Local oil firms risk collapse amid low price – Punch

By Femi Asu

The participation of local firms in the Nigerian oil and gas industry may have fallen significantly as the slump in global crude oil prices has left many of them without contracts.

The sharp drop in prices has forced oil companies, including the big ones, to cut capital expenditure budgets, lay off employees and suspend some projects.

Global benchmark Brent crude, which peaked at $115 per barrel in June 2014, fell to as low of $27 per barrel in January this year. It traded around $45 per barrel on Wednesday.

Industry experts, who spoke with our correspondent in separate interviews, described the sustained low oil price regime as a major threat to the gains recorded by the Nigerian local content initiative.

The Nigerian Oil and Gas Industry Content Development Act or local content, which came into existence on April 22, 2010, has boosted the participation of local firms in the industry in recent years.

The Act, which directly affects operating companies, contractors, sub-contractors and service providers, seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials and to promote the employment of Nigerian staff in the industry.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said, “One of the key segments that we saw a lot of local players participating in, which has been affected by the oil slump, is drilling .”

He said a lot of Nigerian companies, because they couldn’t access oil fields, went into provision of drilling services.

“But unfortunately, the slump in crude oil prices has now forced a lot of oil companies to cut their drilling programmes. So, their needs for this particular type of services have dropped significantly.

Citing data from Baker Hughes, Oni said the rig count for Nigeria dropped to just six (four offshore and two onshore) in February, as against 33 rigs or more at a time in the past.

He said, “Clearly, that industry has really taken a major hit. Most of the drilling companies are complaining that they have rigs but no jobs.

“Another segment that we saw a lot of Nigerians going into was marine logistics. But it had been manageably okay because whether you are exploring, appraising or doing field development, as long as your site is offshore, you will need boats and helicopters.”

Oni said some of the local firms “have been going under water already,” adding, “Just that because that segment is very private – they are not public or quoted – we don’t hear those stories. A lot of them have had to look at other lines of business, move out of their core business because there is absolutely no business there again. A lot of them have laid off staff.”

The President, Nigerian Association for Energy Economics, Prof. WumiIledare, noted that the activity level in industry had gone low because of the low oil price regime.

He said, “There is not much activity in the industry. The people providing most of the national content-driven services, there is no job for them to do.

“If you look at the drilling companies, the wireline services companies, even the indigenous oil and gas companies are grossly affected because of this low oil price regime. More so, when they have to depend on foreign exchange to be able to execute some of the things they are doing.”

The professor of petroleum economics noted that the oil slump might force some local firms out of operation, saying, “What will you do if you can’t keep your door open because the service you want to render is not being demanded?

“In order to prevent that from happening, government needs to look at what they can do in order to sustain indigenous participation in the oil industry.”

Iledare said under a low oil price regime, government could put in place incentives to encourage oil and gas companies to engage in activities that they would otherwise shy away from at a time like this.

“This will make it possible for local companies to be engaged and it will have a multiplier effect on the economy.”

Lagos joins league of oil-producing state

It is official: Lagos state has finally become an oil-producing state, and will join states who get 13 percent derivation from the federation account.

PUNCH reports that Yinka Folawiyo Petroleum Company Limited (YFP), a wholly-owned indigenous firm and operator of the OML 113 offshore Lagos, on Tuesday announced the commencement of production of crude oil from the field.

This is coming 25 years after the company was awarded an oil prospecting licence.

Tunde Folawiyo, YFP chairman, was quoted to have said: “The attainment of this milestone is indeed a laudable achievement not just for the YFP, but for the Nigerian oil and gas industry as a whole and indeed Lagos State, which can now be addressed as an oil-producing state.

“We are very proud of and appreciate the efforts, determination and commitment of the entire Aje project team, past and present; the constant support from our regulators, the DPR and Ministry of Petroleum; and our financiers. We believe this crucial support will spur us on to even greater achievements.”

YFP partnered New Age Exploration Nigeria Limited, EER (Colobus) Nigeria Limited, Pan Petroleum (Panoro Energy) Aje Limited and PR Oil & Gas Nigeria Limited in the exploration.

Panoro had in an update posted on its website on April 20 said the final hook-up procedures were in progress with a view to bringing the wells into production shortly.

Oil produced from the Aje field will be stored on the Front Puffin, which has production capacity of 40,000 barrels of oil per day and storage capacity of 750,000 barrels, according to the YFP.

