The Nigerian National Petroleum Company Limited (NNPCL) has earmarked 272,500 barrels per day to pay off $8.86 billion in rude-for-loan deals.
The 272,500 barrels per day connotes that about 8.17 million barrels of crude oil will be the wager to service the portion of NNPCL debt exposure monthly – according to a Nigeria Extractive Industries Transparency Initiative (NEITI) report analysis and the NNPCL’s financial statements.
Projects the deal covers include Project Panther, Project Bison, Project Eagle Export Funding (Original, Subsequent, and Subsequent 2 Debts), Project Yield, and Project Gazelle.
Notably, the NNPCL has repaid $2.61bn in loans, representing 29.4 per cent of the total credit facility, while $6.25bn or 70.6 per cent is outstanding.
Furthermore, of the $8.86bn credit facility, about $6.97bn was received from the seven crude-for-loan deals.
Regarding the projects the loan serves for implemnetation, ‘Project Panther’ is a Joint Venture (JV) between NNPC and Chevron Nigeria Limited financed by both international and local banks.
The project is financed with a $1.4bn loan facility, and 23,500bpd pledged to service the debt. Repayment is commences after a moratorium, with financing terms including an SOFR (Secured Overnight Financing Rate) plus 5.5 per cent margin and a liquidity premium.
Another, ‘Project Bison’, tied to NNPC’s attempt to acquire a 20 per cent equity stake in the Dangote refinery. However, the national oil company only acquired a 7.25 per cent stake.
The project secured a $1.04bn loan from Afrexim Bank, with 35,000 bpd pledged as collateral. NNPC fully repaid this loan in June 2024.
‘Project Eagle’ Export Funding comprises three separate loans aimed at meeting various financial obligations. The original loan, secured in 2020 for $935m, was serviced with 30,000 bpd and was fully repaid by September 2023.
A subsequent loan of $635m was also fully repaid by the same period. The third tranche, known as Project Eagle Export Funding Subsequent 2 Debt, was secured in 2023 for $900m, with 21,000 bpd pledged. Repayment is scheduled to begin in June 2024, and the loan will mature in 2028.
‘Project Yield’, designed to support the Port Harcourt Refining Company, involves a $950m loan, with 67,000 bpd pledged for repayment.
The repayment of the loan, secured in 2022, will begin in December. This seven-year facility is crucial to refurbishing the refinery and enhancing domestic refining capacity.
However, despite this crude-for-loan arrangement, The PUNCH reports that fuel production at the Port Harcourt refinery has yet to commence, despite multiple postponements as of August. Promises from the Federal Ministry of Petroleum Resources and NNPC have repeatedly fallen through.
More recently, there was the Project Gazelle deal, which aimed to stabilise Nigeria’s foreign exchange market.
In December 2023, NNPC secured a $3bn forward sale agreement, pledging 90,000bpd from Production Sharing Contract assets to cover future tax and royalty obligations.
As of the end of 2023, $2.25bn had been drawn from this facility, with repayments scheduled to begin by mid-2024. These crude-for-loan deals come at a time when Nigeria is struggling to boost its oil production.
The NEITI 2022-2023 report revealed a significant decline in crude oil output, reaching the lowest levels in a decade. In 2022, the country produced 490.94 million barrels of crude oil, a steep drop from the peak of 798.54 million barrels in 2014. Although production slightly improved to 537.57 million barrels in 2023, this still represents only 67.16 per cent of the country’s peak production capacity. One of the major challenges facing the sector is production deferment. In 2023, Nigeria deferred 110.66 million barrels of crude oil, down from 153.44 million barrels in 2022.
The deferment was due significantly to unscheduled maintenance, repair issues, and oil theft. Despite government efforts to curb these issues, including initiatives to reduce theft and sabotage, operational inefficiencies persist.
NEITI reported that oil theft and sabotage resulted in the loss of 5.25 million barrels in 2023, exacerbating production struggles. The House of Representatives Special Joint Committee recently directed NNPC to halt further crude-for-loan agreements.
This directive follows reports that the company is planning to borrow an additional $2bn in oil-backed loans amid efforts to settle a $6bn backlog owed to international oil traders, particularly following the removal of fuel subsidy.
Previously, the NNPCL was in talks for another oil-backed loan to boost its finances and allow investment in its business, according to the Group Chief Executive Officer, NNPC, Mele Kyari.
Kyari said the company wanted the new loan against 30,000-35,000 barrels per day of crude production, though he declined to say how much money it sought.
Nigeria’s government finances rely on oil the NNPCL exports, which provides the bulk of crucial foreign exchange reserves. However, pipeline theft and years of underinvestment have sapped oil production in recent years, and the cost of fuel subsidies has further depleted cash reserves.
NNPCL announced that it had secured a $3.3bn emergency crude oil repayment loan from the African Export-Import Bank – saying at the time that the oil company would use the loan to support the Federal Government in stabilising Nigeria’s exchange rate.
Currently, President Bola Tinubu is still working to firm up NNPCL reforms like the removal fuel subsidies and allowing the naira currency to trade close to market levels without increasing Nigerians’ high cost-of-living burden.
