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NNPC signs $1.8bn oil financing deal with Shell, Chevron


…Four Nigerian banks, others also involved

…Projects to fetch Nigeria $16bn
By Michael Eboh
The Nigerian National Petroleum Corporation, NNPC, Thursday, said it has signed two sets of alternative financing agreements worth about $1.78 billion, for two major Joint Venture projects with two of its JV partners, Chevron Nigeria Limited, CNL and Shell Petroleum Development Company, SPDC.

Dr Maikanti Baru
The deal also involved a consortium of both local and foreign banks. According to the NNPC, the banks are Access Bank, Standard Chartered Bank, Union Bank and United Bank for Africa, UBA and some foreign financial institutions.
The NNPC, in a statement in Abuja, put the Chevron deal, for the Sonam Project, also called Project Falcon, at $780 million, while the SPDC deal for Project Santolina, was valued at $1 billion, adding that agreements were signed in London.
It further stated that the agreement with Chevron on the Sonam Project, hitherto financed through cash calls, would lead to the development of 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 (OML) 90 and 91.
On the other hand, the NNPC said the agreement with SPDC, 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; as well as 30 different fields in the Niger Delta.
It said the two projects are expected to generate incremental revenues of about $16 billion within the assets’ life cycle including a flurry of exploratory activities that would generate employment opportunities in the industry, boost gas supply to power and rejuvenate Nigeria’s industrial capacity utilization.
Speaking at the signing ceremony, Group Managing Director of the NNPC, Mr. Maikanti Baru, said in the Sonam project, Chevron had already expended $1.5 billion, representing 97 per cent of the project completion costs, adding that the agreement would cover the remaining $780 million to complete the project’s scope.
Giving a breakdown of the expected funding requirements of the Sonam Project, Baru said $400 million is to fund the development of seven wells in the Sonam field, Oil Mining Lease (OML) 91, the Okan 30E Non-Associated Gas (NAG) well (OML 90), and associated facilities including completion of Sonam NAG Well Platform.
He added that $380million would also be required to reimburse the JV partners for the 2016 portion of the funds committed to lenders that had been cashed and paid for.
According to him, the Sonam Project alone, on fruition, would net the Federal Government cumulative incremental earnings of $7.3 billion over the project’s life and is expected to begin to bear fruits between the next three and six months.
He added that the project is envisaged to achieve an incremental peak production of about 39, 000 barrels per day of liquids and 283 million standard cubic feet of gas per day (mmscf/d) of gas respectively over the life cycle of the asset.
For Project Santolina, Baru said the development of the 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 workovers, while the second phase would focus on medium term activities that would involve further development of EA/EJA fields by drilling 14 new well and three workover ones.
He said 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 boss put the total third-party financing for Project Santolina at $1 billion, inclusive of financing cost of which, he said, co-lending amounted to $420 million with NNPC’s portion of $850 million.
He maintained that Project Santolina would generate about $9 billion of incremental revenue to the Federation Account over the project’s life cycle and a Net Profit Value (NPV) of $5.2 billion over the loan life at eight per cent discount rate.
Baru explained that NNPC’s objectives in securing third-party financing for the two sets of projects aligned with government’s aspiration to increase reserves and crude oil and gas production as well as monetize the nation’s enormous gas resources.
He argued that the financing option underscored the realization of one of the Corporation’s 12 Business Focus Areas (BUFAs) that is: Increasing crude oil and gas reserves and production to support government’s Seven Big Wins aspiration.
Also speaking, Mr. Andy Brown, Shell Global Upstream Director, stated that the alternative funding arrangement was an innovative financing plan that would enable SPDC commence exploration activities hitherto stalled due to funding challenges.
On his own part, Mr. Jeffrey Ewing, Chairman and Managing Director of CNL, 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.

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