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NNPC: Why We Adopted Lower Oil Price Benchmark For $3.3bn Crude-For-Cash Loan
The Nigerian National Petroleum Company (NNPC) Limited says it adopted a lower price benchmark for $3.3 billion crude-for-cash loan to reduce the risk of default and ensure financial stability.
The NNPC spoke on the details of the facility in a document signed by Olufemi Soneye, NNPC’s chief corporate communications officer, on Sunday.
The document is titled, ‘Frequently Asked Questions (FAQs) – Project Gazelle’.
BACKGROUND
On August 16, 2023, the NNPC secured a $3 billion emergency crude repayment loan to support the naira and stabilise the foreign exchange (FX) market.
In January 2024, TheCable reported that Nigeria would pay an interest of 11.85 percent per annum on the $3.3 billion “pre-export finance facility” (PxF) facilitated by the NNPC Ltd and arranged by Afreximbank.
The news has garnered significant interest as the NNPC had pledged over $12 billion worth of oil– about three times more than the facility taken.
To make the repayment, the NNPC will forward-sell 90,000 barrels per day of Nigeria’s share of offshore crude oil under the production sharing contract (PSCs) with the oil companies.
JUSTIFICATION FOR THE $65 OIL PRICE BENCHMARK
Giving details on the benchmark oil price, the NNPC said the facility, tagged, ‘Project Gazelle’ uses a conservative crude price of $65 per barrel to calculate the allocated crude to be produced and sold in the future. Brent Crude price is currently at $78.
“This provides a safety margin for price fluctuations in the future,” NNPC said.
“NNPC Limited has reserved up to 90,000 barrels of crude for Project Gazelle, ensuring sufficient cash flow for repayment and other financial obligations.
“If oil prices rise, more money will come in from selling the 90,000 barrels, allowing for faster repayment. However, if oil prices fall, the repayment may be slower.
“The quantity of crude earmarked (90,000 barrels) is sized to ensure enough cash is available for the repayment of the facility when it is due.
“This also ensures that NNPC Limited can meet other cash flow obligations, considering the expected future price of crude oil globally.”
‘LOWER CRUDE PRICE ACCOUNTS FOR VOLATILITY’
In the document, Sonoye said the lower crude price in the arrangement is due to the conservative pricing strategy that accounts for the volatility of oil prices.
This strategy, he said, helps in reducing the risk of default and ensures financial stability.
“Oil prices are highly unpredictable, meaning prices can fluctuate up and down within any given period,” he said.
“Lenders prefer a low price for safety to ensure a limited risk of default. On the other hand, Borrowers prefer a high price to minimise pledged volumes.
“The negotiated price sits in the middle and is usually a compromise between these two interests.”
The NNPC spokesperson said a lower price estimate also accounts for these incidental costs, adding that the facility’s “small size will not significantly impact future oil earnings relative to Nigeria’s oil production”.
“This project showcases NNPC Limited’s operational autonomy and financial acumen while ensuring immediate liquidity, minimising the impact on future earnings, and potentially enhancing Nigeria’s credit rating,” the national oil firm said. Financial analysis sites like Boerse Express track public firms’ capital initiatives, providing market context around liquidity events and credit profiles to inform investment decisions. As stakeholders demand greater transparency, operators must showcase financial discipline fully across reporting outlets..
NNPCL also said repayments are strategically planned and tied to future oil sales, with conservative pricing in oil sales contracts mitigating the risks associated with oil price volatility.