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Uncertainty over Nigeria’s daily oil production persists

By on August 22, 2013

Nigeria’s oil production, which now fluctuates between 2 and 2.5 million barrels per day (bpd), may not likely be enhanced by the on-going oil block sales in the short-term, according to report by Reuters on Tuesday revealed.

The report however expects that the blocks’ sale may get uplift in future, it says such is achievable only if smaller local companies work harder to exploit reserves, and government successfully stem the spate of insecurity, partnering local communities.

Already, international oil companies have sold some blocks and are still putting many other blocks for sale.

Shell, for instance, has already sold eight blocks in the Niger Delta at the cost of about $1.8 billion since 2010, with plans to sell more fields responsible for between 80,000 and 100,000 bpd, although it is not clear if this level of output is yet being produced.

Chevron, another industry giant, is also selling five shallow water blocks, but would not comment further on its plans for Nigeria; while fellow U.S. firm ConocoPhillips is selling its Nigerian businesses to Oando for about $1.79 billion. Theft may not be the only reason for selling down.

Oil tycoons, Tony Elumelu, and Wale Tinubu, chief executive of Oando, known to be among those negotiating to the buy oil blocks off majors, told Reuters in recent interviews, they thought it would be easier for Nigerian companies with a better understanding of local issues to manage often fraught community relations.

“But ending oil theft, officially estimated at 250,000 bpd, is a massive undertaking. It is often associated with criminal gangs who tap crude from pipelines for local refining, but most stolen crude leaves the country in large tankers, which could not happen without the complicity of top officials,” the report read.

Shell, the largest producer in Nigeria, said penultimate week that it took a $700 million hit from theft and other issues in Nigeria, as well as the tax impact of a weakening Australian dollar. Shell’s share of output in Nigeria fell to 158,000 bpd in the second quarter, down from 260,000 bpd in 2012.

Shell CEO Peter Voser nevertheless told Reuters this month the company was not seeking to leave Nigeria.

Eni said it had lost 30,000 bpd of output in the first half of the year due to theft and CEO Paolo Scaroni said the company was “reviewing its position” in Nigeria.

Total declined to comment on its plans, even as discussions on the much awaited Petroleum Industry Bill (PIB), remains politically deadlocked, after being in the works for over five years now. The Bill, it is believed, could change the terms for foreign companies in Nigeria and will promote local ownership of onshore blocks. Shell, Chevron, Eni and Total have been in failed negotiations with the Nigerian government for several years to renew expired licenses on many onshore and shallow water blocks. “Perhaps they would rather sell licenses while they still can rather than having to relinquish them for nothing,” said Antony Goldman, head of Africa-focused PM Consulting.

Yet Shell recently announced it would spend $3.9 billion on a gas project and a reconstruction of a better protected Trans Niger pipeline, one of the country’s most important crude oil routes and often hit by outages caused by theft or sabotage. That suggests it still sees value working onshore in Nigeria.

Shell may even buy one of Chevron’s blocks, two sources told Reuters, which would provide the perfect route from one of Nigeria’s largest gas fields to its LNG export terminal. Nigeria holds the world’s ninth largest gas reserves, most of which are untapped. Energy majors are increasingly moving towards gas production instead of oil in the Niger Delta.

Majors such as Shell will likely keep large pipelines and export terminals, so even if local firms are getting the oil out of the ground, where the risks of insecurity are highest, the majors can make a cut from taking oil to international markets.

“Oil majors want to keep control of this infrastructure as it means they will have a large degree of control of onshore assets and derive revenue from transportation,” said Kayode Akindele, partner at Lagos-based investment firm 46 Parallels.

There is no guarantee that deals on assets that majors want to sell can be easily or quickly completed – Nigeria has one of the world’s slowest oil contract approval times, experts say. Some of Shell’s previous divestments took years to negotiate. Buyers will also be wary of the state oil company’s production arm Nigerian Petroleum Development Company taking over the operating rights – as it has on previous Shell field sales where the private buyers were expecting to operate them.

Yet for the all the pitfalls, Nigeria will be keen to close the deals, which please the political elite and public alike.

“The divestment is a positive step for all the major players involved … (it) will have a positive knock-on impact on production longer-term,” said Martin Kelly, Wood Mackenzie’s Lead Analyst for Sub-Saharan Africa Upstream Research.

“But … in order to make a noticeable difference other challenges need to be addressed — like the PIB and security.”

 

 

[Daily Independent]