According to recently obtained information obtained by BusinessDay, the Nigerian National Petroleum Company (NNPC) Ltd. went to great lengths to obtain a $3.2 billion loan from the African Export-Import Bank (Afrexim).
The financing arrangement known as "Project Gazelle" is a first of its kind in Africa's largest economy. It is designed as a Prepayment Facility (PXF) based on a Special Purpose Vehicle (SPV) and is supported by a crude oil allocation from the royalties and tax entitlements of the Nigerian government.
“The facility is uniquely backed by Production Sharing Crude (PSC) i.e. (Federation) Royalty and Tax Oil (1st of its kind),” a document detailing the deal between NNPC and Afrexim said.
In PSCs, the companies typically pay taxes and royalties by delivering the equivalent oil to the Federal Inland Revenue Service (FIRS) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), respectively.
On behalf of NUPRC and FIRS, the NNPC exports the oil and sends the money received back to the organizations.
This is a portion of the money that the three levels of government split and paid into the federation account.
But under the PxF, the loan will be repaid over the course of the following five years with money from future oil production.
“The objective is to use a structure that bridges the financing gap by making a prepayment for future deliveries of crude oil under Forward Sale agreements (FSAs) in line with the agreed crude oil allocation/delivery quantities,” the document added.
According to information obtained by BusinessDay, the loan's collateral was barrels of crude oil per day from Nigeria's royalties and tax entitlements, with the arrangement being based on advance payment for upcoming deliveries through Forward Sale Agreements (FSAs).
According to the document, "up to 90% of excess cash (the "Price Balance") will be released to the Sponsor's nominees' CBN accounts, with the remaining 10% going toward the facility's prepayment."
Additional research revealed that there would be a three-month grace period before the repayment is anticipated to be made in equal quarterly installments over a period of 57 months, with a $500 million minimum ticket requirement for off-taker participation.
The loan facility was predicated on NNPC Ltd. recording an average liquid production of 528, 000 barrels of oil per day in 2021, which accounted for over 32% of Nigeria's total liquid production, and an average gas production of 454,000 bpd, or over 55% of Nigeria's total gas production, according to the Afreximbank-NNPC document.
The report also revealed that in 2021, NNPC Exploration and Production Limited (NEPL), a fully owned subsidiary of NNPC Ltd., produced an average of 137, 000 bopd of liquid, or more than 8% of Nigeria's total liquid production, and 124, 000 boepd of gas, or 15% of the country's total gas output.
“NNPCL’s contribution to Nigeria’s total liquid production is to increase from 32% to over c.40% by 2028,” the document said.
It also recognized an independent assessment that revealed the next production reserves under development contain about 150 million barrels of crude, divided 46:54 between indigenous production and Independent Oil Company.
“NNPC Ltd is expected to receive an average net production entitlement of between 520,000 and 550,000 barrels of crude oil per day till at least 2027,” the document said.
The document also stated that NNPC has never defaulted on any structured trade finance transaction in the past.
Declaring the loan facility from Afreximbank to be "a relief for the naira," NNPC Ltd. had stated in August 2023 that it would assist the federal government "in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market."
With an upfront cash loan "against proceeds from a limited amount of future crude oil production," the facility was dubbed "crude oil repayment."
A dollar was worth, on average, N775 in the official market at the time, and N885 on the streets.
The rates are now N1,035/$ (official) and N1,230/$ (parallel) as of January 4, 2023.
According to BusinessDay's research, Nigeria's outstanding foreign exchange liabilities are currently estimated to be worth over $7 billion.
The NNPC Ltd. stated in an explainer following the announcement of the deal last year that "there are no sovereign guarantees tied to it" and that its exposure is extremely limited, "covering just a fraction" of their entitlements.
"It will also provide the Federal Government with the required dollar liquidity to stabilize the Naira, with minimal risk," the statement stated.
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