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Nigerian Oil Misses Goals After Legal Gridlock Deters Investors

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  • Nigerian Oil Misses Goals After Legal Gridlock Deters Investors

When OPEC exempted Nigeria from its plan to cut oil output for the first time in eight years, it highlighted how far Africa’s biggest producer has fallen.

From January to October, just over three wells a month were drilled in Nigeria, down from a monthly average of almost 22 in 2006, according to petroleum ministry data. While output rebounded to 2.1 million barrels a day from the 27-year low in August, that’s just half the government’s goal at the start of the millennium.

While OPEC members try to implement a deal in Vienna next week, Nigerian lawmakers in Abuja must unblock an eight-year legislative impasse that’s seen oil majors from Royal Dutch Shell Plc to Chevron Corp. quit fields in the West African nation. To end the regulatory uncertainty, Nigeria needs to set tax rates that spur investment in a stagnating deep-water sector and address unrest that has disrupted production in the Niger Delta.

“Any business requires clarity on the operating environment before committing to investments,” said Pabina Yinkere, an energy analyst and head of research at Lagos-based Vetiva Capital Ltd. “The uncertainty surrounding the passage of the petroleum industry bill definitely stalled possibly hundreds of billions of dollars commitments on many projects.”

Since the oil bill was first sent to Nigerian lawmakers in 2008, international producers have sold at least $5.2 billion of assets to local companies. Most of those sales came before oil prices slumped in mid-2014.

Officials at Shell, Exxon Mobil Corp., Chevron, Total SA and Eni SpA declined to comment on the impact of regulatory uncertainty on their operations. Oil majors in joint ventures with state-owned Nigerian National Petroleum Corp. pump about 80 percent of the country’s oil.

Regulatory Uncertainty

The lack of clarity “was one of the main contributory factors behind divestments by Shell, Chevron and ConocoPhillips,” said Antony Goldman of London-based PM Consulting, which advises on risk in West Africa’s oil and gas industry. “No other international company, including the Chinese, were among the buyers.”

Nigeria has been granted an exemption from OPEC’s supply-management plan after output fell as low as 1.39 million barrels a day in August, following attacks by militants on oil pipelines supplying the Forcados, Qua Iboe, Brass River and Bonny export terminals. The conflict, combined with lower oil prices, has blighted the economy which is heading for its first full-year recession in 2016 since 1991, according to the International Monetary Fund.

While exacerbated by low prices and violence in the Niger Delta, the decline in the nation’s oil industry goes back more than a decade as investors reined in exploration, said Goldman. Nigeria’s crude reserves have dropped to less than 32 billion barrels from 37 billion barrels 15 years ago, and far short of a 2010 target for 40 billion barrels, according to Yinkere.

Lost Investment

Nigeria may have lost $200 billion in investment, according to the Abuja-based Nigeria Extractive Industries Transparency Initiative.

Even recent discoveries, such as Exxon’s 1 billion-barrel deep-water asset last month, largely reflect old efforts paying off in a part of the Gulf of Guinea known for its prodigious prospects, said Yinkere.

President Muhammadu Buhari, who promised to end the legislative logjam after winning elections last year, has yet to present a new draft of a bill that would end squabbling among regions over the distribution of revenues.

In December, frustrated lawmakers will push a private-members bill to address oil company concerns over proposals to increase tax rates on offshore fields from 50 percent, Senate President Bukola Saraki said in a Nov. 10 interview in Abuja.

“We have to engage with the operators, hear their views and also look at Nigeria’s interest from our revenue point of view,” Saraki said. “We can’t dictate as government, a take-it-or-leave-it approach. It has to be a win-win.”

Emmanuel Kachikwu, Nigeria’s minister of state for petroleum, has said he’ll work with the Senate to ensure the reform bill is passed in the next year.

Without the law and clear “contractual terms” for operators, Nigeria won’t reverse the decline in its oil industry, according to Goldman. “In eight years the bill has gone through many forms and no one knows when that’s going to end.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Seplat Energy Plc Records $535 Million in Revenue in the First Nine Months of 2021

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Seplat Energy Plc - Investors King

Seplat Energy, a leading Nigerian independent energy company listed on both the Nigerian Exchange Limited and the London Stock Exchange, recorded $535 million in revenue in the nine months that ended 30 September 2021.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) stood at $266.4 million while cash realised from operations was $163.8 million, the company stated in its unaudited financial statements for the period.

Total expenditure for the period was $83.9 million. Cash at the bank was estimated at $273.9 million and the energy company posted $479.8 million as net debt. See other details below.

Operational highlights

  • YTD working-interest production of 47,280 boepd down 6.7% year on year largely as a result of the shut-in of the Forcados Oil Terminal (FOT) in August (Q3: 40,381 boepd)
  • Liquids production down 16.6% year on year at 27,804 bopd, recovering to 33kbopd liquids in October
  • Gas production up 13% to 113 MMscfd, despite FOT impact on associated gas
  • Completed two gas wells and three oil wells in the period, new Gbetiokun wells performing strongly

Financial highlights (9M 2021)

  • Revenue after adjusting for an underlift was $535 million
  • EBITDA of $266.4 million
  • Cash generated from operations $163.8 million
  • Cash at bank $273.9 million, net debt of $479.8 million
  • Total capital expenditure of $83.9 million
  • Interim dividend of 2.5 cents ($0.025)