YFP was awarded the oil prospecting license (OPL 309) in June 1991 as a sole risk contract under the Nigerian government’s indigenous allocation programme, which was put in place to encourage the development of a locally owned and operated Nigerian upstream oil industry.

The total area covered by the concession block is 1699 sq km, YFP said on its website.

Following the acquisition of 2D seismic data in 1994/95, and the drilling of the Aje-1 well in 1996, the Aje field was discovered.

A second well, Aje-2, was drilled the following year in 1997. After the successful drilling and testing of both wells, OPL 309 was converted to oil mining license (OML) 113 in 1998 with an initial term of 20 years.

Source: The Cable

Saudi-Iran split muddies OPEC long-term strategy – sources

DUBAI/LONDON, May 3 (Reuters) – OPEC has yet to agree on a long-term strategy as Saudi Arabia objects to a proposal from arch-rival Iran that the exporter group aim for tighter control of the oil market, sources said, pointing to deep divisions over the way forward.

The OPEC board of governors met on Monday in Vienna to discuss the latest draft of its LTS. While they made progress on some issues, OPEC kingpin Riyadh disagreed with Tehran’s proposal to include “effective production management” as a challenge for the group, two OPEC sources said.

“Iran and Saudi did not agree,” said one source, who declined to be identified.

Iran, according to an earlier draft of the LTS seen by Reuters in November, had proposed that the first of 10 challenges OPEC listed for itself – “sustaining oil market stability” – be tweaked to refer to managing supply.

“The first challenge could be expressed in a more clear way as follows: ‘Sustainability of oil prices at optimal levels as well as maintaining effective production management, in light of dynamic market conditions,'” Iran wrote on the earlier draft.

At stake, fundamentally, is whether the Organization of the Petroleum Exporting Countries puts its traditional role of fixing supply to prop up prices – a position favoured by Iran and other members such as Algeria – at the top of its agenda.

Or, in response to rising supply outside the group, OPEC steps back from attempting to manage the market – a view in line with the thinking of Saudi Arabia, which led a shift in OPEC strategy in November 2014 when the group refused to cut output.

The debate matters for the oil industry and wider economy as oil prices, which began a slide from over $100 a barrel in June 2014 due to oversupply, deepened their collapse in response to OPEC’s decision not to cut.

Crude hit a 12-year low in January this year and is now trading around $45.

That policy shift continues to divide the group, with members disagreeing about the need to support a fair oil price and boost revenues.

The earlier LTS draft seen by Reuters carried annotations from Iran and Algeria for measures to support prices such as a price target or floor and a return to OPEC’s quota system.

Saudi Arabia and its Gulf OPEC allies oppose a return to quotas, which were dropped in 2011.

The long-term report is prepared by OPEC’s research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.

OPEC officials will meet again this year in an attempt to reach agreement on the long-term strategy, sources said. Two OPEC sources described the areas of disagreement as relatively small.

Still, the likelihood of a return to production management by OPEC appears remote. Last month, a deal to freeze output by OPEC and non-member producers fell apart after Saudi Arabia demanded that Iran participate.

Iran has refused to limit production as it seeks to regain market share following the lifting of Western sanctions in January, although sources have said Tehran would do so once output has recovered to the pre-sanctions level.

OPEC’s oil ministers hold their next meeting on June 2 in Vienna to discuss output policy.

Source: Reuters

Nigeria to begin exploratory oil drilling in Chad Basin by October – Kachikwu

ABUJA May 2 (Reuters) – Nigeria plans to begin exploratory drilling in search of oil in the northeastern Chad Basin region by October, the head of the state oil company has said.

Emmanuel Ibe Kachikwu, who last year said Africa’s biggest crude exporter may be on the verge of a significant oil find in the Lake Chad area, said in a statement on Sunday that seismic studies were ongoing.

“Drilling activities will commence by the last quarter of 2016,” the Nigerian National Petroleum Corporation (NNPC) chief, who is also minister of state for oil, was quoted as saying in the statement issued by the state oil company.

Africa’s biggest economy has been hit hard by the sharp fall in global oil prices because it relies on crude exports for around 70 percent of government revenue.

NNPC spokesman Garba Deen Muhammad said exploration in the region was intended to “add value to the hydrocarbon potentials of the Nigerian inland basin, provide investment opportunities, boost the economy as well as create millions of new jobs”.

