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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.

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.

Markets

Global Markets Near Record Peaks and Will Get Stronger: deVere CEO

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Stocks

As the FTSE 100 hits 7,000 points for the first time since the Covid pandemic, global stock markets are poised to “get even stronger”, says the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The observation from Nigel Green, the chief executive and founder of deVere Group, comes as London’s index jumped over the important threshold in early trading in London, gaining over 0.5% to 7024 points.

Mr Green notes: “London’s blue-chip index is up 40% since the worst lows of the pandemic.

“This landmark moment represents the wider optimistic sentiment gripping global markets which are near record peaks.

“We can expect global stock markets to get even stronger as investors look to seize the opportunities from economies reopening.

“They are looking towards economies rebounding in a post-pandemic era due to the monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.

“The current ultra-low interest rate environment and the under-performance of bonds will also act as a catalyst for stock markets.”

However, the CEO’s bullish comments also come with a warning.

“I would urge investors to proceed with caution as there are some headwinds on the horizon, including relations between the U.S. and China, the world’s two largest economies, which could be coming to a tipping point in coming weeks.

“As such, in order to capitalise on the opportunities and mitigate risks, investors must ensure proper portfolio diversification.”

Mr Green concludes: “A variety of factors are going to drive global stock markets. Investors will not want to miss out and should work with a good fund manager to judiciously top-up their portfolios.”

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Markets

Refinitiv Expands Economic Data Coverage Across Africa

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Building on its commitment to drive positive change through its data and insights, Refinitiv today announced the expansion of its economic data coverage of Africa. The new data set allows investment managers, central bankers, economists, and research teams to use Refinitiv Datasteam analytical data for detailed exploration of economic relationships and investment opportunities among data series covering the African continent.

Securing reliable, detailed, timely, locally sourced content has not been easy for economists who have in the past had to use international sources which often can take many months to update and opportunities to monitor the market can be missed. Because Africa is a diverse continent, economists and strategists need more timely access to country-specific data via national sources to create tailored business, policy, trading and investment strategies to meet specific goals.

Africa continues to develop critical infrastructure, telecommunications, digital technology and access to financial services for its 1.3bn people. The World Bank estimates that over 50% of African inhabitants will be under 25 by 2050. This presents substantial opportunities for investors who can spot important trends and make informed decisions based on robust and timely economic data.

Stuart Brown, Group Head of Enterprise Data Solutions, Refinitiv, said: “Africa’s growing, dynamic and fast evolving economies makes it a focal point for financial markets today and in the coming decades.  As part of LSEG’s commitment to empowering the global markets with accurate and timely data, we are excited about making these unique datasets available via the Refinitiv Data Platform. Our economic data coverage of Africa will provide our customers with deeper and broader inputs for macroeconomic analyses and enable more effective investment strategies and economic research.”

Refinitiv Africa economic data coverage:

  • Africa economics content comprises around 500,000 nationally sourced time series data covering 54 African nations
  • Content is sourced from national statistical offices, central banks and other key national institutions
  • The full breadth of economics categories in Datastream including national accounts, money and finance, prices, surveys, labor market, consumer, industry, government and external sectors
  • International sources including OECD, World Bank, IMF, African Development Bank, Oxford Economics & more provide comparable data & forecasts across the continent

Refinitiv® Datastream® has global macroeconomics coverage to analyze virtually any macro environment, and better understand economic cycles to uncover trends and forecast market conditions. With over 14.2 million economic times series map trends, customers can validate ideas and identify opportunities using Refinitiv Datastream. Access its powerful charting tools, 9,000 pre-built chart templates and chart studies for commonly used valuation, performance, and technical and fundamental analysis.

 Refinitiv continually grows available data – the China expansion in 2019 covered a unique combination of economic and financial indicators. Refinitiv plans to expand Southeast Asia covering Thailand, Vietnam, Philippines and Malaysia with delivery expected in 2021. This ensures that Refinitiv will have much needed emerging market economic content.

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Oil Rises on Drawdown in U.S. Oil Stocks, OPEC Demand Outlook

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Oil prices rose in early trade on Wednesday, adding to overnight gains, after industry data showed U.S. oil inventories declined more than expected and OPEC raised its outlook for oil demand.

Brent crude futures rose 28 cents, or 0.4%, to $63.95 a barrel at 0057 GMT, after climbing 39 cents on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures similarly climbed 28 cents, or 0.5%, to $60.46 a barrel, adding to Tuesday’s rise of 48 cents.

Oil price gains over the past week have been underpinned by signs of a strong economic recovery in China and the United States, but have been capped by concerns over stalled vaccine rollouts worldwide and soaring COVID-19 infections in India and Brazil.

Nevertheless, the Organization of the Petroleum Exporting Countries (OPEC) tweaked up its forecast on Tuesday for world oil demand growth this year, now expecting demand to rise by 5.95 million barrels per day (bpd) in 2021, up by 70,000 bpd from its forecast last month. It is banking on the pandemic to subside and travel curbs to be eased.

“It was a welcome prognosis by the market, which had been fretting about the impact the ongoing pandemic was having on demand,” ANZ Research analysts said in a note.

Further supporting the market on Wednesday, sources said data from the American Petroleum Institute showed crude stocks fell by 3.6 million barrels in the week ended April 9, compared with estimates for a decline of about 2.9 million barrels from analysts polled by Reuters.

Traders are waiting to see if official inventory data from the U.S. Energy Information Administration (EIA) on Wednesday matches that view.

Market gains are being capped on concerns about increased oil production in the United States and rising supply from Iran at a time when OPEC and its allies, together called OPEC+, are set to bring on more supply from May.

“They may have to contend with rising U.S. supply,” ANZ analysts said.

EIA said this week oil output from seven major shale formations is expected to rise by 13,000 bpd in May to 7.61 million bpd.

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