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Delay in Deepwater Projects Threatens Oil Reserves Target

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Lekki Deep Seaport
  • Delay in Deepwater Projects Threatens Oil Reserves Target

The lack of final investment decisions on seven offshore deepwater oilfield projects in the country poses a threat to the country’s target of 40 billion barrels of crude oil reserves by 2020, our correspondent has learnt.

The nation’s crude oil reserves fell to 36.74 billion barrels in 2016 from 37.06 billion barrels in 2015 and 37.45 billion barrels in 2014, according to the Department of Petroleum Resources.

The Federal Government in 2010 set the target of 40 billion barrels of crude oil reserves and a production of four million barrels per day by 2020.

Last year, the Group Managing Director, Nigerian National Petroleum Corporation, Dr Maikanti Baru, said to achieve the target, the country would need an increment of at least one billion barrels in reserves year-on-year up until 2020 and a half of a million barrels in incremental production capacity per day within the same time frame.

A petroleum expert, Mr Bala Zakka, who expressed concerns about the delayed deepwater projects, told our correspondent that international oil companies would continue to invest in the nation’s oil and gas industry if the investment climate was good.

He said, “Practically, once there is a delay in what we call drilling or exploration campaign, the ability to build reserves will also be affected because when you embark on exploration campaign, the essence is to build up reserves.

“So, the moment there is a delay or suspension of exploration activities, it will be difficult to increase reserves, which are not good for the country because the volume of reserves you have also play a role in the kind of production quota that would be allocated to the country by the Organisation of Petroleum Exporting Countries.”

Industry analysts have attributed the lack of the FID to the delay in passing the Petroleum Industry Bill, the proposed review by the Federal Government of the existing Production Sharing Contracts and the steep fall in global oil prices.

Projects without the FID are Shell’s Bonga South-West and Aparo (225,000bpd) and Bonga North (100,000bpd), Eni’s Zabazaba-Etan (120,000bpd), Chevron’s Nsiko (100,000bpd) and ExxonMobil’s Bosi (140,000bpd), Satellite Field Development Phase 2 (80,000bpd) and Uge (110,000bpd).

The 125,000-bpd Usan deepwater field started production in February 2012, and since then, no major oil field has come on stream in the country.

The 40,000-bpd Bonga North-West field and 50,000-bpd.Bonga Phase 3 project, which are extensions of Shell’s Bonga deepwater field, came online in August 2014 and September 2015. ExxonMobil’s Erha North Phase 2 project started production in October 2015

Total’s $16bn Egina deepwater oilfield project, whose Floating Production, Storage and Offloading vessel is undergoing integration in Lagos, is expected to achieve first oil in the fourth quarter of this year. It will add 200,000 barrels per day to Nigeria’s oil production.

The Managing Director, Shell Nigeria Exploration and Production Company, Bayo Ojulari, said on Tuesday that Royal Dutch Shell and its partners would decide next year on whether to go ahead with the development of Nigeria’s Bonga South-West offshore oilfield.

Reuters quoted him as saying that Shell was negotiating a production sharing contract with the Nigerian government, which would determine the viability of the project.

“A time frame for the FID will be announced after the conclusion of commercial discussions with [the Nigerian] government. The discussions are ongoing and may be concluded soon,” Ojulari was quoted by S&P Global Platts as saying in a company statement.

Developing Bonga South-West was billed to cost $10bn, according to the NNPC estimates.

The bulk of Bonga South-West’s resources are located in an area referred to as Oil Mining Lease 118 but it also extends into the OMLs 132 and 140, areas operated by Chevron, where the field is called Aparo.

Other partners in the project are France’s Total, Italy’s Eni and South Africa’s Sasol Petroleum.

Faced with declining oil revenue, Nigeria announced in 2015 that it planned to review the PSCs with foreign companies, proposing an increase in royalty rates for terrains beyond 1,000 meters, from zero to three per cent, and a royalty rate of eight per cent for output of up to 50,000 bpd.

The Nigeria Extractive Industries Transparency Initiative said last week that the failure to review the PSC agreement with foreign companies cost the Nigerian government $35bn in revenue between 2015 and 2017.

Under the PSCs, the NNPC holds the concessions, and the outside drillers fund development of the mostly deepwater offshore blocks and recover their costs from the production after royalty payments.

The Energy Information Administration, the statistical arm of the United States’ Energy Department, noted that several planned deepwater projects in Nigeria had been repeatedly pushed back because of regulatory uncertainty.

It said some draft versions of the PIB had prompted questions about the commercial viability of deepwater projects under the proposed changes to fiscal terms.

The EIA said, “Deepwater projects have typically included more favourable fiscal terms than onshore/shallow water projects, but the PIB, if passed into law, is expected to increase the government’s share of production revenue coming from deepwater projects.

“As a result of the uncertainty, the IOCs have sanctioned (reached a final investment decision) on only one of eight planned deepwater oil projects. Both sanctioned and unsanctioned deepwater oil projects have the potential to bring online almost 1.1 million bpd of new production over the next five or more years, however, only 200,000b/d has reached the critical development milestone.”

The agency noted that the Federal Government took measures to attract investment in deepwater acreage in the 1990s to boost production capacity and to diversify the location of the country’s oil fields.

It said to encourage investment in deepwater areas, involving higher capital and operating costs, the government offered the PSCs in which the IOCs received a greater share of revenue as the water depth increased.

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.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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