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FG Lost $6bn to DPR’s Poor Administration of Divested Oil Blocks

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  • FG Lost $6bn to DPR’s Poor Administration of Divested Oil Blocks

The federal government lost an estimated $6 billion as a result of the Department of Petroleum Resources’ (DPR) poor administration of the expiring oil blocks, which were sold by the international oil companies (IOCs) between 2010 and 2015 to local firms, Nigerian exploration and production (E&P) operators have said.

The Nigerian operators have, however, stated that all hope is not lost, as the country could earn over $3 billion from the next wave of asset sales if the DPR manages the outstanding onshore oil blocks set to expire soon properly.

DPR has also admitted that it was not prepared to develop the necessary guidelines for the asset divestment programme by the IOCs, as the exercise came as a “shock” to the agency, pointing out that it has learnt some lessons for future exercise.

In the first acquisitions by Seplat Petroleum Development Company Plc and First Hydrocarbon Nigeria in 2010, the IOCs raked in $471 million.

The IOCs were also paid $3.979 billion in the second divestment exercise between 2011 and 2012 by Eland Oil, Starcrest, Neconde Energy, Heritage Oil, Shoreline Energy, ND Western and Oando Energy Resources.

Under the last divestment programme between 2014 and 2015, the IOCs smiled away with $5.954 billion from Seplat, Erotron E&P, Newcross Petroleum, Crestar Integrated Natural Resources, Aiteo Group, Taleveras, Tempo Energy, Belemaoil, West African E&P, and First E&P.

But speaking in Lagos recently at the maiden edition of the Aspen Energy Roundtable, the Nigerian independents argued that 60 per cent of the $10.404 billion paid by the local operators to acquire assets from the IOCs would have gone into the federal government treasury if the DPR had better managed the licences covering the divested oil blocks.

In a keynote speech, the chief executive of Seplat Petroleum Development Company Plc, Mr. Austin Avuru stated that 70 per cent of the money used to acquire the assets came from Nigerian banks.

“The first $471 million was in 2010 and it involved Seplat and OML 26 (First Hydrocarbon), the second was also $4 billion and the third one, which was the most recent was almost $6 billion and you can see the implications of all these.

“So, if you put all these together, you are talking of over $10 billion in spend to acquire these assets. They all usually come to about $2 per probable barrel and about $4-$6 per proven barrel in terms of oil.

“It is not small money and 70 per cent of this money came from Nigerian banks,” Avuru explained.

The Seplat boss, whose company is listed on both the Nigerian and London Stock Exchanges, added that 60 per cent of the monies paid to acquire the assets would have gone into the federal government treasury if the DPR had handled the lease administration properly.

“That is another discussion entirely but I can tell you that 60 per cent of those money would have gone to the DPR if it handled the lease administration properly.

“But this is all the money that we, as Nigerian companies using Nigerian banks, paid to the IOCs and they took the money away. I think that will be a lesson for the next lease administration and bid rounds and renewals because if you have a title to these leases, especially leases that are due to expire and if you don’t take the title, the one who has the title will sell that title for all of this money,” Avuru explained.

The nine Oil Mining Leases (OMLs) – 18, 24, 25, 26, 29, 30, 34, 40, and 42, sold by Shell and its partners between 2011 and 2015 would expire in 2019.

Avuru said there were issues in the administration of the country’s oil and gas resources, which he described as wasting resources, adding that the country’s resources should be administered to ensure that “maximum value is captured without expropriation”.

“We are the victims knocking our heads together and paying three times more for these leases because we have no option. There are no leases available. So we knock our heads together and then the IOCs are smiling.

“We could have paid one third of what we paid to the government and everybody will be happy,” Avuru added.

The Seplat CEO, however, stated that there were still about $12 billion in assets in the portfolio of IOCs that will be divested, adding that the federal government could earn over $3 billion if the DPR manages the licences properly.

“There are still about $12 billion of the IOCs’ portfolio that could still be divested, given the right opportunities, depending on how DPR plays it.

“There could still be $3 billion cash available to DPR, depending on how the DPR handles the administration of those leases that are due to expire,” he said.

Shell’s 17 onshore oil blocks would expire in 2019.

In his contributions, the Managing Director of ND Western, which paid $600 million for OML 34, Dr. Layi Fatona, noted that the federal government did not create the environment for the IOCs to plough back the money realised from the sale of the assets.

Fatona also noted that some of the assets were over-priced but exonerated the IOCs, as the transactions were based on a willing buyer-willing seller basis.
He blamed the government for not creating the environment for the oil majors to reinvest in the country.

“But the most important thing is that when you look at the spending, all of the money came mostly from the Nigerian banking system. And I ask a pertinent question: should we call this capital flight?

“All that money that was taken from the Nigerian banking system by essentially indigenous E&P companies and paid to the IOCs left the shores of this country?
“How much of this money ended up as a backward reinvestment in the Nigerian petroleum industry?” he asked.

