NNPC obtains loan for Gbaran-Ugbidie project

Cash-strapped NNPC will receive a $1.69 billion loan from its partners Shell, Total, and Agip to develop the Gbaran-Ugbidie oil and gas upstream project in Nigeria's Bayelsa state.

Feb 26th, 2009

Uchenna Izundu
OGJ International Editor

LONDON, Feb. 26 -- Cash-strapped Nigerian National Petroleum Corp., which has struggled to finance its share of joint venture projects, will receive a $1.69 billion loan from its partners Shell Petroleum Development Co., (SPDC), Total SA, and Nigeria Agip Oil Co. (NAOC) to develop the Gbaran-Ugbidie oil and gas upstream project in Nigeria's Bayelsa state.

The field is expected to start production in 2011-12 and at peak will produce 1 bscfd of gas and more than 70,000 b/d of oil.

The companies have signed a modified carry agreement (MCA) covering 2007-10, which sets out the terms and conditions for the loan. The companies will recover their money in cash rather than oil.

NNPC said the deal would allow its partners to take capital allowances as allowed by the Petroleum Profit Tax (PPT) to recover 85% of the principal loan. By taking the allowance, the international oil companies (IOCs) are reducing the taxable profit that they ought to have paid.

"The remaining 15% plus 8% interest would be paid in cash from the increased production from which the investment was made. If for any reason, the oil field where the investment was made could not produce, then payment of the 15% plus 8% interest would be stopped," NNPC added.

Gbaran-Ugbidie oil and gas requires more than 30 new wells and a new central processing facility to treat both oil and gas. SPDC may expand the project and production still in later stages. It will build a 225-Mw electric power plant that the government is building at Gbarain and new gas pipelines, which will underpin electric power generation in the Niger Delta and the Bayelsa State electric power plant at Imiringi. The remaining gas will be transported via SPDC's Eastern Gas Gathering System (EGGS-2) pipeline to Soku, in the eastern Niger Delta. The gas will also supply the gas liquefaction plant at Bonny.

Oil produced from Gbaran-Ugbidie will be exported from SPDC's Bonny crude oil terminal.

According to the draft 2009 budget set by Nigeria President Umaru Yar'Adua, $5 billion for the JVs was proposed, leaving a shortfall of $5.87 billion. The Nigerian government has not kept pace with the growth required in capex in the industry and has allocated funds to other initiatives in its program. NNPC is to be restructured under new legislation so that it can raise money through capital markets, instead of relying on the government.

Mohammed Sanusi Barkindo, NNPC group managing director, described the loan as "very strategic in the nation's quest to develop its various LNG projects. This signing ceremony is coming at a very opportune time when the global economy is under stress. We are happy that the terms and condition of payment are fair to all parties," Barkindo said.

The loan builds upon others that were signed last year with Total, Shell, and ExxonMobil to realize their projects. NNPC, so far, has signed three carry agreements with Shell, valued at $2.4 billion, to cover its share of joint venture projects from 2007-12.

It plans to sign another with Shell and is waiting for the date of the signing, Barkindo said. These MCAs also complement a 2-year, multimillion dollar bridge loan, which will be converted into a long-term loan if is not repaid within that time.

Contact Uchenna Izundu at uchennai@pennwell.com.

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