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OPEC Cut, Militancy Pose Danger to Oil Output

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Oil
  • OPEC Cut, Resumed Militancy Pose Danger to Nigeria’s Oil Output

Nigeria faces two serious developments likely to impact its oil production in the coming months, writes Chineme Okafor.

In the course of the week, two crucial developments with the propensity to affect Nigeria’s crude oil production and, thus, its execution of the 2017 budget marks, took place. They are the acceptance of the country’s proposal to cap its oil production to 1.8 million barrels a day and a reported resumption of oil militancy in the oil-rich Niger Delta. Both developments, which are made worse by the unstable prices of crude oil in the international market, could delay Nigeria’s reported gradual exit from economic recession that it officially slumped into last year.

OPEC Cap

The Organisation of Petroleum Exporting Countries and non-OPEC producers, led by the Russian Federation, approved the decision of the Nigerian government to cap its oil production at a sustainable volume of 1.8 mbd, having pressed Nigeria and Libya, which got an initial exemption from a production cut agreement to stabilise prices, to consider coming into the agreement.

At the Joint OPEC and Non-OPEC Ministerial Monitoring Committee meeting on Monday in St. Petersburg, Russia, OPEC and its ally reviewed the June 2017 report on its freeze agreement. JMMC also listened to the presentations made by the representatives of Libya and Nigeria on their production recovery plans, prospects and challenges.

The oil producers groups, which agreed to cut oil output by a combined 1.8mbd starting from January 2017 until the end of March 2018, then accepted Nigeria’s proposal to cap its output on 1.8mbd. This was amid difficulties with Nigeria’s recovery of its production from destructions caused by internal strife in the Niger Delta.

In a communiqué issued at the end of the St. Petersburg meeting, the JMMC said it welcomed Nigeria’s flexibility in this regard, “which despite its commitment to recover its pre-crisis production level, voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8 million barrels per day.” It, however, did not back capping of Libya’s output because, according to it, the country’s production was unlikely to exceed 1mbd in the near future. Libya’s production capacity is between 1.4mbd and 1.6mbd, which it did before the unrest in the country broke out in 2011, leading to its balkanisation.

Compliance Review

At the meeting, the groups reviewed the June 2017 report as well as how they had fared in the first six months of the “Declaration of Cooperation”, as submitted by the Joint OPEC and Non-OPEC Technical Committee. From the JTC report, including the presentations made by Libya and Nigeria on their production recovery plans, prospects, and challenges, they acknowledged the upside limitations of both countries beyond their current production levels. JMMC said concerning the two countries, “Once their production levels stabilise, participating producing countries should further cooperate in a manner that contributes to the stabilisation of the market.”

They equally noted that the JMMC will continue to monitor and recommend further actions, including the holding of an extraordinary conference of the 24 producing countries, if needed, to keep up its efforts at stabilising the oil market. The committee said the oil market was making steady and significant progress towards rebalancing, in line with the report of the JTC for June 2017, which reviewed market developments and the results of the first six months of progress made after OPEC’s 171st Ministerial Conference Decision and the respective voluntary adjustments in keeping with the Declaration of Cooperation.

Furthermore, the meeting stated that the continued strengthening of the global recovery was underway, with stability in the oil market remaining a key determinant. It emphasised that market volatility had been lower in recent weeks and investment flows had visibly started to improve in the industry.

According to the JTC report, the several positive indicators going forward include expected significant increase in oil demand in the second half of 2017 compared to first half of 2017, with the growth reaching a level of 2mbd, which should sustain the inventory draws.

The report equally noted that participating OPEC and non-OPEC producing countries achieved a conformity level of 98 per cent in June 2017, adding that the same high level of conformity was observed for the first six months of January to June 2017.

Between January and June 2017, it explained that participating producing countries adjusted their production downwards by an estimated volume of 351 million barrels. This, the JMMC said, it would sustain by continuing to engage with all participating countries individually, and in particular, those that were yet to achieve 100 per cent conformity for the remaining period of the Declaration of Cooperation.

Reappearance of Militancy in Nigeria

In his remarks at the opening of the JMMC, OPEC Secretary General, Mohammed Barkindo, who was once head of Nigeria’s national oil corporation, Nigerian National Petroleum Corporation, assured other producers that Nigeria had no intention of going beyond its oil production target of 1.8mbd until the end of March 2018. Barkindo explained that Libya had an output target of 1.25mbd by December, but that remained a target given the challenges the country faced.