“So it is not about capital flight, it is about the fact that we have failed holistically to create the environment where the seller of an asset who makes a profit believes sufficiently in this society and puts all the money back into the system,” he said.

In her response, the Head of Upstream Monitoring and Regulation at DPR, Pat Maseli admitted that the regulatory agency was not prepared for the divestment programme at the outset.

“For the divestments and all that, that came – you know, it came as a shock. Will I say as a shock – we were not really prepared as regulators to develop the guidelines.

“But we have learnt our lessons and we are progressing them and making them better,” she said.

She added that the agency had also learnt its lessons in the marginal bid rounds.

“By the time we have the next bid round, it will be better than the previous ones, where we had forced marriages and it was not working and people were just rent seekers. This time, it is going to be different,” she added.

However, in her remarks, a former President of the Commonwealth Lawyers Association, Boma Ozobia said the IOCs should not be accused of capital flight for selling their assets.

“If you are talking about capital flight for someone who has made an investment and is exiting, you are approaching it in the wrong direction – you are going to put me off from coming back into your jurisdiction to invest again because the idea of making the investment is that I can exit at some point,” she 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.

Crude Oil

Nigeria Pumps 236.2 Million Barrels in First Half of 2024

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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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Crude Oil

Oil Prices Steady Amid Mixed Signals on Crude Demand

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Crude oil

Oil prices remained stable on Thursday as investors navigated conflicting signals regarding crude demand.

Brent crude oil, against which Nigerian oil is priced, settled at $85.11 a barrel, edging up by 3 cents, while U.S. West Texas Intermediate (WTI) crude dipped by 3 cents to $82.82 a barrel.

The stability comes as the U.S. economy shows signs of slowing, with unemployment benefit applications rising more than expected.

Initial claims increased by 20,000 to a seasonally adjusted 243,000 for the week ending July 1, prompting speculation that the Federal Reserve might cut interest rates sooner than anticipated. Lower rates could boost spending on oil, creating a bullish outlook for demand.

Fed officials suggested that improved inflation and a balanced labor market might lead to rate cuts, possibly by September.

“Healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” noted Tamas Varga of oil broker PVM.

However, rising jobless claims signal potential economic easing, which could dampen crude demand.

John Kilduff of Again Capital highlighted the impact of a slowing economy on oil consumption despite a significant drop in U.S. crude inventories last week.

Global factors also weighed on the market. China’s economic policies remain steady, though details are sparse, affecting investor sentiment in the world’s largest crude importer.

Meanwhile, the European Central Bank maintained interest rates, citing persistent inflation.

An upcoming OPEC+ meeting in August is expected to assess market conditions without altering output policy, according to sources. This meeting will serve as a “pulse check” for market health.

Overall, oil prices are caught between economic concerns and hopes of a rate cut, maintaining a delicate balance.

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Crude Oil

Oil Prices Slide on China Demand Concerns, Brent Falls to $83.73

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Crude Oil - Investors King

Oil prices declined on Tuesday for the third consecutive day on growing concerns over a slowing Chinese economy and its impact on global oil demand.

Brent crude oil, against which Nigerian oil is priced, dipped by $1.12, or 1.3% at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.15, or 1.4%, to close at $80.76.

The dip in oil prices is largely attributed to disappointing economic data from China, the world’s second-largest economy.

Official figures revealed a 4.7% growth in China’s GDP for the April-June period, the slowest since the first quarter of 2023, and below the forecasted 5.1% growth expected in a Reuters poll.

This slowdown was compounded by a protracted property downturn and widespread job insecurity, which have dampened fuel demand and led many Chinese refineries to cut back on production.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial. “Many of China’s refineries are cutting back on weaker fuel demand.”

Despite the bearish sentiment from China, there is a growing consensus among market participants that the U.S. Federal Reserve could begin cutting its key interest rates as soon as September.

This speculation has helped stem the decline in oil prices, as lower interest rates reduce the cost of borrowing, potentially boosting economic activity and oil demand.

Federal Reserve Chair Jerome Powell noted on Monday that the three U.S. inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion.

This has led market participants to believe that a turn to interest rate cuts may be imminent.

Also, U.S. crude oil inventories provided a silver lining for the oil market. According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell by 4.4 million barrels last week.

This was a much steeper drop than the 33,000 barrels decline that was anticipated, indicating strong domestic demand.

The International Monetary Fund (IMF) also weighed in, suggesting that while the global economy is set for modest growth over the next two years, risks remain.

The IMF noted cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports for China as key factors in the global economic landscape.

In summary, while oil prices are currently pressured by concerns over China’s economic slowdown, the potential for U.S. interest rate cuts and stronger domestic demand for crude are providing some support.

Market watchers will continue to monitor economic indicators and inventory levels closely as they gauge the future direction of oil prices.

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