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Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

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Pipeline Vandalism
  • Nigeria’s Proposed Sale of Oft-Bombed Oil Assets Won’t Be Easy

Nigerian President Muhammadu Buhari’s government on March 7 proposed a plan to jump start the economy by, among other things, selling stakes in joint-venture oil projects within the next three years. Given a militancy escalation that blighted those very assets last year, and previous struggles to privatize state businesses, analysts inside and outside the west African country say such sales won’t be straightforward.

“Nigeria’s track record on privatization and divestments has not exactly been the best, so people are probably going to greet this news with a certain degree of skepticism and I think rightly so,” Manji Cheto, a West Africa specialist at Teneo Intelligence in London, said by phone. “I don’t think this is going to be a process that’s speedy.”

Normally Africa’s biggest producer, Nigeria has been among the world’s hardest-hit supplier nations over the past year due to the militant attacks that crushed its output while prices remained half what they were in mid 2014. At the same time, its reduced flows have helped limit a global crude glut, bolstering OPEC and other nations dependent on revenue from selling the commodity.

The oil ministry and Nigeria National Petroleum Corp. didn’t respond to multiple calls and emails requesting comment.

Smaller Stakes

The oil asset-sale plan starting this year through 2020 would reduce the average 55 percent stake Nigeria holds in joint ventures with Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA, which produce about 90 percent of its crude.

Previous privatizations included power assets, a process that Nigerian Senate President Bukola Saraki said in February had “failed” to improve domestic access to power as planned. In 2010, the West African nation halted the sale of Nigerian Telecommunications Ltd., also known as Nitel, and opted to liquidate the company after failing to find a buyer for the former monopoly. It’s also struggled to secure outside investment in its refineries.

The government has traditionally been reluctant to sell crude assets. Existing plans aim to increase oil production to 2.5 million barrels a day by 2020 after falling to about 1.4 million last year, the lowest level in almost three decades. Such an increase could boost government revenue by 800 billion naira ($2.53 billion) annually and fund a revamp of domestic refineries. Lowering its stakes would diminish any windfall from a recovery in output and prices.

Unwilling Seller

“Many within the government do not really want to let go of oil assets, but the current reality may be slowly beginning to change that thinking,” said Cheta Nwanze, head of research at Lagos-based risk advisory SBM Intelligence. “This proposal represents an adjustment to a new economic normal and not a glowing embrace of market forces.”

Nigeria’s militant threat hasn’t gone away, either. While the government has stepped up engagement with community leaders and proposed restoring the budget to pay former fighters, the Niger Delta Avengers threatened earlier this year to widen attacks. The group was responsible for most pipeline sabotage last year.

The African country is also part way through five years of $5.1 billion in payments — in the form of crude sales — to oil companies to reimburse them for past operating costs.

“I imagine international oil companies will treat any additional equity stakes offered to them with a healthy dose of caution given the severe production disruptions of 2016 and the fact that the NNPC still owes substantial sums to their venture partners,” said Charles Swabey, an oil and gas analyst at BMI Research.

Good Assets

Nigeria reducing its average stake to 40 percent from 55 percent would be seen as ideal for the government, Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital Management, said in an interview.

The partner companies will receive the right of first refusal in any sale of the stakes, according to Nwanze from SBM Intelligence. International oil companies built up the stakes they have today from the late 1970s to the 1990s. So there is precedent for offloading such assets.

“The JV assets are good assets,” Yinkere said. “Nigerian buyers may be few this time around due to funding as many local banks will not be so willing to lend toward this. We could see healthy foreign appetite for the sale, particularly from China and India.”

But while Nigeria thinks about loosening its grip on the assets, a rebound in crude oil prices could still cause the sale to go the way of previous divestment plans.

“The need to increase government income is the primary motivation for these new proposals, and a return to the good times of higher oil prices and normal Nigerian production will be a formidable disincentive,” Nwanze said.

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 market.

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Nigeria to Become Leading Gold Producer in West Africa – Adegbite

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Adegbite Says Nigeria to Become Gold Hub in West Africa

The Minister of Mines and Steel Development, Olamilekan Adegbite, has said Nigeria is on its way to becoming a leading gold producer in West Africa.