But just as Nigeria’s output cap proposal was approved at the St. Petersburg meeting, the country reported a fresh break on one of its crude lines – the 180,000 barrels a day Trans-Niger Pipeline. The attack upset its recovery from low production levels.

Already, the country had benchmarked in its 2017 budget a daily production of 2.2mbd, but the attack on the TNP located in the western Niger Delta in the early hours of Monday resulted in the shut in of 150,000bpd.

Confirming the breach on the TNP, Group Managing Director of NNPC, Dr. Maikanti Baru, told journalists on the side-lines of the extraordinary session of the council of ministers of the African Petroleum Producers Organisation in Abuja that culprits of the attack were yet to be identified. Baru said the fresh militant attack on the TNP, which crisscrossed the Ogala, Alakiri, Cawthorne Channel and Bonny areas of the western Niger Delta, transporting about 180,000bpd to the Bonny export terminal in Rivers State, would lead to a loss of 150,000bpd of oil from the pipeline. Data from Shell Petroleum Development Company indicate that the TNP is operated by SPDC under a joint venture with NNPC, Nigerian Agip Oil Company, and Total E&P, and is part of the gas liquids evacuation infrastructure system critical to the Afam VI power plant and liquefied gas exports.

Baru said, when asked about the country’s oil production mark, “Unfortunately, we have not been able to sustain it (oil production) because we got challenges. As I am talking to you this morning, the Trans-Niger pipeline has been breached in Ogoniland and that is 150,000 barrels of oil that have been knocked off. That has been an issue with that area.”

He added that NNPC and its partners would continue to dialogue with the communities and expressed hope that production would be restored.

Effect of the Production Cap on Nigeria

Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, however, stated that the country’s budget would not be seriously affected by the recent developments. Kachikwu said in Abuja that the production cap was not yet effective, and would not be until the country was comfortably placed to report to the groups a consistent production pattern in line with the cap. He explained that out of the 2.2mbpd production volume in the budget, about 450,000 barrels were purely condensate, leaving the balance as crude oil alone, thus indicating that the country was still in line.

According to the minister, “First of all the 1.8mbd has not gone into effect., I am meant to report back to them within the nine months timeframe we were given exemption to confirm that we have stabilised production and stabilisation of production does not mean that we produce 1.8mb in one day then there is stabilisation.

“There is going to be a month-to-month analysis where we will get comfort that all things that prevented us from stabilising our production have ebbed and we can consistently produce above 1.8mbd.

“Again, 1.8mbd refers to crude, it does not refer to our production, our production is about 2.2mb, we have not been asked to attack that, but 450,000 barrels of that is condensate, which are a separate number. We did a very careful work before this whole process began to ensure that OPEC recognise like other countries have done, that condensate weren’t part of the crude analysis and we’ve done that and taken it out.

“Really, in terms of its effects in the 2017 budget, there is really no effect because we are going to continue to use the 2.2mbd number. Barring all the other incidentals in terms of pipeline ruptures, or stoppage of work for one reason or the other, we are going to continue to run to those numbers. The 1.8mbd, like I said, is purely crude.”

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.

Economy

Seplat Petroleum Pays US$564.165 Million to Federal Government in 2020

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Seplat Petroleum, an indigenous Nigerian upstream exploration and production company, announced it paid a total sum of US$564.165 million to the Federal Government in 2020.

In the report on payments made available to the Nigerian Stock Exchange and seen by Investors King, Seplat Petroleum paid US$389.576 million to the Nigerian National Petroleum Corporation (NNPC) as production entitlement in 2020.

Production entitlement is the government’s share of production in the period under review from projects operated by Seplat.

This comprises crude oil and gas attributable to the Nigerian government by virtue of its participation as an equity holder in projects within its sovereign jurisdiction (Nigeria).

Also, Seplat paid US$130.009 million to the Department of Petroleum Resources in 2020. A breakdown of the amount showed US$111.633 million was paid as royalties while US$18.376 million was paid as fees.

Similarly, US$579,361 was paid as a fee to the Nigeria Export Supervision Scheme.

The energy company made another payment of US$17.935 million in fee for 2020.

While the Nigerian Content Development and Monitoring Board received US$4.826 million in fee from Seplat in 2020.

Seplat paid US$21.239 million in taxes to the Federal Inland Revenue Service in 2020.

Therefore, Seplat Petroleum paid a total sum of US$564.165 million to the Federal Government in the 2020 financial year. See the details below.