Source: Reuters

OPEC oil output near record high in April as Iran, Iraq growth offsets outages

By Alex Lawler

LONDON, April 29 (Reuters) – OPEC’s oil output rose in April to close to the highest level in recent history, a Reuters survey found on Friday, as production increases led by Iran and Iraq more than offset a strike in Kuwait and other outages.

Top exporter Saudi Arabia, however, made no major change to output, the survey found, despite the kingdom hinting it could boost supply after OPEC and non-member nations failed to agree to freeze output at a meeting on April 17.

Oil has rebounded more than 75 percent from a 12-year low in January to reach $48 a barrel, helped by the freeze initiative and signs that lower prices are starting to curb higher-cost supply, despite high inventories and other persistent reminders of a glut.

“The market is massively oversupplied,” said Eugen Weinberg, analyst at Commerzbank in Frankfurt. “This rally doesn’t have strong legs.”

Supply from the Organization of the Petroleum Exporting Countries rose to 32.64 million barrels per day (bpd) this month, from 32.47 million bpd in March, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants.

That almost matches January’s 32.65 million bpd, when Indonesia’s return as an OPEC member boosted production and output from the other 12 members was the highest in Reuters survey records, starting in 1997.

OPEC output has surged since it abandoned in 2014 its historic role of cutting supply to prop up prices, led by higher supply from Saudi Arabia and Iraq.

Iran saw the sharpest increase in production in April after Western sanctions were lifted in January. Tehran, which wants to recover the market share it lost, has refused to limit its supply until it reaches pre-sanctions output.

At 3.40 million bpd, Iranian output is within sight of the 3.50 million bpd it pumped at the end of 2011 before sanctions were tightened, according to Reuters surveys. However, some of the crude may have come from storage, giving a temporary boost to April supply, sources said.

Iraq, which saw the fastest growth in production in OPEC in 2015, also raised output. Southern exports have risen to what may be a new record in April – depending on whether tankers loading at the end of the month are treated as April or May. Shipments of Kurdish crude from the north also rose.

OPEC’s third-largest supply increase in April came from the United Arab Emirates, following the end of maintenance work on oilfields that produce Murban crude.

Of the countries that reduced output, the largest decline was in Kuwait due to a three-day workers’ strike which temporarily more than halved oil output and curbed refinery operations.

Nigerian output fell due to the continued lack of Forcados crude exports and a brief disruption to shipments of another stream, Brass River. Repairs on a pipeline to the Forcados terminal will take until June, the government said.

Loading problems, power failures and other problems dented Venezuela’s supply by an estimated 40,000 bpd. Oil services firm Schlumberger is cutting activity in the cash-strapped nation, posing a threat to future output.

Saudi Arabia kept output steady compared with March, sources in the survey said, even though use in domestic power plants is rising. Saudi production was estimated at 10.15 million bpd versus 10.18 million in March.

“Exports are lower,” said a source who monitors Saudi output. “The month is not over yet so let’s wait for the final number, but that’s what I am seeing here and now.”

OPEC meets on June 2 in Vienna and may discuss the freeze initiative again. However, OPEC officials have been encouraged by the price recovery, which may take the urgency out of a renewed attempt to forge a deal.

Source: Reuters

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Party politics aside, Nigeria must industrialize Now

By Ugo Nwagwu

The best time for Nigeria to industrialize was 35 years ago. The second best time; NOW!

Pre Independence Malaysia was rich in natural resources such as porcelain, spices (which were then traded as currency) and large deposits of Tin. As part of the British Empire, the British took over administration of the economy and also introduced Rubber and Palm Oil trees for commercial purposes and then brought in Chinese and Indian expats to work the fields and mines instead of locals. Pre 1970s Malaysia had an economy completely dependent on natural resources exported while basically everything it consumed was imported. Sound familiar?

Today, Malaysia though still state oriented, has a newly and open industrialized market economy. This is because in the 60s and 70s, the Malaysian government took painful and costly steps to industrialize their economy. The Malaysian government committed itself to a transition from being solely reliant on mining and agriculture as an economy to a multi-sector economy. Mining and agriculture dominated the economy up until the 80s and since then, it’s been the industrial sector driving growth. It took 25 years for the turn around.

If you read the papers and follow the news concerning all things about Nigeria’s economy, three things continue to drive the headlines: Oil prices, Nigeria’s insatiable appetite for FOREX (Dollar, Pounds, Euros and now potentially, Yuan) & diversifying to Agriculture.

