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Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

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Pipeline Vandalism
  • Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

Nigerian President Muhammadu Buhari’s government on March 7 proposed a plan to jump start the economy by, among other things, selling stakes in joint-venture oil projects within the next three years. Given a militancy escalation that blighted those very assets last year, and previous struggles to privatize state businesses, analysts inside and outside the west African country say such sales won’t be straightforward.

“Nigeria’s track record on privatization and divestments has not exactly been the best, so people are probably going to greet this news with a certain degree of skepticism and I think rightly so,” Manji Cheto, a West Africa specialist at Teneo Intelligence in London, said by phone. “I don’t think this is going to be a process that’s speedy.”

Normally Africa’s biggest producer, Nigeria has been among the world’s hardest-hit supplier nations over the past year due to the militant attacks that crushed its output while prices remained half what they were in mid 2014. At the same time, its reduced flows have helped limit a global crude glut, bolstering OPEC and other nations dependent on revenue from selling the commodity.

The oil ministry and Nigeria National Petroleum Corp. didn’t respond to multiple calls and emails requesting comment.

Smaller Stakes

The oil asset-sale plan starting this year through 2020 would reduce the average 55 percent stake Nigeria holds in joint ventures with Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90 percent of its crude.

Previous privatizations included power assets, a process that Nigerian Senate President Bukola Saraki said in February had “failed” to improve domestic access to power as planned. In 2010, the West African nation halted the sale of Nigerian Telecommunications Ltd., also known as Nitel, and opted to liquidate the company after failing to find a buyer for the former monopoly. It’s also struggled to secure outside investment in its refineries.

The government has traditionally been reluctant to sell crude assets. Existing plans aim to increase oil production to 2.5 million barrels a day by 2020 after falling to about 1.4 million last year, the lowest level in almost three decades. Such an increase could boost government revenue by 800 billion naira ($2.53 billion) annually and fund a revamp of domestic refineries. Lowering its stakes would diminish any windfall from a recovery in output and prices.

Unwilling Seller

“Many within the government do not really want to let go of oil assets, but the current reality may be slowly beginning to change that thinking,” said Cheta Nwanze, head of research at Lagos-based risk advisory SBM Intelligence. “This proposal represents an adjustment to a new economic normal and not a glowing embrace of market forces.”

Nigeria’s militant threat hasn’t gone away, either. While the government has stepped up engagement with community leaders and proposed restoring the budget to pay former fighters, the Niger Delta Avengers threatened earlier this year to widen attacks. The group was responsible for most pipeline sabotage last year.

The African country is also part way through five years of $5.1 billion in payments — in the form of crude sales — to oil companies to reimburse them for past operating costs.

“I imagine international oil companies will treat any additional equity stakes offered to them with a healthy dose of caution given the severe production disruptions of 2016 and the fact that the NNPC still owes substantial sums to their venture partners,” said Charles Swabey, an oil and gas analyst at BMI Research.

Good Assets

Nigeria reducing its average stake to 40 percent from 55 percent would be seen as ideal for the government, Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital Management, said in an interview.

The partner companies will receive the right of first refusal in any sale of the stakes, according to Nwanze from SBM Intelligence. International oil companies built up the stakes they have today from the late 1970s to the 1990s. So there is precedent for offloading such assets.

“The JV assets are good assets,” Yinkere said. “Nigerian buyers may be few this time around due to funding as many local banks will not be so willing to lend toward this. We could see healthy foreign appetite for the sale, particularly from China and India.”

But while Nigeria thinks about loosening its grip on the assets, a rebound in crude oil prices could still cause the sale to go the way of previous divestment plans.

“The need to increase government income is the primary motivation for these new proposals, and a return to the good times of higher oil prices and normal Nigerian production will be a formidable disincentive,” Nwanze said.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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