What happens to Nigeria’s 3m bpd plan as OPEC cuts loom large?

We have today cumulative number of projects that are coming back, which should, between now and next year, give us additional 700,000 barrels, over and above the 2.2 million bpd. That is why I can say with confidence that we are in a position to move up to 3 million barrels quickly,’ said Ibe Kachikwu, minister of state for petroleum resources at the last Offshore Technology Conference in Houston, USA this year.

But this increasingly looks like a mirage as the threat of an OPEC cut looms large in the horizon. In May this year, Ibe Kachikwu said in an interview shortly before Nigeria joined other OPEC members to review the 1.8m bpd cuts agreed the previous year, that Nigeria was not averse to joining the cuts but should be allowed to get back the production it lost due to disruptions to its supply.

Part of the strategy conceived by the country to get back previous production is to address the concerns of the militants in the creeks of the Niger Delta carrying out a destructive bombing campaign while at the same time removing obstacles to production that are caused by poor policy implementation.

One key area that was addressed is exiting Nigeria from cash call debt obligation. Cash call basically refers to the amount the Federal Government is required to pay or remit as its own share of production costs to facilitate the production of crude oil in partnership with some IOCs namely: Shell, Chevron, NAOC, ExxonMobil, and Total, also called Joint Venture partners.

NNPC had been unable to settle its own production cost for the past six years and the arrears stood at $6.7 billion by 2016. The deputy minister of petroleum resources led a team that included the NNPC GMD, Maikanti Baru in negotiations with the IOCs who had virtually declared a moratorium on new projects and were no longer keen on meeting their own obligations in the arrangement.

The negotiations led to the IOCs agreeing to trim down the arrears to $5.1 billion, knocking off $1.6 billion, and the repayment period was spread over five years. As an alternative to the Cash call, the parties agreed that the Federal Government will continue to receive royalties, taxes and profit from its equity share of JV oil and gas production, while the cost of operations will be deducted upfront.

It was further agreed that the outstanding cash call arrears will be repaid within a period of five years through incremental production revenues without prejudice to the already agreed production figures.

But these arrangement looks set to be affected as grumblings from OPEC members is to the effect that Nigeria and Libya should be brought into the supply cap deal if production reaches 1.8m bpd.

Last week, Russia and Venezuela were openly pushing for Nigeria to be brought into the cuts as oil producers desperately sought to shore up oil prices that have remained bearish despite disruptions to shale production by Hurricane Harvey. Oil prices have become so low, it did not even respond well to a good hurricane.

This current situation will test Kachikwu’s negotiation skills as never before because the stakes are a lot higher. Nigeria is just emerging from a bruising recession on account of recovering production, (despite all pretences about diversification), its 2017 budget is being funded 70 percent by debts, university teachers and doctors are on strike over unpaid wages and ridiculously expensive elections are around the corner.

To argue its case logically, Nigeria has to separate its national production from those agreed to pay cash call debt arrears even as it should strongly insists that the basis for a negotiation about joining the cuts is if it surpasses 2017 budget benchmark of 2.2million bpd. Yet, the road to 2.2m bpd looks bumpy with regulatory and fiscal policy inadequacies which continue to fester because the country has refused to grow balls in order to tackle the menace.

ISAAC ANYAOGU