One thing we still aren’t talking about is how to push past the politics of now, and blame shifting to chasing after real solutions that will benefit our children and their children. We are a nation of traders. We have always been a nation of traders and even if we exploit more of the agricultural sector, chances are that we will take the traders approach.

As we diversify into agriculture, the tendency will be to treat its produce as we’ve done with oil. Right now, Nigeria remains one of the largest crude production and exporting country but what plagues the average Nigeria today is the availability of refined crude. We continue to import refined crude at an amazing rate negating whatever balance of trade that could have been helped by crude export. Even if the state’s 3 refineries were working to capacity, it won’t produce enough to support a population of 180 million and growing.

Now we want to take the same mentality into agriculture by “mining” produce and then exporting the raw produce without any thought to a “National Vertical Integration” whereby we keep all our “raw produce” and process them here to first serve the immediate need of the population (limiting imports of those processed goods) and then exporting them. Simply put, if we grow tomatoes, we should be able to process every part of the tomato into everything Nigerians need from a tomato i.e. canned tomatoes, ketchup, tomato sauce, tomato paste, tomato puree all in Nigeria. This goes for every single agricultural produce we grow or plan to grow.

That’s one example but it can be applied to every sector in which raw materials are found. Palm oil is used in over 50% of everything found in a supermarket and you know which country has one of the world’s largest palm oil production potential? Nigeria! As a nation we need to invest not just in mining gold, lead, zinc or whatever metals are beneath the soil to smelting them and turning them into actual products that we can then export to other parts of Africa and the world thereby controlling all parts of its margins.

This level of industrialization would pump millions of jobs into the economy and lead to economic growth unrivaled in any part of Africa in its history.

How do we start? First we must resist the urge to turn the Naira-Yuan swap into another level of shopping binge for cheap Chinese goods but instead import heavy machines and power plants to build factories and manufacturing plants. We must continue to attract foreign investments that solely act to serve Nigeria in an industrialization master plan.

The Federal Government can pursue public private partnerships with matching investments and use the capital markets as part of their exit strategy thereby also providing a return of investments to shareholders. This is certainly more productive than subsidizing fuel consumption.

We don’t need more retail outlets and companies selling us high priced alcoholic beverages. We have enough cheap clothing and shoes coming in droves from all parts of the world.

If we do this and leave the politics and tribalism that only serves to separate us and shift our attention from the selfish ambition of today’s politician from the Local Government level to the Federal Government and all ministerial staff, then maybe in 25 years, we too would serve as an example for other countries to follow. If we get this done and done right, no one would be as concerned about the price of $1.

To borrow a phrase from one of Nigeria’s senators from Bayelsa, Senator Ben Muray Bruce, my name is Ugo Nwagwu and I just want to make common sense.

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World Bank Raises 2016 Oil Price Forecast – Naija247News

Amid improving market sentiment and a weakening dollar, the World Bank is raising its 2016 forecast for crude oil prices to $41 per barrel from $37 per barrel in its latest Commodity Markets Outlook, as the oversupply in markets is expected to recede.

The crude oil market rebounded from a low of $25 per barrel in mid-January to $40 per barrel in April following production disruptions in Iraq and Nigeria and a decline in non-Organization of the Petroleum Exporting Countries production, mainly U.S. shale. A proposed production freeze by major producers failed to materialise at a meeting in mid-April.

“We expect slightly higher prices for energy commodities over the course of the year as markets re-balance after a period of oversupply,” said John Baffes, Senior Economist and lead author of the Commodities Markets Outlook. “Still, energy prices could fall further if OPEC increases production significantly and non-OPEC production does not fall as fast as expected.”

All main commodity indexes tracked by the World Bank are expected to decline in 2016 from the year before due to persistently elevated supplies, and in the case of industrial commodities – which include energy, metals, and agricultural raw materials – weak growth prospects in emerging market and developing economies.

Energy prices, including oil, natural gas and coal, are due to fall 19.3 percent in 2016 from the previous year, a more gradual drop than the 24.7 percent slide forecast in January. Non-energy commodities, such as metals and minerals, agriculture, and fertilizers, are due to decline 5.1 percent this year, a downward revision from the 3.7 percent drop forecast in January.

Indonesia OPEC governor: no urgency to freeze output with oil at $45 – Reuters

ABU DHABI, April 25 (Reuters) – Indonesia’s governor to the Organization of the Petroleum Exporting Countries said on Monday that oil at $45 a barrel was “not bad” and that there would be no urgency to freeze output if crude remained at that price.

