROJECTED NIGERIAN SHARE OF OPEC CAP (2004-2008) (2004ANNUAL CASHCALL REQUIREMENT OF $3.2 BILLION IN 2004 IS ASSUMED. THIS IS EXPECTED TO INCREASE TO $3.86 BILLION BY 2008 DUE TO PROD INCREASE FROM 2.07 MMPD IN 2004 TO 2.57 MMPD IN 2008 AN AVERAGE OIL PRICE OF $24/BBL IS ASSUMED CASHCALL AND SALES REVENUE ARE BASED ON GOVT EQUITY OIL PRODUCTION ONLY
LOAN:
PROD BASED ON PROJECTED NIGERIAN SHARE OF OPEC CAP (2004-2008) (2004ANNUAL CASHCALL REQUIREMENT OF $3.2 BILLION IN 2004 IS ASSUMED. THIS IS EXPECTED TO INCREASE TO $3.86 BILLION BY 2008 DUE TO PROD INCREASE FROM 2.07 MMPD IN 2004 TO 2.57 MMPD IN 2008 AN AVERAGE OIL PRICE OF $24/BBL IS ASSUMED LOAN AND SALES REVENUE ARE BASED ON GOVT EQUITY OIL PRODUCTION ONLY UPFRONT FEES COMMITMENT FEES INTEREST RATE GRACE PERIOD PAYMENT PERIOD 2% 0.5% PP LIBOR+5% 1 QUARTER 4 QTRS/ANNUAL DISBURSEMENT
ABOVE SHOWS CLEARLY THAT GOVERNMENT WILL LOSE OVER ONE BILLION DOLLARS AS FINANCIAL CHARGES IF SHE ACCESSES THE FINANCIAL MARKET TO FUND HER JV OPERATIONS ABOVE FINANCIAL CHARGES DO NOT INCLUDE LEGAL FEES ALSO THE INTEREST RATE OF LIBOR+5 ASSUMED FOR EVALUATION IS CONSIDERED VERY CONSERVATIVE IN VIEW OF NNPCS LACK OF TRACK RECORD IN THE FINANCIAL MARKET
12000
12000
10000
10000
Net Incom e=$38,610 m illion
8000
8000
6000
6000
4000
Princ Rep=$17,950 m illion
2000 2004
2000 2004
2005
2006
2007
2008
CARRY ARRANGEMENT
FUNDING THE EQUITY PORTION OF AT LEAST ONE OF THE JV PARTIES BY ONE OR MORE OF THE REMAINING PARTIES OFFSETS PARTNERS WHILE THE FUNDING TAX
RECOVER AND A
THEIR SHARE
COST OF
THRU THE
EQUITY
CARRY-TECHNICAL CRITERIA
CARRY-COMMERCIAL CRITERIA
# # #
CAPEX FUNDING ONLY COST RECOVERY FROM PROJECT CRUDE ONLY COST RECOVERY HINGED ON TAX OFFSETS PLUS SHARE OF EQUITY CRUDE OF THE PARTY BEING CARRIED
# #
EA FIELD DEVELOPMENT
AMENAM/KPONO FIELD
DEVELOPMENT
YOHO/AWAWA
FIELD DEVELOPMENT
CARRY-GENERAL TERMS
OPERATIONS OF AF PROJECT GOVERNED BY JOA SEPARATE BANK ACCOUNT, BUDGETS, ASSET RECORDS & FINANCIAL STATEMENTS KEPT FOR AF PROJECTS
FOR THE PURPOSE OF COST RECOVERY, CARRYING PARTY WILL UNTIL FULL COST RECOVERY TREAT THE ENTIRE PROJECT ASSETS AS ITS OWN
AFTER FULL COST RECOVERY, 60% OF PROJECT ASSETS WILL BE TRANFERRED TO NNPC @ ZERO COST
CARRY-GENERAL TERMS
AGREEMENT SHALL REMAIN IN FORCE UNTIL ANY OF THE FOLLOWING OCCURS FIRST:
CUM PROD REACHES A PRE-DETERMINED LEVEL PREFULL RECOVERY OF CARRY CAPITAL COST ANY TIME THAT NNPC PAYS BACK OUTSTANDING CARRY CAPITAL COST AND OUTSTANDING SHARED OIL
THE BREACH OF MATERIAL OBLIGATION UNDER THIS AGREEMENT TOTAL SHARED OIL RECEIVED BY CARRYING PARTY REACHES THE AMOUNT AGREED BY BOTH PARTIES
CARRY-FUNDING PROCESS
`
PARTIES WILL JOINTLY OPEN SEPARATE BANK ACCOUNT FOR AF PROJECT AND WHICH WILL BE FUNDED BY THE CARRYING PARTY
ALL EXPENDITURES IN RESPECT OF PROJECT DEVELOPMENT WILL BE MADE FROM THE ACCOUNT
IF CARRYING PARTY DOES NOT FUND THE ACCOUNT AS AT WHEN DUE, CARRYING PARTY WILL PAY INTEREST TO NNPC AT PREVAILING BANK RATE.
