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Report: Nigeria’s Fiscal Terms among Five Most Unfavourable Regimes

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  • Report: Nigeria’s Fiscal Terms among Five Most Unfavourable Regimes

Nigeria’s fiscal system in the oil and gas industry is one of the five fiscal regimes with the highest Effective Royalty Rate (ERR), along with Indonesia’s Production Sharing Contract (PSC), China’s PSC, Kazakhastan and the area of the United Sates where royalty is payable to land owners on negotiated rates and on federal and state lands on regulated rates, a new study by Wood Mackenzie has revealed.

The report further indicates that Nigeria is also among the 12 oil producing countries where the fiscal system is targeted on revenues, rather than profits.

The other 11 countries include: Russia, Indonesia, Egypt, Venezuela, Iraq, Kazakhastan, Angola, China, Canada, Brazil and the oil-producing area of Alaska in the United States.

According to the report, while the fiscal system in the United Kingdom, Norway and offshore Australia is targeted purely on profits, Nigeria’s fiscal system and those of the 12 other countries are based on revenues.

“Fiscal terms are a key differentiator in companies’ strategic positioning geographically and in investment decisions. While prospectivity is invariably the number one driver for investment decisions, the potential value of discoveries is heavily influenced by the fiscal regime. And with capital scarce, the level and form of the government’s share of project value comes to the fore. Terms must be competitive if the government is to have any success in attracting new investment,” the report said.

The report noted that the global upstream investment is at low ebb with conventional projects being challenged by low oil prices, high costs and weak economics.

With these challenges, Wood Mackenzie argued that finances are stretched with only a limited capital available for growth investment.

“Companies are preserving capital and high grading opportunities as they work to reduce break evens on new projects. Only the lowest cost and highest return investments, whether short or long term, will get the green light in this environment. And nervous investors are looking for projects that will recover their costs quickly,” the report added.

“But generating profits at current prices is not simply down to a company’s ability to keep costs below current prices. Governments have a role to play too. If the fiscal system is targeted on revenues, rather than profits then, for the investor, a $50 per barrel price could mean as little as $25 per barrel is available to cover costs and make a return on investment,” the report added.

“One of the first challenges for a government wanting to establish if its terms are competitive or not, is to identify who its competitors are. What is the peer group of opportunities that investors will be considering for investment as well as the blocks in your round? And this could be very different, depending on the investor, who may be focused on: a region, and compare opportunities only with those on offer in neighbouring countries; maturity of basin, focusing on frontier, emerging or mature basin opportunities; specific types of investment, for example, gas or deepwater opportunities; all global opportunities equally,” the report explained.

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.

Crude Oil

South Africa’s iGas, PetroSA and Strategic Fuel Fund Merge to Create South African National Petroleum Company

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The South African Department of Mineral Resources and Energy (DMRE) has announced the merger of Central Energy Fund (CEF) subsidiaries iGas, PetroSA and the Strategic Fuel Fund (SFF).

The merger will be effective from 1 April 2021 and the new company will be called the South African National Petroleum Company.

The merger, driven by the pursuit of implementing a new company that has a streamlined operating model via the development of a shared services system and a common information platform, comes a few months after cabinet approval and the confirmation that PetroSA had incurred losses of R20 billion since 2014.

Additional factors which prompted the move included the determination to strengthen PetroSA which had not had a permanent CEO in five years prior to the appointment of CEO Ishmael Poolo last and, had become majorly ungainful since its failure to secure gas for the gas-to-liquids refinery project in Mossel Bay.

While the merger deadline has been set, the portfolio committee expressed reservations to the department’s likelihood of meeting the deadline, considering the existing legislative regime, pending issues raised in the SFF and PetroSA forensic reports, as well as PetroSA’s current insolvency and liquidity challenges, the official press statement on the briefing revealed.

“South Africa’s energy sector is entering a new dawn,” said NJ Ayuk, Executive Chairman of the African Energy Chamber. “With gas discoveries off the coast and the announcement of the REIPPP programme bid window 5 and 6 on the horizon, now is the most opportune time for the merger of the CEF subsidiaries. Of course, it is not an easy task and delays may be anticipated but, this move signals a real change towards a meaningful strategy that will not only be beneficial to the DMRE but to potential investors and local development as well.”

The African Energy Chamber welcomes this move and acknowledges that this is yet another step supporting the country’s determination to restarting the engines of sustainable growth and the transformation of energy policy and infrastructure.

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Crude Oil

Crude Oil Hits $71.34 After Saudi Largest Oil Facilities Were Attacked

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Brent Crude Oil Rises to $71.34 Following Missile Attack on Saudi Largest Oil Facilities

Brent crude, against which Nigerian oil is priced, jumped to $71.34 a barrel on Monday during the Asian trading session following a report that Saudi Arabia’s largest oil facilities were attacked by missiles and drones fired on Sunday by Houthi military in Yemen.

On Monday, the Saudi energy ministry said one of the world’s largest offshore oil loading facilities at Ras Tanura was attacked and a ballistic missile targeted Saudi Aramco facilities.

One of the petroleum tank areas at the Ras Tanura Port in the Eastern Region, one of the largest oil ports in the world, was attacked this morning by a drone, coming from the sea,” the ministry said in a statement released by the official Saudi Press Agency.

It also stated that shrapnel from a ballistic missile dropped near Aramco’s residential compound in Eastern Dhahran.

Such acts of sabotage do not only target the Kingdom of Saudi Arabia, but also the security and stability of energy supplies to the world, and therefore, the global economy,” a ministry spokesman said in a statement on state media.

Oil price surged because the market interpreted the occurrence as supply sabotage given Saudi is the largest OPEC producer. A decline in supply is positive for the oil industry.

However, Brent crude oil pulled back to $69.49 per barrel at 12:34 pm Nigerian time because of the $1.9 trillion stimulus packed passed in the U.S.

Market experts are projecting that the stimulus will boost the United States economy and support U.S crude oil producers in the near-term, this they expect to boost crude oil production from share and disrupt OPEC strategy.

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Crude Oil

A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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