Despite failure to reach a deal to curb oil output and support prices at an April 17 meeting of OPEC and non-OPEC producers, crude prices have maintained a general upward trend since hitting a 12-year trough in mid-January.

Front-month Brent crude was trading at $44.75 per barrel at 0752 GMT, down 36 cents, or 0.8 percent, from its last settlement as traders took profits after three weeks of gains.

“The price is $45, which is not so bad,” Widhyawan Prawiraatmadja told Reuters on the sidelines of an energy event in Abu Dhabi.

“If it stays that way, there’s no need to freeze output. There’s no urgency.”

Prawiraatmadja said an oil price of $50 to $60 was “probably ideal, but still relatively cheap”. The Southeast Asian nation, which rejoined OPEC as its 13th member in December last year, needs $50 crude to sustain its oil and gas industry.

“Perhaps the more ideal situation is if OPEC can actually engage non-OPEC to come into some kind of agreement while also pushing (the global) economy to grow,” he said.

IRAN

Prawiraatmadja said nothing had yet been signed on a deal for Indonesia to import liquefied petroleum gas (LPG) from Iran, noting that some impediments remained such as being able to pay for the products.

While sanctions imposed on Iran due to its nuclear programme were lifted in January, separate sanctions imposed by the United States on financial transactions remain in place, hampering attempts to do business with the Islamic Republic.

“It’s not quite a deal yet – the understanding is you can make it happen once you are able to execute it.

“The difficulty is the transaction, as it’s not always easy to get the banks to do it.”

Prawiraatmadja declined to comment on the quantities of LPG Indonesia would import, except to say the country would take “whatever they have, provided that it is at better terms than with other sources”.

Indonesia’s OPEC governor said on March 7 that a deal was imminent for importing Iranian condensate and LPG, but not for crude as Iran’s sour oil grades were not compatible with its refineries’ need for sweet crude.

Nigeria’s planned crude oil exports for June at 2016 low – Reuters

LONDON, April 25 (Reuters) – Nigeria’s initial oil export plan for June showed crude loadings poised to fall to the lowest level so far this year, according to a compilation of loading programmes on Monday.

The exports, on 52 cargoes, totaled 1.57 million barrels per day (bpd), compared with a revised May programme of 1.6 million bpd aboard 55 cargoes.

The export plans did not include Erha, which is the subject of a disagreement between ExxonMobil and Nigeria’s NNPC. There has still been no May loading programme issued for the grade.

If Erha export cargoes are issued, it would likely push the June exports above April, the previous 2016 low, when just under 1.60 million bpd were scheduled for export.

Nigeria’s oil production has been hampered by a force majeure on the Forcados stream that has been in place since February. Nigeria’s NNPC has said repairs on the pipeline that feeds Forcados to the export terminal will take until June.

According to the April OPEC monthly oil market report, the issues pushed Angola’s oil production levels above those of Nigeria in March this year – the latest figures available. Currently, Angola plans to export 1.7 million bpd in June. 

W. Africa Crude-Angolan trade slow, Nigerian steady

LONDON, April 25 (Reuters) – * Angolan crude for June loading has not attracted much spot buying interest yet as offer levels fail to tempt buyers. * Nigerian differentials were steady. The full set of June loading programmes has not been issued yet.

ANGOLA

* Few spot sales of June-loading Angolan cargoes have come to light. BP was heard to have sold its early June-loading Mondo cargo, but buyer and price details were not known.

* Sonangol’s offers of Dalia and Sangos cargoes, at dated Brent minus $3 and dated minus $1.80 respectively, were unchanged from Friday. The company has allocated 13 June-loading cargoes to term buyers.

* Other sellers were offering cargoes of Pazflor at dated minus $3.00 and Hungo at dated minus $2.60, a trader said.

NIGERIA

* About 14 to 15 May-loading cargoes are still unsold, traders said, on a par with Friday’s assessment.

* The full set of June-loading programmes has yet to emerge. Programmes for Erha, Forcados and a few smaller grades have not been issued.

* Qua Iboe was valued at about dated Brent plus $1.00 to plus $1.10, in line with Friday.

TENDERS

* The results of buying tenders from Indian refiners MRPL and BPCL are expected early this week. MRPL is looking for June-loading crude and BPCL is seeking second-half May barrels.

Source: Reuters