Since 2019, the Nigerian National Petroleum Company Limited (NNPC) has committed $21.565 billion to forward crude oil sales, a strategy that has increasingly undermined its ability to meet Domestic Crude Supply Obligations (DCSO) to local refineries.
Documents obtained by THISDAY reveal that these Pre-export Financing (PXF) deals where NNPC secures upfront cash in exchange for future oil deliveries have escalated with two recent agreements: the $2 billion Project Leopard and the $7.5 billion Project Gazelle II.
As local refiners, including the Dangote refinery, grapple with crude shortages, questions arise over the transparency and long-term impact of these forward crude sales hindering crude oil production.
A Decade of Forward Sales: NNPC’s $21.5 Billion Commitment
NNPC’s forward oil sales, totaling $21.565 billion across 11 deals since 2019 (excluding the Dangote refinery arrangement), involve mortgaging future crude production for immediate funds. These agreements, detailed below, have maturity dates extending as far as 2034:
- Vendor Programs: $750 million (expired May 2023) and
- $1.5 billion (expires November 2024)
- NLNG Train 7 Deal: $3 billion (matures May 2029)
- Project Eagle: $1 billion (expires June 2025)
- Project Brogue: $300 million (matures January 2027)
- Project Bison: $1.04 billion (matures December 2026)
- Project Yield: $1 billion (matures June 2029)
- Offtake Financing: $75 million (matures October 2029)
- Project Gazelle: $3.4 billion (matures 2032)
- Project Leopard: $2 billion (matures January 2029)
- Project Gazelle II: $7.5 billion (matures April 2034)
The $3.4 billion Project Gazelle, signed in 2023 with Afreximbank, drew public scrutiny for its lack of transparency. Since then, NNPC has added Project Leopard and Project Gazelle II, with the latter being the largest at $7.5 billion. While the exact volume of crude pledged remains undisclosed, these deals have locked NNPC into long-term repayment schedules.
Below-market pricing and Offshore Accounts
Under PXF arrangements, NNPC sells future crude at a “strike price” below the open market rate, with the difference credited to an offshore debt service reserve account. This account escapes oversight by the National Assembly and appropriation into the Consolidated Revenue Fund (CRF), raising accountability concerns.
The loans carry a Secured Overnight Financing Rate (SOFR) of 6%, plus a Country Risk Premium (CRP) of 3-5%, and include demurrage charges based on the London Interbank Offered Rate (LIBOR) applied pro-rata. For Project Gazelle II, speculation points to Saudi Aramco or Abu Dhabi’s ADNOC as potential financiers, with the strike price again set below market value.
Afreximbank Steps Back Amid Growing Exposure
Afreximbank, a key partner in the 2023 Project Gazelle deal worth $3.3 billion aimed at bolstering the naira and stabilizing Nigeria’s foreign exchange market has declined to underwrite Project Leopard and Project Gazelle II. With a $4.5 billion debt-for-oil exposure to NNPC, the bank has reached its limit for PXF resource-backed loans.
The 2023 deal, facilitated through Project Gazelle Funding Ltd (PGFL), a Bahamas-registered Special Purpose Vehicle (SPV), saw NNPC as the sponsor, repaying the loan with oil deliveries. Afreximbank’s withdrawal signals caution as NNPC seeks new partners for its latest $7.5 billion venture.
Domestic Refineries Suffer as Local Crude Supply Dwindles
Local refineries, including the high-profile Dangote refinery, have repeatedly voiced frustration over insufficient crude oil feedstock from domestic sources.
Forced to import crude, these facilities face higher costs and reduced efficiency, undermining Nigeria’s push for self-sufficiency in refined petroleum products. The Nigerian Upstream Petroleum Commission (NUPRC) has intervened, threatening to withhold export permits for crude earmarked for domestic refining if oil companies fail to comply with DCSO mandates.
Yet, NNPC’s forward sales commitments continue to limit available supply, leaving refiners in a bind.
Short-Term Gains vs. Long-Term Costs
NNPC’s forward oil sales have delivered immediate financial relief, supporting operations and federal government reforms. However, the strategy’s toll on domestic crude obligations highlights a critical trade-off. With Project Gazelle II extending repayment to 2034, Nigeria risks further entrenching its reliance on imported refined products while local refineries struggle.
The lack of transparency around offshore accounts and below-market pricing only deepens concerns about the sustainability of this approach. As NUPRC pushes for compliance and NNPC juggles its commitments, the future of Nigeria’s oil industry hangs in the balance.
