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Indigenous Oil Firms Bleed Over N4.9tn Debts

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oil
  • Indigenous Oil Firms Bleed Over N4.9tn Debts

Nigerian oil and gas firms have taken a serious beating from the downturn in the industry amid a debt burden of N4.9tn that is weighing on many of them.

After becoming key players in the nation’s oil and gas industry in recent years, indigenous firms are now struggling to maintain the assets they acquired through the Federal Government’s marginal field programme and recent divestments by oil majors.

Over 130 blocks are in the control of indigenous operators, who were awarded some 50 marginal blocks through discretionary allocations in the 1990s, another 24 through marginal fields bidding round in 2003, and 60 more blocks through conventional bidding rounds in 2005 and 2007, according to the Oxford Business Group.

But total oil production from the local firms fell to 46.01 million barrels last year from 80.17 million barrels in 2015, bringing their share of national production down to 6.4 per cent from 10.3 per cent, the February report of the Nigerian National Petroleum Corporation showed.

The dip in global oil prices since mid-2014 coupled with the resurgence of militant attacks in the Niger Delta last year has significantly hammered the operators’ ability to earn revenues and repay debts owed to banks and others.

Prior to the fall in crude oil prices from a peak of $115 per barrel in 2014, banks gave loans to local oil and gas companies for the acquisition of assets, mostly being divested by the IOCs such as Royal Dutch Shell, Chevron and Total.

But several of the companies, including Seplat Petroleum Development Company Plc and Neconde Energy Limited, suffered severely from the shutdown of the Trans Forcados Pipeline, their main export route, for more than a year.

As of the end of December 2016, loans to the oil and gas sector constituted 30.02 per cent of the gross loan portfolio of the nation’s banking system as credit to that sector grew from N4.51tn to N4.89tn, according to latest Financial Stability Report of the Central Bank of Nigeria.

The report stated that during the second half of last year, credit risk trended higher as non-performing loans in the banking industry grew to N2.08tn at end-December 2016 from N1.68tn at end-June 2016.

Seven Energy International Limited, an integrated gas company in South-East Nigeria, has been grappling with severe liquidity challenge.

It announced in April that it had requested a standstill from its lenders under the $385m Accugas term facility dated June 23, 2015, and had not made payments of interest and principal due thereunder on March 31, 2017.

On April 11, the group failed to pay the interest due on the $300m, 10 ¼ per cent senior secured notes due 2021 and the $100m, 10 ½ per cent notes due 2021, and did not satisfy the conditions to pay payment-in-kind interest.

“The 30-day grace period for payment of interest under the SSNs and the 10 ½ per cent notes expired on May 11, 2017, which represents an event of default under the terms of the SSNs and the 10 ½ per cent notes,” the group said.

Seven Energy said on May 15 that it was being advised by Ernst & Young and continued in constructive discussions with potential investors and lenders, with a view to achieving a comprehensive capital restructuring.

“The group is in parallel discussions with all of its financial creditors, including an ad hoc group of holders of the SSNs, with a view to obtaining agreements to standstill on debt service obligations and waive any defaults arising under the various finance agreements,” it added.

It said its liquidity was severely affected by a range of external factors, including loss of material cash flow from its Strategic Alliance Agreement since February 2016 because of recurrent militant activity that resulted in the closure of Forcados export terminal, and a significant backlog of unpaid invoices relating to the supply of gas to federal and state-owned power stations.

Last month, the Chairman, Obijackson Group, Dr. Ernest Azudialu-Obiejesi, said the group had yet to repay the $558m loan from banks used to acquire 45 per cent interest in Oil Mining Lease 42 from Shell, Total and Agip Joint Venture in 2011, through which its upstream subsidiary, Neconde Energy, was created.

Following the shutdown of Trans Forcados Pipeline in February 2016, the company’s oil output fell to 15,000 barrels per day from about 52,000 bpd after six months of no production last year.

One of the major indigenous independent companies, Seplat Petroleum Development Company, which said its net debt stood at $516m as of December 2016, had to reduce its rig-based activity to comprise only the workover and re-completion of the Sapele-4 well as a water disposal well last year.

The company said it adopted a prudent approach and proactively engaged in discussions with its lenders in the $700m seven-year term loan to re-align near-term debt service obligations within the existing tenor.

Its three-year secured revolving credit facility of $175m at six per cent is scheduled to mature in December this year, according to its 2016 financial statements.

“The company is currently engaged with the lenders on the three-year corporate facility with a view to extending the tenor until the end of 2018 and re-profiling principal repayments, while it looks at optimising the capital structure,” Seplat said.

Another major indigenous player, Oando Plc, has had to sell some of its subsidiaries, including Oando Gas and Power, Oando Energy Services Limited and Alausa Power Limited, to reduce its debt, which stood at N355.4bn in the first quarter of last year.