Corporate updates

  • Name changed to Seplat Energy Plc to reflect new strategic vision outlined in July; new branding launched in October
  • Acquisition of Cardinal Drilling rigs for $36 million and cessation of legal proceedings by Access Bank Outlook for 2021
  • Expected production narrowed to 48-50 kboepd for full year, subject to market conditions
  • Amukpe-Escravos Pipeline (AEP) commissioning has commenced, oil flow expected in December 2021
  • Capex now expected to be $167 million for the full year
  • ANOH project remains on track for first gas in H1 2022

Commenting on the financial statements, Roger Brown, Chief Executive Officer, said: “Production has recovered strongly since the outage at Forcados Oil Terminal (FOT) and we have been averaging nearly 33kbopd liquids throughout October. Now that production has normalised, we expect production to be in the range 48-50 kboepd for the year, provided uptime on the Forcados Pipeline and FOT remains above the budgeted 80%. I’m pleased to report that our new wells at Gbetiokun are performing strongly, and we will soon commence drilling the exciting Sibiri prospect on OML40.

“We have taken the difficult, but practical decision to bring an end to the uncertainty of the Access Bank legal dispute regarding Cardinal Drilling Services, which completes the Board-mandated removal of Related Party Transactions.

“Although we maintain our previously stated position that legal action against the Company was wholly without merit, the risk of significant disruption to our operations and other opportunities from a long, drawn-out legal case brought us to a negotiated settlement with Access Bank. We have therefore acquired the four Cardinal rigs and we are now focusing on fast tracking their deployment in future drilling campaigns. `

“Our business model is robust, despite setbacks in the third quarter, thanks to the prudent and flexible approach we have taken to managing the business. With an increased focus on efficiency in our operations, improving uptime by opening up the Amukpe to Escravos Pipeline and driving further cost reduction across our portfolio, this will provide the bedrock allowing us to operate effectively in fluctuating commodity prices and generate returns for shareholders. I am optimistic that the coming year will be much stronger, with many of the problems of the past put behind us.

“After we set out our future strategy in July’s Capital Markets Day and launched our new corporate name of Seplat Energy plc, complete with its new branding, we are now focusing on building out and executing the energy transition that is right for Nigeria. A strong step forward will be when we bring on stream the ANOH project next year delivering more transition gas to an energy poor market, over reliant on expensive, high carbon-emitting electricity generated from small-scale diesel and PMS generators. Our three-pillar strategy is designed to ensure we balance carbon emission reduction with the essential social agenda for undeniably the most under-electrified, youngest and fastest growing population on earth.”

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Crude Oil

Crude Oil Drops on Wednesday as U.S. Oil Inventories Jump Unexpectedly

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Crude oil - Investors King

Global oil prices fell by 1 percent on Wednesday after data from the U.S. Energy Department showed that the United States oil inventories unexpectedly rose by 4.3 million barrels last week. More than the 1.9 million barrels predicted by experts.

The unexpected increase in United States inventories weighed on crude oil prices on Wednesday, erasing $1.31 or 1.5 percent from Brent crude oil after it rose to a seven-year high on Tuesday. While the U.S West Texas Intermediate (WTI) dipped by $1.09 or 1.3 percent to $83.56 a barrel.

Still, gasoline stocks declined by 2 million barrels across the United States, a situation likely to push pump prices even higher.

“The market continues to deplete Cushing crude oil inventories and that is impacting the Brent-WTI spread and ultimately we’re going to see crude oil diverted from the Permian up to Cushing rather than going to the Gulf Coast,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

However, the shaky COVID-19 recovery in most economies has led to doubts over the sustainability of rising oil prices.

“(Some) countries are falling into an autumn Covid-19 case spike,” said Louise Dickson, senior oil markets analyst at Rystad Energy, “which poses downside risk for oil demand growth in the very near-term and could provide a soft pressure on oil prices.”

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Crude Oil

Brent Crude Oil Extends Gain to $86.66 a Barrel Amid Tight Supply

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Brent crude oil - Investors King

Tight global oil supply pushed Brent crude oil, against which Nigeria oil is priced, to a multi-year high of $86.66 per barrel on Monday at 3:30 pm Nigerian time.

Oil price was lifted by rising fuel demand in the United States and tight global supply as economies recover from pandemic-induced slumps.

The global energy supply crunch continues to show its teeth, as oil prices extend their upward march this week, a result of traders pricing in the ongoing rise in fuel demand – which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy.

Goldman Sachs on the other hand is predicting a further increase in Brent crude oil to $90 a barrel, citing a strong rebound in global oil demand due to switching from gas to oil. This the bank estimated may contribute about 1 million barrels per day to global oil demand.

The investment bank said it expects oil demand to reach around 100 million barrels per day as consumption in Asia increases after the devastating effect of COVID-19.

While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast,” Goldman said in a research note dated Oct. 24.

Earlier this month, the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+ agreed to continue increasing oil supply by 400,000 bpd a month until April 2022 despite calls for an increase in global oil supplies.

The decision bolstered the price of Brent crude oil above $84 per barrel and expected to push the price even further to $90 a barrel. Low global oil supply amid rising demand for crude oil will continue to support oil prices in the near term.

Despite the recent power cuts and impacts to industrial activity in China, oil demand is likely instead supported by switching to diesel powered generators and diesel engines in LNG trucks, as well as by a ramp up in coal production,” Goldman Sachs stated.

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