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Debts: Nestoil to Sell Some Shares in Neconde’s OML 42 Asset

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  • Debts: Nestoil to Sell Some Shares in Neconde’s OML 42 Asset

The management of Nestoil, the oil service arm of the Obijackson Group, owned by Nigerian business mogul Dr. Ernest Azudialu, is to offload part of its shares in oil mining lease (OML) 42 in the Western Niger Delta, which is operated by Neconde Energy Limited, to pay its debts to banks.

According to Oil+Gas Report, Nestoil holds 80 per cent of Neconde and is the prime mover of its special purpose vehicle (SPV) creation, which took over Shell/Total/ENI’s 45 per cent stake in the acreage in 2012. The remaining 55 per cent is held by the Nigerian National Petroleum Corporation (NNPC) and managed by its exploration and production arm, Nigerian Petroleum Development Company (NPDC).

Explaining the reason for the planned sale of equity by Nestoil, the report noted that creating value from the asset has been an epic struggle. While Neconde paid $585 miliion to buy the 45 per cent, it has found it difficult to reach and maintain optimum output and price to pay back the debts and also fund the needed expansion.

The struggle first started with the NPDC, which was chosen as the operator of the OML 42 field on takeover from Shell and partners. NPDC’s alleged inefficiency and struggle for the operatorship of the asset kept production at a very suboptimal level of less than 20,000 barrel per day (bpd) for over three years.

Besides, within the same period of struggle for the operatorship of the field, crude oil price crashed and worsened a bad situation and the Niger Delta militants struck and bombed the crude evacuation pipeline of the field, the Forcados pipeline, forcing the terminal to shut down for 16 months between February 2016 and June 2017.

However, out of the $585 million paid for the asset, the consortium partners (Nestoil, Yinka Folawiyo and KOV) paid $435 million as equity and collectively raised $150 million as debt, but what’s not clear is how much of the $435 million equity was raised as debt by the members of the SPV.

Efforts made by us for further clarifications from the Managing Director/Chief Executive Officer of Neconde Energy, Mr. Frank Edozie, did not yield any fruit as calls and short messages sent to him were not responded to.

But last year, Obijackson Group Chairman, Dr. Ernest Azudialu and Mr. Edozie, at a press briefing in Lagos, lamented the huge financial challenges facing Neconde Energy following the hiccups faced by the downturn in the global oil gas industry since 2014. The challenges, especially crash in price coupled with security issues in the Niger Delta and struggle for operatorship, which stalled production increase, made it difficult to operate profitably to pay the banks.

At a press briefing meant to alert the public of the plans by Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) to picket Neconde Energy, following labour issues within the company, the management decried PENGASSAN’s action, considering the enormous challenges already facing the firm.

Azudialu said the Neconde employees, including those that had left the company, wanted transfer allowances for being transferred to Delta State where the oil field is located while the $558million borrowed from Nigerian banks and other international finance firms to acquire the asset have not been repaid in its and another loan, which is almost the same amount used to repair the facilities and interests are only being serviced. Therefore, the employees, who want to leave the company should take the company’s existing severance package.

According to Edozie, the potential production from the asset was 100,000 barrels per day (bpd) at the time of purchase, but on completion of the acquisition, production was about 52,000 bpd. Following the long battle for operatorship of the field, attacks on oil facility, especially the blowing up of the Forcados pipeline on February 13, 2016, which is the only means of transporting oil from the fields to the terminal, production dropped to zero. He added that the firm has started to ramp up production and expects to increase output to 70,000bpd.

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 long experience in the global financial market.

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Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays Bank

Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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