Connect with us

Markets

NNPC, Nigeria’s Oil Behemoth Records N547bn Losses in Three Years

Published

on

NNPC - Investors King
  • NNPC, Nigeria’s Oil Behemoth Records N547bn Losses in Three Years

It’s meant to be a cash cow, but the state oil company of Africa’s biggest producer is bleeding money.

The Nigerian National Petroleum Corporation, the Abuja-based behemoth that dominates Nigeria’s energy industry, has recorded losses for at least last three years, culminating in a total loss of N546.63 billion, statements on its website show.

The corporation’s unaudited financial operations reports showed that NNPC reported losses of N267.14 billion, N197.49 billion and N82 billion in 2015, 2016 and 2017, respectively, in contrast to its budgets that showed operating surpluses of N466.94 billion, N334.04 billion and N601.15 billion for the three years under review.

NNPC will probably register another loss in 2018, according to Ecobank Transnational Inc., as its refineries and fuel-retailing arm fail to generate profit.

The pain for NNPC, which produces oil and natural gas in partnership with Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp., comes even as national energy firms from Norway to Saudi Arabia thrive with crude prices recovering from their crash in 2014.

It also lays bare President Muhammadu Buhari’s difficulty in fulfilling his election campaign pledge to modernise a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.

With oil accounting for more than half of government revenue and 90 per cent of export income, the company is a primary target of those seeking access to state funds and is vulnerable to political interference.

Tensions erupted last year between Emmanuel Kachikwu, the chairman of NNPC, and Maikanti Baru, the managing director, over how more than $20 billion of contracts were agreed.

“The very public power tussle shows the difficulties in reforming the organisation,” Malte Liewerscheidt, an analyst at Teneo Intelligence, said in an email to Bloomberg from Abuja.

Until a pending but long-delayed Petroleum Industry Governance Bill (PIGB) designed to overhaul the petroleum sector and split up parts of NNPC comes into effect, “political considerations will continue to interfere with vital business needs,” he said.

Nigeria’s state oil company has lost money three years running, hugely missing its targets

The state oil company doesn’t publish full audited financial results, though it releases limited numbers on its operating performance. These include earnings for core units, but exclude items such as taxes and dividends from a 49 per cent shareholding in Nigeria LNG Ltd., one of the world’s biggest exporters of liquefied natural gas.

Those numbers show that NNPC made an N82 billion ($246 million) operating loss in 2017. That was an improvement from 2015 and 2016, but still far from the operating income it budgeted for at N601 billion.

In each of the past three years, NNPC forecast a profit and finished in the red.

Higher oil prices have boosted exploration and production, the most profitable part of NNPC and which earned almost N183 billion ($600 million) in 2017.

But its ill-maintained refineries, which operate at a fraction of their combined capacity of 445,000 barrels a day, lost about N30.5 billion ($100 million).

Even bigger shortfalls came in the fuel-retailing business, which has to contend with the government’s cap on petrol prices, and the corporate headquarters unit, which lost almost N122 billion ($400 million), more than any other part of the company.

While NNPC’s exploration and production business will probably improve this year, the refineries and retailing subsidiaries will continue to be a drag, especially if the government maintains the ceiling of N145 a litre for petrol, according to Ecobank.

The bank predicts that NNPC will make an operating loss of as much as N80 billion in 2018.

Ndu Ughamadu, spokesman for NNPC, said that while the refineries are struggling to make money, the company’s overall performance will probably be better this year. He declined to say if NNPC was forecasting a return to profit.

It made a loss of N1.6 billion in January, the latest month for which results have been released.

The problems at NNPC offset the benefits to Nigeria’s struggling economy of Brent crude’s more than 50 per cent rise in the past year to almost $80 a barrel.

Still, there have been improvements within the company and the country’s overall oil sector, according to Moody’s Investors Service.

NNPC’s reduction of debts owed to joint-venture partners may help increase Nigerian oil production to around 2.5 million barrels a day by 2020 from 2 million today, said Aurelien Mali, an analyst at Moody’s.

“The clearing of arrears is a huge step forward that will unleash extra investment from international oil companies,” Mali said in an interview in Lagos. “NNPC is key for the government. It’s going in the right direction.”

