Fresh facts seen by BusinessDay have unveiled the length at which Nigerian National Petroleum Company (NNPC) Ltd went to secure a $3.2 billion loan from the African Export-Import Bank (Afrexim).
This unique financing arrangement, dubbed “Project Gazelle,” is structured as a Special Purpose Vehicle (SPV)-based Prepayment Facility (PXF), backed by a crude oil allocation from the royalties and tax entitlements of the Nigerian government, a first of its kind in Africa’s biggest economy.
“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.
Under PSCs, the companies usually pay royalties and taxes by giving the oil equivalent to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS) respectively.
The NNPC in turn exports the oil on behalf of NUPRC and FIRS and remits the proceeds to the agencies.
This is part of the revenues paid into the federation account and shared by the three tiers of government.
However, under the PxF, the revenue from future oil production will be used to service the loan in the next five years.
“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.
BusinessDay learned the collateral for the loan was based on barrels per day of crude oil from Nigeria’s royalties and tax entitlements which was structured based on prepayment for future deliveries through Forward Sale Agreements (FSAs).
“Up to 90 percent of excess cash (“Price Balance”) will be released to the Sponsor’s nominees’ accounts with the CBN, while 10 percent will go towards the prepayment of the facility,” the document said.
Further findings showed the repayment is expected to be over 57 months through equal quarterly instalments after a 3-month grace period while invitation for off-taker participation was pegged at a minimum ticket of $500 million
According to the Afreximbank-NNPC document, the loan facility was premised on NNPC Ltd recording an average liquid production of 528, 000 barrels of oil per day in 2021, which accounted for over 32percent of Nigeria’s total liquid production while the average gas production was 454,000 bpd, over 55 percent of Nigeria’s total gas production.
The document also showed NNPC Exploration and Production Limited (NEPL), a 100 percent wholly owned subsidiary of NNPC Ltd, had an average liquid production of 137, 000 bopd in 2021, accounting for over 8 percent of Nigeria’s liquid production while the average gas production was 124, 000 boepd, forming 15 percent of Nigeria’s total gas output.
“NNPCL’s contribution to Nigeria’s total liquid production is to increase from 32% to over c.40% by 2028,” the document said.
It also acknowledged an independent review which showed the upcoming production reserves that are under development comprise around 150 million barrels of crude that is split 46:54 between Independent Oil Company and indigenous production.
“NNPC Ltd is expected to receive an average net production entitlement of between 520,000 and 550,000 barrels of crude oil per day till at least 2027,” the document said.
The document also noted that there are no historical defaults by NNPC in any structured trade finance transactions.
NNPC Ltd had announced in August 2023 that the loan facility from Afreximbank was to support the federal government “in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market”, describing it as “a relief for the naira”.
It called the facility “crude oil repayment” with an upfront cash loan “against proceeds from a limited amount of future crude oil production”.
In the official market at the time, a dollar was worth, on average, N775 and, on the streets, N885.
As of January 4, 2023, the rates have changed to N1,035/$ (official) and N1,230/$ (parallel).
Nigeria’s outstanding forex liabilities are currently estimated at over $7 billion, according to findings by BusinessDay.
In an explainer after announcing the deal last year, the NNPC Ltd said its exposure is very limited, “covering just a fraction” of their entitlements and that “there are no sovereign guarantees tied to it”.
It said it “will also equip the Federal Government with the necessary dollar liquidity to stabilize the Naira, with limited risk”.