With a debt of N225.9bn as of March 2017, the group said it secured the lenders’ consent last year for the sale of its non-operated interests in OMLs 125 and 134, but awaiting the final approval of the Minister of Petroleum Resources.

The Vice President/Head of Energy Research, Ecobank, Mr. Dolapo Oni, noted that most of the indigenous firms had been facing funding challenges in recent years, adding, “They are not getting funding from their banks for major projects, but their banks have restructured their loans to ensure that at least they can remain in operation.

He described the reduction in lending from banks as a major blow to the oil firms because “they need funding to be able develop their fields and increase production.”

“They need equity injection because they are all dependent on debts. As long as they are dependent on debts, they will be exposed and their cash flow will be affected when oil price fluctuates, like we have seen in the last three years,” Oni added.

The Chairman, PetroAfrique Oil & Gas Limited, Mr. Adams Okoene, said most of the companies had borrowed money from banks to carry out development on their fields.

The former Chief Executive Officer, Midwestern Oil & Gas Company Limited, noted that the Forcados terminal had only just come back into operation after a long time, adding, “All those who rely on that outlet to sell their crude have almost died because they had to be looking for alternatives.”

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

Nigeria’s Manufacturing Activity Contracts in September Amid Weak Macro Fundamentals

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Manufacturing Sector Contracts in September to 46.7 Index Points Amid Economic Uncertainties

Nigeria’s manufacturing sector contracted again in the month of September, according to the latest report from the Central Bank of Nigeria (CBN).

The Manufacturing Purchasing Managers’ Index that measures the healthiness of the sector revealed that activities contracted to 46.9 index points in the month of September. Below the 50 threshold that separates contraction from expansion.

The CBN report also stated that out of the 14 subsectors surveyed during the month under review, only 4 subsectors reported growth in the following orders: electrical equipment; transportation equipment; cement and nonmetallic mineral products. While the remaining subsectors reported declines in the following order: petroleum & coal products; primary metal; furniture & related products; printing & related support activities; food, beverage & tobacco products; textile, apparel, leather & footwear; chemical & pharmaceutical products; fabricated metal products and plastics & rubber products. Only the paper product subsector was described as stable.

Accordingly, production in the manufacturing sector stood at 47.3 index points in the month with activities expanding in just 5 subsectors out of the 14 subsectors surveyed. Eight of the subsectors contracted in production while activities in one subsector were unchanged.

Demand in the sector also contracted at 46.4 index points as demand dropped for the fifth consecutive month in September. Only six of the 14 subsectors surveyed recorded growth. The remaining eight declined.

Job creation in the sector declined with activities as the employment index stood at 44.1 index points, suggesting that businesses in the sector are not creating new jobs with plunging demands amid falling consumer spending.

Broad-based economic uncertainties continued to dictate productivity in Africa’s largest economy as a series of weak macro fundamentals, counterproductive government policies and COVID-19 negative impacts plunged business sentiment.

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Economy

COVID-19: CBN Injects N3.5 Trillion into the Economy

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CBN Stimulates the Economy With N3.5 Trillion as COVID-19 Impact Thickens

The Central Bank of Nigeria on Tuesday said it has so far injected N3.5 trillion into the Nigerian economy following the outbreak of COVID-19 in Africa’s largest economy.

Godwin Emefiele, the Governor of the Central Bank of Nigeria, disclosed this on Tuesday after the nation’s monetary policy committee meeting.

So far, he said N216.87 billion was injected through the real sector funds; COVID-19 Targeted Credit Facility N73.69 billion; AGSMEIS N54.66 billion; pharmaceutical and healthcare support fund N44.47 billion; and creative industry financing initiative N2.93 billion.

Breaking down expenditure, under the real sector funds, he said 87 projects that comprises of 53 manufacturing, 21 agriculture and 13 services projects were funded.

While in the healthcare sector, 41 projects which include 16 pharmaceuticals and 25 hospitals and health care services were funded.

Under the Targeted Credit Facility, he explained that 120,074 applicants had received financial support for investment capital.

The Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS) intervention has been extended to a total of 14,638 applicants, while 250 SME businesses, predominantly the youths, have benefited from the creative industry financing initiative,” he said.

In addition to these initiatives, he said, the CBN was set to contribute over N1.8 trillion of the total sum of N2.3 trillion needed for the Federal Government’s one-year Economic Sustainability Plan, through its various financing interventions using the channels of Participating Financial Institutions.

Meanwhile, the monetary policy committee lowered interest rate by 100 basis points to stimulate growth and broaden economic productivity. The benchmarkt intrest rate was lowered from 12.5 percent to 11.5 percent.

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Economy

Labour to Begin Strike as FG Refuses to Back Down on Petrol Price, Electricity Tariffs

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Ayuba Wabba

Labour to Embark on Industrial Action to Force FG  to Reverse Increase in Petrol Price, Electricity Tariffs

The sudden increase in prices of fuel and electricity tariffs despite the negative impacts of COVID-19 on the Nigerian people has forced the Nigerian labour union once again to announce an industrial action to compel the Federal Government to emulate other economies easing COVID-19 impacts through various palliatives and measures.

Labour union on Tuesday set Monday for what it described as “unprecedented mass action” and “total strike” to get the government to reverse the hike in petrol pump price and the increased electricity tariffs.

At a meeting with members of the National Administrative Council, Presidents and General Secretaries, the Nigeria Labour Congress National Executive Council (NEC) agreed to embark on a total strike against what they described as anti-people policy.

While the ultimatum given to the federal government by Trade Union Congress (TUC) expired on Monday, TUC has extended it till Monday in line with NLC announced industrial action.

NLC President Ayuba Wabba, who read the communique of the meeting, said: “NEC resolved to reject in its entirety the issue of hike in electricity tariffs by almost 100 per cent as well as the fuel price increase in the name of full deregulation.

“This decision is premised on the fact that these twin decisions alongside other decisions of government including the increase of VAT by 7.5 per cent, numerous charges by commercial banks on depositors without any explanations will further impoverish Nigerian workers and citizens.

“Therefore, this increase, coming in the midst of the COVID-19 pandemic, is not only ill-timed but counter-productive.

“NEC also observed that the privatisation of the electricity sub-sector seven years down the line has not yielded any positive result. Whereas, the entire privatisation process, the entire sector was sold at about N400 billion, we are surprised that government within the last four years injected N1.5 trillion over and above the amount that accrued from this important asset.

“Therefore, NEC came to the conclusion that the entire privatisation process has failed and the electricity hike is actually a process of continuous exploitation of Nigerians.

“On the issue of the refineries and also the increase in the pump price of PMS, this particular issue had been on the table for more than three decades and the argument has not changed.

“Whether it is the name of full deregulation or subsidy removal, what is obvious is that it is fuel price hike and this has further eroded the gains of the N30,000 minimum wage because it has spiral effects which include the high cost of food and services and the reduction in the purchasing power of ordinary Nigerians.

“While demanding that our three refineries should be made to work optimally, NEC also concluded that government has business in doing business because the primary purpose of governance is about the security and welfare of the people and if in other countries, governments are maintaining refineries, and they are working optimally for the benefit of the people, Nigeria cannot be an exception.

“In the light of these, NEC decided to endorse the two-week ultimatum given to the Federal Government to reverse those obnoxious decisions and also pronounce that the action proposed by the Central Working Committee is hereby endorsed by the NEC that 28th of September should be the date that those decisions should be challenged by the Nigerian workers, our civil society allies and other labour centres.”

“We’ll meet. We don’t want anything that will cause more financial pain to workers.”

Speaking on the matter and the reason for industrial action, TUC’s  President Quadri Olaleye and Secretary-General Comrade Musa-Lawal Ozigi, urged to Nigerians to get ready for the “unprecedented mass action”.

TUC said it resolved to work with the NLC and civil society allies because of the magnitude of the situation. Hence, it suspended the previously planned strike to join force with NLC and others.

Consequent upon this, the ultimatum which should expire by midnight of today (yesterday) has been shifted to 28th September 2020 for effective and maximum effect.

“We want to use this opportunity to call on Nigerians, especially those in the informal sector, to bear with us while the industrial action lasts.

“There is no need for the pains we bear. It is a needless one. They ask us to tighten our belts while they loosen theirs. Services are not rendered yet we are compelled to pay estimated bills.

“You will recall that this government during its electioneering campaigns in 2014 told the world there is nothing like subsidy. We were told that they will build refineries. All that is history now.

“We run a mono-economy and any hike in fuel automatically will have an adverse effect on us, yet successive governments tow that path because they are not creative.

“As at today, about eight states are yet to commence the payment of new minimum wage and its consequential adjustment even though the President signed it into law on April 18, 2019. We have written letters to the governors and also engaged them in dialogue but all to no avail. Sometimes we wonder if these people have a conscience at all.

“The Congress hereby appeals to all Nigerians to get ready for the unprecedented mass action against corruption, obnoxious policies, rape and other violent offences, breach of the collective agreement, unemployment, etc.

“We also call on the USA, UK, Germany, Spain, etc to support our struggle by placing indefinite visa ban on our political leaders whose stock in trade is to loot and impoverish the masses and the country. We can no longer take it. Enough is enough!”

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