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Economy

FIRS Sets N5.9 Trillion Revenue Target for 2021

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FIRS to Generate N5.9 Trillion Revenue  in 2021

Mohammed Nami, the Chairman of Federal Inland Revenue Service, FIRS, on Friday said the agency is projecting total revenue of N5.9 trillion for the 2021 fiscal year.

Nami stated this while meeting with the House of Representatives Committee on Finance led by Hon. James Falake on the Service’s 2021 budget defence of its proposed Revenue and Expenditure Estimates.

According to the Chairman, N4.26 trillion and N1.64 trillion were expected to come from non-oil and oil components, respectively.

However, Nami put the cost of collecting the projected revenue at N289.25 billion or 7 percent of the proposed total revenue for the year, higher than the N180.76 billion spent in 2020 to fund the three operational expenditure heads for the year.

He said: “Out of the proposed expenditure of N289.25 billion across the three expenditure heads, the sum of N147.08 billion and N94.97 billion are to be expended on Personnel and Overhead Costs against 2020 budgeted sum of N97.36 billion and N43.64 billion respectively. Also, the sum of N47.19 billion is estimated to be expended on capital items against the budgeted sum of N27.80 billion in 2020. The sum is to cater for on-going and new projects for effective revenue drive.

Speaking on while the agency failed to meet its 2020 target, Nami said “There’s lockdown effect on businesses, implementation directive also for us to study, research best practices on tax administration which involves travelling to overseas and we also have to expand offices and create offices more at rural areas to get closer to the taxpayers, we pay rent for those offices and this could be the reason why all these things went up.

“And if you have more staff surely, their salary will go up, taxes that you’re going to pay on their behalf will go up, the National Housing Fund contribution, PENCOM contribution will go up. Those promoted you have to implement a new salary regime for them. There’s also the issue of inflation and exchange rate differential”, he said.

 

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Economy

Gov Emmanuel Attracts $1.4b Fertilizer Plant to Akwa Ibom

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The Governor of Akwa Ibom State, Mr. Udom Emmanuel has signed an agreement for the citing of a multi billion fertilizer plant in his State.

Governor Emmanuel was part of a Nigerian delegation led by the Minister of State for Petroleum Resources, Chief Timipre Sylva, that visited Morocco to set out the next steps of the $1.4 Bln fertilizer production plant project launched in June 2018.

The agreement between the OCP Africa, the Nigerian Sovereign Investment Authority and the Akwa Ibom State Government will birth one of the biggest investments in the fertilizer production industry worldwide.

The signing ceremony took place at the Mohammed VI Polytechnic University (UMP6).

Mr. Emmanuel signed one of the agreements of the partnership, which covers a memorandum of understanding between OCP Africa, the Akwa Ibom State in Nigeria and the NSIA on land acquisition, administrative facilitation, and common agricultural development projects in the Akwa Ibom State.

Speaking while signing the agreement, Governor Emmanuel said, “Our state is receptive to investments and we are prepared to offer the necessary support to make the project a reality.

“With a site that is suitably located to enable operational logistics and an abundance of gas resources, all that is left is for the parties to accelerate the project development process”, Mr. Udom said.

The agreement reached between the Nigerian Government and the OCP further links OCP, Mobil Producing Nigeria (MPN), the NNPC, the Gas Aggregation Company Nigeria (GACN), and the NSIA.

The two partners agreed to strengthen further their solid partnership leveraging Nigerian gas and the Moroccan phosphate.

This project will lead to a multipurpose industrial platform in Nigeria, which will use Nigerian gas and Moroccan phosphate to produce 750,000 tons of ammonia and 1 million tons of phosphate fertilizers annually by 2025.

The visit of the Nigerian delegation to Morocco takes place within the frame of the partnership sealed between OCP Group and the Nigerian Government to support and develop Nigeria’s agriculture industry.

Following the success of the first phase of Nigeria‘s Presidential Fertilizer Initiative (PFI) and the progress of the fertilizer production plant project launched in 2018 by OCP and NSIA, the Moroccan phosphates group and the Nigerian government delegation have agreed on the next steps of their joint project which is rapidly taking shape.

Several cooperation agreements were inked on Tuesday at the Mohammed VI Polytechnic University (UM6P) by OCP Africa and the Nigerian delegation. Through these deals, OCP reaffirms its unwavering support of agricultural development initiatives in Nigeria including PFI.

OCP Africa and the NSIA have agreed, inter alia, to set up a joint venture which will oversee the development of the industrial platform that will produce ammonia and fertilizers in Nigeria.

The OCP has also pledged to supply Nigerian famers with quality fertilizers adapted to the needs of their soil at competitive prices and produced locally.

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