NNPCS PORTION OF THE INTEREST EARNED IN THE ACCOUNT WILL BE USED TO OFFSET UNRECOVERED CARRY CAPITAL COST
CARRY-FUNDING PROCESS
EACH PARTY WILL FUND ITS OWN PORTION OF THE OPERATING COST IN ACCORDANCE WITH THE JOA
FOR THE PURPOSE OF THE 2ND SCHEDULE OF THE PPT, CARRYING PARTY WILL TREAT THE ENTIRE PROJECT ASSETS AS ITS OWN UNTIL FULL COST RECOVERY AFTER WHICH 60% WILL REVERT TO NNPC AT ZERO TRANSFER COST
NNPC MAY AT ANY TIME PRIOR TO FULL COST RECOVERY ELECT TO PAY CARRYING PARTY
THE BALANCE OF CARRY CAPITAL COST THE DISCOUNTED VALUE OF UNREALISED SHARED OIL DUE TO THE CARRYING PARTY
CARRY-FUNDING PROCESS
$1,200
SPDC 47.1% NNPC55% $660 Mln
FUNDED BY SPDC & NAOC IN THEIR PARTICIPATING EQUITY RATIO
JOINT BANK ACCOUNT NNPCS 55% ($660 Mln) FUNDED BY SPDC ($565 Mln) & NAOC ($95 Mln) NAOC 7.9%
FUNDED BY SPDC
PARTNERS 45% ($540 Mln) FUNDED BY SPDC ($360Mln) ELF ($120 Mln) & NAOC ($60 Mln)
TAX OFFSETS DUE TO NNPC ARISING FROM ITS PORTION OF THE PROJECT CAPITAL EXPENDITURE i.e. FROM i) ii) CAPITAL ALLOWANCE EXPENSED INTANGIBLE COSTS
b)
SHARED OIL FROM THE REMAINING PORTION OF NNPCS EQUITY PRODUCTION AFTER RECOVERING CARRY CAPITAL COST OUTSTANDING
NNPCS 55%
($660 Mln)
FUNDED BY SPDC ($565 Mln) NAOC ($95 Mln)
OUTSTANDING CARRY OIL
ALLOCATION OF JV PRODUCTION
PARTNERS EQUITY PROD (158 MMB) CARRY OIL (30 MMB) ALLOCATED AS PARTNERS NNPCS SHARED OIL EQUITY PROD (81 MMB)
(192 MMB)
ALLOCATED AS
CARRY
TAX RELIEF
CARRY CAPITAL
CARRY
PREVIOUS
COST AMORTISED
TAX RELIEF
(RCE)
(CCCA)
(CTR)
(COR)
ROYALTY
TECH COST
PPT
MARGIN
AND FINALLY
THE OPTIMAL FUNDING CHOICE MUST DEPEND ON METICULOUS COST ASSESSMENT OF ALTERNATIVES GOVERNMENT REVENUE EXPECTATIONS FOR TODAY, AND FOR TOMORROW BALANCE OF REVENUE AND RESERVES BUILDBUILDUP, OPEC QUOTA LIMITATIONS, FOCUS ON THE FUTUREFUTURE- GAS DIVERSIFICATION OF THE NATIONAL ECONOMY, LOCAL PARTICIPATION AND
TRANSPARENCY