The new head of the NNPC, Funso Kupolokun, has admitted that the company cannot finance its share of development costs on joint ventures (JVs) with the oil majors and so additional investors may be sought. Yet rather than highlighting a sign of weakness in one of Nigeria's most important parastatals, this could be a sign of a greater level of realism at the top of the industry.
Exploration and development plans drawn up by Shell, ChevronTexaco, Exxon-Mobil, Eni-Agip and TotalFinaElf for the coming year require investment of $6.5bn, of which the NNPC is required to provide 57% under the terms of its JV contracts.
However, the government has allocated only $3bn to fund the NNPC's cash call for the year, leaving a shortfall of $700m. Higher government social spending in the run-up to the last election has prompted the federal government to tighten its belt in the face of falling reserves of foreign currencies.
The shortfall may result in the NNPC and foreign oil companies having to prioritise development plans but the government will undoubtedly be disappointed if any projects are postponed: the development of oil fields is required to maximise oil revenues in the years to come. Moreover, gas projects comprise a large proportion of this year's investment plans and Abuja is committed to eliminating flaring.
The NNPC has held talks with the majors on how to fund the corporation's share of development investment over the course of this year and beyond.
The NNPC's stakes in the JVs-and therefore also the government's interests-are held by NNPC subsidiary National Petroleum Investment Management Services (NAP-IMS), but it has been the NNPC itself that has led the negotiations.
One option is for the majors to make up the shortfall, probably through taking a larger share of the JV equity. The main alternative would be for the NNPC to seek loan funding, which could be guaranteed by the foreign oil partners. Future oil contracts will almost certainly take the form of production sharing contracts (PSCs), under which the foreign firms are required to fund development work in full.
It will be interesting to see to what extent the financial solutions reached are actually made public. Under the new Extractive Industry Transparency Initiative, the NNPC is expected to publicise its financial dealings.
The government also hopes to make information on the country's oil and gas reserves more accessible and is...