It has some catching up to do. Its financial position contrasts with those of state oil firms in other major producers. Saudi Aramco is gushing cash, making a net income of $34 billion in the first half of 2017 alone, according to numbers seen by Bloomberg.

Brazil’s Petrobras, Mexico’s Pemex and Norway’s Statoil all improved their results in 2017 and made operating profits. So did Angola’s Sonangol in 2016, when it last published data.

Meanwhile, crude oil prices climbed above $80 per barrel Thursday for the first time since November 2014, on concerns that Iranian exports could fall because of renewed United States sanctions, which will reduce supply in an already tightening market.

This is coming as Shell Petroleum Development Company (SPDC) Thursday suspended shipments of Nigerian Bonny Light crude to the international market after it declared force majeure.

The crude oil market has continued to push higher as geopolitical concerns drove trading, with the global benchmark, Brent crude futures reaching an intraday high of $80.33 per barrel Thursday before receding to $80.16 per barrel.

West Texas Intermediate (WTI) crude futures also hit their highest since November 2014, at $72.30 per barrel.

U.S. President, Donald Trump’s decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC’s third-largest producer has boosted oil prices.

France’s Total had warned on Wednesday that it might abandon a multibillion-dollar gas project in Iran if it could not secure a waiver from U.S. sanctions, casting further doubt on the European-led efforts to salvage the nuclear deal.

Reuters reported that a rapid decline in Venezuela’s crude production has further roiled markets in recent months.

Also global inventories of crude oil and refined products dropped sharply in recent months owing to robust demand and OPEC-led production cuts.

Oil stocks are expected to drop further as the peak summer driving season nears, offsetting increases in U.S. shale output, according to reports.

In Nigeria also, shipments of Bonny Light crude were suspended Thursday, after an outage prompted Shell to declare force majeure.

The force majeure, which took immediate effect, followed the shutdown of the Nembe Creek Trunk Line.

Though Shell did not disclose the volume of oil affected by the force majeure, exports of Bonny Light were expected to run at around 195,000 barrels per day in June.

The Nembe Creek Trunkline, operated by Aiteo E & P, and the Trans Niger Pipeline (TNP) are the two major pipelines used by Shell and other producing companies operating in the eastern Niger Delta to pump crude oil to the Bonny export terminal in Rivers State.

An official of Aiteo, who spoke off the record, told THISDAY Thursday that the company noticed a drop in pressure, prompting the shutdown.

“We are suspecting sabotage but it is too early to conclude as investigation is still ongoing,” he added.

In the western Niger Delta, the Trans-Forcados pipeline (TFP), operated by Heritage Oil, was shut down after a leak was found on the facility on May 7.

The TFP is the major trunk line in the Forcados Pipeline System with an export capacity of 400,000 barrels per day and the second largest network in the Niger Delta after the Bonny pipeline system in the eastern Niger Delta.

International oil companies (IOCs) and Nigerian independents operating in the western Niger Delta lose 250,000 barrels per day to the closure of the TFP.

Shell has not yet declared force majeure on exports of the Forcados crude grade.

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.

Continue Reading
Comments

Crude Oil

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17

Published

on

Crude Oil - Investors King

Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

 

Continue Reading

Crude Oil

Nigerian Oil Loses Ground to Cheaper US and Russian Crude

Published

on

Crude oil

Nigeria’s once-thriving oil industry is facing a significant challenge as traditional buyers increasingly turn to more affordable alternatives from the United States and Russia.

This shift has led to France emerging as the leading buyer of Nigerian crude, marking a significant change in the global oil market dynamics.

Top Nigerian crude grades like Bonny Light, Forcados, and Brass have long been favored by refineries in Europe and Asia due to their low sulfur content.

However, the country’s primary customers, including India and China, are now opting for cheaper US and Russian oil.

This trend poses a substantial risk to Nigeria, which relies on oil exports for more than half of its foreign exchange earnings.

Data from BusinessDay reveals a stark decline in India’s purchase of Nigerian crude. In the first quarter of 2024, India bought N1.3 trillion worth of Nigerian oil, a significant drop from the average of N2 trillion purchased between 2018 and 2021.

