NNPC Sign $16bn Oil Production Pact With Shell, Chevron

Eight months after it exited cash call arrange­ment with its Joint Ventures (JVs) in the oil and gas sector, the Nigerian Na­tional Petroleum Corpora­tion (NNPC) has signed two sets of alternative financ­ing agreements on JV pro­jects with Chevron Nigeria Limited and Shell Petrole­um Development Company (SPDC).

The agreement reached in London for the develop­ment of NNPC/CNL JV Son­am Project (Project Falcon) and NNPC/SPDC JV Pro­ject Santolina are expected to boost reserves and pro­duction, and generate incre­mental revenues of about $16 billion within the assets’ life cycle.
The banks involved in the project are Access Bank, Standard Chartered Bank, Union Bank and United Bank for Africa (UBA) and some foreign financial institutions.
The banks are expected to provide a combined $1.780 billion for the two projects.
In a statement issued on Thursday by NNPC Group General Manager (Public Affairs Division), Mr. Ndu Ughamadu, he said that the agreement with Chevron ensure the development of the NNPC/CNL JV Sonam Project, hitherto financed through cash calls, to incre­mental proven and prob­able oil/liquids reserves of 211million barrels and prov­en and probable gas reserves of 1.9 trillion cubic feet with­in in Oil Mining Licences (OMLs) 90 and 91.
The project is expected to begin to bear fruits in next three and six months.
According to him, the NNPC Group Managing Di­rector, Dr. Maikanti Baru, said that the project is envis­aged to achieve an incremen­tal peak production of about 39, 000 barrels per day of liq­uids and 283million stand­ard cubic feet of gas per day (mmscf/d) of gas respectively over the life cycle of the asset.
He disclosed that the JV partner had already expend­ed $1.5 billion or 97 per cent of project completion costs, adding that the agreement would cover the remaining $780million to complete it.
In his breakdown of the expected funding of Son­am Project, Baru said that $400million is to fund the de­velopment of seven wells in the Sonam field (OML 91), the Okan 30E Non-Associ­ated Gas (NAG) well (OML 90), and associated facilities including completion of Son­am NAG Well Platform.
Baru added that $380mil­lion would also be required to reimburse the JV partners for the 2016 portion of the funds committed to lenders that have been cashed and paid for.
He stated that the Sonam Project alone, on fruition, would net the Federal Gov­ernment cumulative incre­mental earnings of $7.3bil­lion over the project’s life.
The agreement with SPDC, on the other hand, would facilitate the develop­ment of the NNPC/SPDC JV Project Santolina which com­prised of 156 development activities across 12 OMLs (OMLs 11, 17, 23, 25, 27, 28, 32, 35, 43, 45, 46 and 79) and 30 different fields in the Ni­ger Delta.
Baru said that the devel­opment of the Sonam Project would be carried out in two phases, with the first phase focused on short-term ac­tivities involving Oil and Gas Generation (STOGG) programme comprising 128 rigless activities and 10 work-overs, while the second phase would focus on medium- term activities that would involve further development of EA/EJA fields by drilling 14 new wells and three work-over ones.
He said that the first phase of the project is estimated to deliver incremental liquid reserves of about 202.9 mil­lion barrels of oil and 161.8 billion cubic feet on Proven and Probable (2P) basis.
The NNPC GMD put the total third-party financing for Project Santolina at $1billion, inclusive of financing cost of which, he said, co-lend­ing amounted to $420mil­lion with NNPC’s portion of $850million.
He stated that Project Santolina would generate about $9 billion of incremen­tal revenues to the Federation Account over the project’s life cycle and a Net Profit Value (NPV) of $5.2billion over the loan life at eight per cent dis­count rate.
The Shell Global Up­stream Director, Mr. Andy Brown, stated that the alter­native funding arrangement was an innovative financing plan that would enable SPDC begin exploration activities hitherto stalled due to fund­ing challenges.
On his part, the Chair­man and Managing Director of CNL, Mr. Jeffrey Ewing said Chevron Nigeria Lim­ited was committed to sup­porting Nigeria’s aspirations of sustaining oil and gas pro­duction through innovative strategies as typified by the al­ternative financing arrange­ments over which agreement was executed.