Adegbite made the statement in Abuja while taking stock of his first year in office as minister.

He said, “Indeed, the international roadshows we have had in the past have produced fruits. Today, we have Thor exploration in Osun State through the Segilola Gold project.

“The exploration firm is projected to start producing (gold) in the first half of next year. The project is expected to create about 400 direct jobs and 1,000 indirect jobs.”

According to Adegbite, the Federal Government has licensed two gold refineries that would refine in line with the London Bullion Market Association standard.

He added, “Numerous industries will spring up when our gold economy becomes full-fledged. Some of them will include equipment leasing and repairs, logistics and transport, as gold requires a specialised means of transport, security, insurance, aggregators, and so on.”

The minister noted that for the first time, the country had mined, processed and refined gold under the Presidential Artisanal Gold Mining Development Initiative for use as part of Nigeria’s external reserves.

Adegbite also stated that the mines ministry had initiated a process that would lead to local capacity development in the production of barite.

“Presently, the barite that is used in the oil and gas industry is imported. But we are resolved to reverse this trend. As you may know, barite is a critical weighting material in drilling fluids due to its high specific gravity,” he said.

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NUPENG, Lagos State Agree to Call Off Strike

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NUPENG called off strike

NUPENG Agrees With Lagos State, Call Off Strike

The Nigeria Union of Petroleum and Gas (NUPENG) has ordered Lagos State Petroleum Tanker Drivers (PTDs) to call off its ongoing strike.

This was disclosed in a joint communique signed by the Lagos Commissioner of Energy and Mineral Resources, Olalere Odusote, and the NUPENG Deputy National President, Solomon Kilanko.

It would be recalled that Investors King had reported that NUPENG directed all PTDs to withdraw their services from Lagos State effective from Monday 10 August 2020 because of the persistent extortions and harassments of PTDs by both uniform security agencies and touts.

However, on the 10th of August, the commencement day of the strike, Lagos State government met with the leadership of NUPENG to address the union concerns and eventually agreed on a way forward.

Part of the communique reads “The Lagos State Government met today with the representatives of NUPENG, which agreed to call off its strike immediately.

“Other decisions taken at the meeting are security – the state government will meet the heads of all security agencies and secure their commitment to ensure the free passage of petroleum products vehicles given their importance to the economy.”

“Area boys’ – the menace of ‘area boys’ will be handled by relevant government agencies and a dedicated phone number will be established, within the next week to ensure the petroleum products transporters have prompt access to security agencies.”

The communique also stated that the Lagos State government will set up a standing committee to communicate with the union on an ongoing basis, saying it will help address a similar issue going forward.  See the complete communique below.

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Crude Oil Expands Gain on US Stimulus talks, Better Than Expected Chinese Factory Data

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Crude Oil Gains on US Stimulus, Better Than Expected Chinese Factory Data

Oil prices extended its gains on Tuesday following a better than expected factory data from China and a possible agreement between Democrats and Republicans on economic stimulus.

“The oil complex is heavily reliant on that aid. We need people to be able to boost economic activity to spur demand,” said John Kilduff, partner at Again Capital in New York.

President Trump on Monday said House Speaker, Nancy Pelosi and Senator Chuck Schumer, top Democrat in the chamber of Congress, wanted to meet him to discuss or make a deal on coronavirus-related economic stimulus.

The possibility of a stimulus deal, coupled with a reduction in China’s factory deflation in the month of July due to the surge in oil prices and improved industrial activity bolstered the outlook of the energy sector.

China is the world’s largest importer of crude oil. Therefore, improved factory activity generally boosts the oil market.

Also, the announcement from Iraq that it planned to cut an additional 400,000 barrels per day in August and September to compensate for its previous overproduction above OPEC+ quota aided the oil market this week.

“This would send out a strong signal to the oil market on various levels. That said, this would also require the international companies operating in Iraq to join in with the cuts,” Commerzbank analyst Eugen Weinberg said.

The Brent crude oil, against which Nigerian oil is priced, expanded from $41.30 per barrel it traded on Monday to $45.40 per barrel on Tuesday at 10:10 am Nigerian time.

UKOilDaily 1While the U.S West Texas Intermediate crude oil rose from $41.48 per barrel to $42.47 per barrel on Tuesday.

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