“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” said Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies.

The latest tanker-tracking data monitored by Bloomberg indicates that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners and leading private companies have increased their imports of US crude, reaching nearly seven million barrels of April-loading US oil. This shift is the largest monthly inflow since last May.

Russian crude flows to India surged following the invasion of Ukraine, making Russia the biggest supplier to the South Asian nation.

However, tighter US sanctions have stranded Russian cargoes, narrowing discounts, and prompting India to ramp up purchases from Saudi Arabia.

“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” explained Dylan Sim, an analyst at industry consultant FGE.

As a result, France has overtaken the Netherlands to become the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024.

Spain and India occupied second and fourth positions, with imports valued at N1.72 trillion and N1.3 trillion respectively, as of March 2024.

The sluggish pace of sales for Nigeria’s May supplies highlights the market’s shifting dynamics. Findings show that about 10 cargoes of Nigerian crude for May loading were still available for purchase, indicating a reduced demand.

Rival suppliers such as Azeri Light and West Texas Intermediate have also seen price weaknesses, impacting Nigerian crude demand.

“We’ve got much weaker margins, so Nigeria’s crude demand is taking a hit,” noted James Davis, director of short-term oil market research at FGE.

Sellers seeking premiums over the Dated Brent benchmark have found the European market less receptive, according to Energy Aspects Ltd.

“May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”

Some Nigerian grades are being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, according to Sparta Commodities.

However, the overall reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government.

“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” warned Charles Ogbeide, an energy analyst with a Lagos-based investment bank.

Continue Reading

Commodities

Refiners Predict Petrol Prices to Fall to N300/Litre with Adequate Local Crude Supply

Published

on

Petrol - Investors King

The pump price of Premium Motor Spirit (PMS), commonly known as petrol, could drop to N300 per litre once local production ramps up significantly, according to operators of modular refineries.

This projection hinges on the provision of sufficient crude oil to domestic refiners, which they say would undercut the exorbitant costs currently imposed by foreign refineries.

Speaking under the aegis of the Crude Oil Refinery Owners Association of Nigeria (CORAN), the refiners stressed the urgency for the government to ensure a steady supply of crude oil to local processing plants.

They argue that the reliance on imported petroleum products has been economically disadvantageous for Nigeria.

Eche Idoko, Publicity Secretary of CORAN, emphasized that the current high costs could be mitigated by boosting local production.

“If we begin to produce PMS in large volumes and ensure adequate crude oil supply, the pump price could be reduced to N300 per litre. This would prevent Nigerians from paying nearly N700 per litre and stop foreign refiners from profiting excessively at our expense,” Idoko stated.

The potential price drop follows the model seen with diesel, which experienced a significant price reduction once the Dangote Petroleum Refinery began its production.

“Diesel prices dropped from N1,700-N1,800 per litre to N1,200 per litre after Dangote started producing. This is a clear indication that local production can drastically reduce costs,” Idoko explained.

In a previous statement, Africa’s richest man, Aliko Dangote, affirmed that Nigeria would cease importing petrol by June 2024 due to the Dangote Refinery’s capacity to meet local demand.

Dangote also expressed confidence in the refinery’s ability to cater to West Africa’s diesel and aviation fuel needs.

Challenges and Governmental Role

However, achieving this price reduction is contingent on several factors, including the provision of crude oil at the naira equivalent of its dollar rate.

CORAN has advocated for this approach, citing that it would bolster the naira and reduce the financial burden on refiners who currently buy crude in dollars.

The Nigerian government has shown some commitment towards this goal. Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), confirmed that a framework has been developed to ensure consistent supply of crude oil to domestic refineries.

“We have created a template for the Domestic Crude Oil Supply Obligation to foster seamless supply to local refineries,” Komolafe stated.

Industry Reactions

Oil marketers have welcomed the potential for reduced petrol prices. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed optimism about the Dangote Refinery’s impact on petrol prices.

“We expect the price of locally produced PMS to be below the current NNPC rate of N565.50 per litre. Ideally, we are looking at a price around N500 per litre,” Maigandi noted.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending