OML 65: FG targets fresh $6.35bn taxes, royalties

The Federal Government, yesterday, declared its plan to increase royalty and taxes from the oil sector with a fresh $6.35 billion.

The government declared this through the Nigerian National Petroleum Corporation (NNPC), maintaining that the target would be met through the expansion of Oil Mining Lease (OML) 65.

The corporation announced the closure of $875.75 million alternative financing deal for the Nigerian Petroleum Development Company (NPDC) operated OML 65 through the funding and technical services agreement with CMES-OMS Petroleum Development Company (CPDC).

A statement from the NNPC said that the Chief Financial Officer, Mr. Umar Ajiya, disclosed that the project, which scope cuts across exploration, development, production and provision of facilities with incremental first oil targeted for Q4 2020, was estimated to have potential reserves of 800 million barrels of oil equivalent (mboe) with an ultimate recoverable reserve of 244mboe and cumulative production of 44mboe from the Abura Main and Abura SE fields.

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Ajiya explained that, “over the project’s life, it was expected to generate over $6.35 billion in taxes and royalties to the federation to support government’s medium to long term economic development agenda,” the statement issued by the Group General Manager, Group Public Affairs division, NNPC, Ndu Ughamadu, read.

Speaking at the closing meeting with the financing partners in Dubai, United Arab Emirates, Ajiya described the contract financing model as an innovative approach by NPDC to funding its operations in response to the challenging economic environment, saying the approach would fast-track the development of NPDCs’ under-developed assets.

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He informed that the project was expected to ramp up production at OML 65 from 900barrels per day to 60, 000 barrels per day with an average production over field life at 40,000 barrels per day.

Throwing more light on the financing strategy, the CFO explained that the package entailed comprehensive financing solution that addresses the complex issues involved in growing NPDC’s production, minimises its cost of capital, and maximises its value preservation, adding that it also strikes a balance between risk and reward, which gives investors a rate of return that is commensurate with funding a brownfield project that has significant exploration risk.

He said the expectation was that this collaboration between NPDC and CPDC would translate in real terms into efficient execution of scope of activities for the optimal development of the OML 65 asset within cost and schedule, whilst maximising value to all the stakeholders.

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He said it was projected that the collaboration would enhance operational and financial performance strictly guided by the pre-agreed Key Performance Indicators (KPIs), which remains critical to determining incentive payment due to CPDC.

On CPDC’s right to provide technical services, the CFO listed the field of consideration in this regard to include drilling and completion services, building capacity and technology transfer, generating employment opportunities for youths with attendant positive multiplier effect on the nation’s economy, among other considerations.

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