In recent weeks, there has been substantial interest in Project Gazelle, a $3.3 billion crude oil pre-payment loan secured by NNPC Limited.
This financing agreement involves prepaying future royalties and taxes to the Federal Government.
To address the numerous questions and prevent speculation, in this article, we will be covering frequently asked questions about Project Gazelle.
Frequently Asked Questions
Q1: How do Crude Oil Forward Sales Financing Agreements Work?
Forward sale financing agreements for crude oil operate as follows:
- An SPV (special purpose vehicle) enters a forward sale agreement with NNPC Limited.
- The SPV obtains financing from a bank based on the agreed forward sale value, often collateralized by future crude oil.
- NNPC Limited utilizes proceeds for operational expenses, production costs, investments, and prepayment of taxes and royalties.
Q2: Why Project Gazelle and Why is NNPC Limited Doing It?
- Project Gazelle is a structured crude oil-backed forward-sale finance facility sponsored by NNPC Limited.
- NNPC Limited sells a predetermined quantity of future barrels of crude oil production in advance, securing upfront payment from an SPV.
- Immediate USD financing for NNPC Limited’s operational needs, including upfront tax and royalty payments.
Q3: How Does This Improve Nigeria’s Foreign Exchange Inflow?
- Upfront funding maintains currency stability, increases foreign exchange reserves.
- Forward-sale contracts provide immediate funding for new projects, contributing to increased oil production and exports.
Q4: Benchmark Price, Earmarked Crude Quantity, and Repayment
- Benchmark Price: $65 per barrel.
- Earmarked Crude Quantity: 90,000 barrels for Project Gazelle.
- Repayment: Varies with oil prices, ensuring repayment even if prices fluctuate.
Q5: Why is the Crude Price Lower than the Market Price?
- Conservative pricing strategy reduces default risk and ensures financial stability.
- Lower prices account for oil price volatility, providing safety for both lenders and borrowers.
Q7: What Happens if Sales Proceeds Exceed Repayment Amounts?
- NNPC Limited repays the loan amount and agreed-upon interest.
- Excess revenue from higher crude prices returns to NNPC Limited.
Q8: How Might Project Gazelle Affect Nigeria’s Credit Rating?
- Positive impact by expanding funding sources and increasing foreign reserves.
Q9 to Q12: Various Impacts and Considerations
- Limited impact on future oil earnings.
- Use of sales proceeds on repayment dates prioritizes financing costs, debt service, and maintaining balances.
Rounding Up
NNPC Limited’s Project Gazelle is a forward-thinking financial strategy aligning operational needs with economic goals.
It secures immediate funding, enhances liquidity, and contributes to Nigeria’s foreign exchange reserves.
With strategic planning, conservative pricing, and tying repayments to future oil sales, Project Gazelle showcases NNPC Limited’s financial acumen. This forward-sale financing balances immediate requirements with long-term sustainability, contributing to Nigeria’s economic stability and growth.
