*OPEC may suspend quotas at Beirut talks
LAGOS — THE Federal Government and oil multinationals operating joint venture agreements in the upstream sector have begun exploring funding options for the over $400million budget shortfall occasioned by the National Assembly’s approval of only $3.2billion for this year's operations.
There are also indications that suspension of OPEC production quotas is an option that may be discussed at a ministerial meeting of the cartel in Beirut, Lebanon next week.
Mr. Philip Nwachukwu, Group General Manager of National Petroleum Investment Management Services (NAPIMS), a subsidiary of the NNPC disclosed that there have been discussions on alternative funding of the budget shortfall.
The NAPIMS helmsman disclosed that most of the multinational upstream oil industry joint venture operators are currently considering gas supply as a way to raise funds to meet the budget shortfall, while others are looking at developing projects they already have underway.
“Mobil is looking at the East area projects. Companies like Shell are looking at their gas development project. For NAOC, it is the same thing. For Elf they are also looking at alternative funding for the Amenam Phase 2 project.
The Amenam/Kpono project was alternatively funded. So, for the Phase 2 also, they would want to look at that as well. These are areas we are looking at and we have not concluded on any of them yet,” he said.
On the alternative funding model to be adopted, Mr. Nwachukwu explained that the Yoho model was the best government has had, adding that it gave government the best advantage at the time it was adopted.
He explained that the Yoho model is the same thing as the ‘carry me’ model which was used for the Amenam field development, pointing out that the alternative funding arrangement is a hybrid which is designed to carry an operator beyond the period of initial capital investment, despite an existing joint venture agreement.
“But after the capital investment, there is the period of pay back and then you fund the normal day-to-day operations through joint venture. So it is a hybrid. But it was done at the time it was first done because there was funding constraint.
That was about 1999 when it started. By 1999 we were able to achieve that in the EA and the Amenam projects and subsequently Yoho. So those are the three that have been presented,” he explained.
On the current state of governments cash call payments to oil industry joint venture operations, the group general manager explained that it was up to date with its payments and that he was looking at a draft of the most recent cash call.
He explained that there was a joint committee including staff of his organisation and the oil companies which considers work programme for each month and examines budget requirements.
“Once it is established, what are the values, they now agree, we say yes this is the value of the cash call. Few months down the road the man comes to account for what you gave him. And so if he spent less than what you gave him and you are satisfied then you knock it off from what you will give him in the future.
“If he spent more, then you give him more. The constraint is that you will not spend above your budget. Life is not like that, sometimes they spend above their budget. But we have only one source of funding; that is through government and through the national budget.
“When they give you money in a year, if the man spends above his budget then you would have to apply whatever he overspent in the next year,” Mr. Nwachukwu said.
While speaking on the possibility of OPEC suspending its quota at the next ministerial meeting, a source explained that this could be one of the available options to send a strong message to the market indicating that the cartel was doing something to curb oil prices.
“OPEC has not ruled out any possible alternative to calm the oil market and curb the oil price. If it takes suspending the quotas, OPEC will seriously consider that. But nothing has been actually discussed formally,” the source said.
On Friday the Wall Street Journal’s European edition disclosed that OPEC could allow each member to put as much oil as it wanted on the market, which would in effect mean a suspension of the output quota mechanism, in order to bring prices back down below 40 dollars a barrel.
The source said that a suspension would not be significantly different from a straightforward increase of production quotas, which total 23.5 million barrels per day, and should not cause any upset, the source argued.
