Western Oil Companies Reach $5bn Deal With Nigeria … Shell, Exxon, Eni, Chevron And Total Involved In Settlement Over Joint Venture Costs

Nigeria has reached an outline settlement to resolve a protracted dispute with western energy companies, under which the groups will be paid $5 billion to cover exploration and production costs in Africa’s biggest oil-producing nation.
Royal Dutch Shell, ExxonMobil, Eni, Chevron and Total have signed deals relating to this settlement of costs incurred between 2010 and 2015, as they also seek to forge new financing arrangements for their joint ventures in Nigeria.
The settlement, which would be a haircut on the $6 billion-plus the western companies claim they are owed by Nigeria, needs the approval of two government bodies and final sign-off from president Muhammadu Buhari.
Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, told the Financial Times the settlement had been “accepted” by the five companies. It is hoped the deal can be finalised before the end of the year.
Western energy companies have taken the lead role in pumping crude from Nigeria, but they have done so in joint ventures with the Nigerian National Petroleum Corporation, the state-controlled oil group.
Exploration and production costs are supposed to be split in the partnerships between the two sides, but western companies have accused NNPC of failing to pay its portion of the expenses, and this has prompted the groups to hold back on vital investment.
NNPC has repeatedly queried the amounts it owes the western companies, but the settlement is an attempt to draw a line under the dispute.
Aside from security concerns in the Niger delta oil hub, this has been the biggest single hindrance to exploration and production.
Oil is the backbone of Nigeria’s economy, and the country has been hit hard by the collapse in crude prices since mid-2014.
The joint ventures between the western energy companies and NNPC are a major contributor to the country pumping more than 2m barrels a day, most of which is exported.
In the past, the western oil companies have had to claim the money they were owed for costs run-up in the partnerships from federal government accounts that were also used to fund state spending, meaning payments were often delayed in times of crisis.
Nigeria’s financial obligations to the joint ventures, known as “cash calls”, have long been a problem but are now viewed by the government as a particular burden as the country’s economic crisis bites.
According to Mr Kachikwu and people close to the western companies, the $5bn of payments will be made in the form of barrels of new crude production over the next five years.
The settlement also addresses $1bn the western companies say is due from NNPC for costs incurred this year in the joint ventures. The groups are expected to receive a one-off cash payment from the Nigerian government to cover this amount.
People close to the western energy companies and NNPC said both sides have agreed in principle to new financing arrangements, starting next year, that involve the setting up of an escrow account for each joint venture, from which costs can be recovered and taxes paid to the state.
Kemi Adeosun, Nigeria’s finance minister, said changing the financing model was critical to pulling the country out of recession. “We are already working to see how we can get out of the cash calls,” she said in September.
People close to some of the five western companies said they could not rule out Nigerian government bodies preventing a final settlement.
Shell, Total, Exxon and Chevron declined to comment. Eni did not immediately respond to requests for comment.

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