Oil sec­tor faces slow­down amid loom­ing di­vest­ment

The Punch - - MONEY -

’Femi Asu with agency re­port

THe na­tion’s oil and gas sec­tor may not get a much­needed re­vamp this year as a num­ber of in­ter­na­tional oil com­pa­nies op­er­at­ing in the coun­try look set to di­vest more as­sets amid a lack of re­forms.

S&P Global Platts re­ported that Nige­ria’s rad­i­cal move in Novem­ber to hike taxes on com­pa­nies op­er­at­ing in its lu­cra­tive deep­wa­ter blocks might have raised the gov­ern­ment’s share of the rev­enue from oil but could back­fire by de­ter­ring the IOCS from the coun­try and hin­der­ing out­put growth.

The na­tion’s oil and gas pro­duc­tion struc­ture is ma­jorly split be­tween joint ven­tures on­shore and in shal­low wa­ter with for­eign and lo­cal com­pa­nies and the

Pro­duc­tion Shar­ing Con­tracts in deep­wa­ter off­shore, to which most of the IOCS have shifted their fo­cus in re­cent years.

“The prospect of more IOC di­vest­ment from Nige­ria is loom­ing, es­pe­cially as the 20year deep­wa­ter pro­duc­tion shar­ing con­tract agreed in the mid-1990s be­gins to ex­pire,” a se­nior African an­a­lyst at con­sul­tancy Verisk Maple­croft, ed Hobey-hamsher, told S&P Global Platts.

“No one will want to be the last ma­jor hold­ing a PSC, and a race to di­vest will de­press prices. (Pres­i­dent Muham­madu) Buhari shows no will­ing­ness to fur­ther projects that might rekin­dle oil and gas de­vel­op­ment,” Hobey­hamsher said.

“He be­lieves re­tain­ing his con­trol of ex­ist­ing projects is cru­cial to main­tain­ing his grip on power,” he added.

Buhari’s shift comes as other pro­duc­ers in the re­gion, like An­gola and Gabon, sweeten fis­cal terms to at­tract for­eign in­vest­ment into their be­lea­guered oil sec­tors.

“A 10 per cent roy­alty hike marginally re­duces Nige­ria’s com­pet­i­tive ad­van­tage, in a coun­try where in­vestors must also weigh per­sis­tent se­cu­rity risks,” a geopo­lit­i­cal ad­vi­sor at Platts An­a­lyt­ics, Paul Shel­don, said in a re­cent note.

Nige­ria, the big­gest African oil pro­ducer, saw its oil pro­duc­tion grow sharply in 2019, thanks to the start of the 200,000 bpd deep­wa­ter egina field, with out­put av­er­ag­ing a five-year high of 1.91 mil­lion bar­rels per day, ac­cord­ing to Platts es­ti­mates.

Mil­i­tancy in the Niger Delta re­mained largely dor­mant in 2019, which helped keep pro­duc­tion at el­e­vated lev­els. But the se­cu­rity sit­u­a­tion in the Niger Delta re­mains fraught as his­tory has shown the re­gion is just a few sparks away from a con­flict.

The coun­try has been man­ag­ing mil­i­tancy in the restive Niger Delta by con­tin­u­ing amnesty pay­ments, and this will con­tinue into 2020, ac­cord­ing to the 2020 bud­get.

“The real threat is ag­ing in­fra­struc­ture. Di­lap­i­dated pipe­lines would ex­ac­er­bate the pro­duc­tion dis­rup­tion caused by even a mi­nor in­crease in theft or sab­o­tage by up to 300,000 or 400,000 bpd,” Hobey-hamsher said.

Key ex­port flows on the Trans For­ca­dos pipeline and Nembe Creek Trunk line were fre­quently tar­geted by thieves re­sult­ing in shut­down on sev­eral oc­ca­sions in 2019.

The coun­try’s oil pro­duc­tion prospects, how­ever, re­mained stunted by the gov­ern­ment’s bud­get deficits.

Platts An­a­lyt­ics said Nige­ria’s per­sis­tent fis­cal deficits, pro­jected by the In­ter­na­tional Mon­e­tary Pol­icy at five per cent of the GDP and nearly 40 per cent of the bud­get in 2019 and 2020, raised short and medi­umterm risks to oil sup­ply growth.

Shel­don said, “Fis­cal stress puts a spot­light on amnesty pay­ments to Niger Delta mil­i­tants, which risk be­ing grad­u­ally whit­tled away as 2016 re­cedes fur­ther from mem­ory.

“How­ever, a cut to amnesty pay­ments could quickly change re­gional se­cu­rity dy­nam­ics.”

Nige­ria saw its pro­duc­tion plum­met to a 30-year low of around 1.4 mil­lion bpd in mid-2016 due to dev­as­tat­ing at­tacks on oil in­stal­la­tions by Niger Delta mil­i­tants.

Nige­ria’s sin­gu­lar piece of leg­is­la­tion aimed at in­tro­duc­ing rad­i­cal re­form in its oil sec­tor, the Pe­tro­leum In­dus­try Bill, is still gathering dust in the par­lia­ment as it con­tin­ues to bounce be­tween leg­isla­tive and ex­ec­u­tive arms of gov­ern­ment.

The PIB, which would change the or­gan­i­sa­tional struc­ture and fis­cal terms gov­ern­ing the Nige­rian oil in­dus­try, has been in the works since 2008.

For­eign oil com­pa­nies have said bil­lions of dol­lars in in­vest­ments in the Nige­rian oil in­dus­try have been held up due to the non-pas­sage of the PIB.

Nige­ria aims to in­crease oil pro­duc­tion to three mil­lion bpd by 2023, ac­cord­ing to a gov­ern­ment doc­u­ment.

But in­dus­try an­a­lysts say the tar­get may elude the coun­try due to the cli­mate of un­cer­tainty the non-pas­sage of the PIB has cre­ated.

Most an­a­lysts do not ex­pect the bill to be passed this year, which means in­ter­na­tional oil firms are un­likely to in­crease their in­vest­ment in the coun­try un­less more at­trac­tive terms are of­fered.

“Buhari could pro­vide a pos­i­tive sig­nal to in­vestors and tem­per tum­bling in­vestor con­fi­dence through a speedy pass­ing of the PIGB in 2020, a prospect how­ever that re­mains re­mote,” Hobey-hamsher said.

•L-R: Sec­re­tary to Gov­ern­ment of Imo State, Uche Onyeagucha: Imo Deputy Gov­er­nor, Ger­ald Irona: Gov­er­nor Emeka Ihe­dioha: Pres­i­dent, Afrex­im­bank, Bene­dict Oramah: and Man­ag­ing Di­rec­tor, Afrex­im­bank, Kananso Awani, dur­ing a visit by the man­age­ment of the bank to the Gov­er­nor at the Gov­ern­ment House, Ow­erri …on Mon­day. Photo: Imo State Gov­ern­ment

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