With fast dwindling oil price and revenue crash, investment in Nigeria’s oil and gas sector seems fragile, Chika Izuora writes.
There is every reason to feel concerned about Nigeria’s oil and gas future. Experts have sounded the warning about impending dwindling activities in the industry that sustains the economy of Africa’s largest economy.
Analysts have in their project took a surgical analysis of trends in the global environment and came to the conclusion that indeed, 2016 would be tough and turbulent for the nation’s economic environment due to declining oil price at the international market and the corresponding impact on government revenue and foreign reserve.
The Organisation of Petroleum Exporting Countries (OPEC) in its worlds outlook indicated that oil price will stop falling and resume an upward trend in the next 25 years.
Indeed oil market analysis, observes that prices may be on the upward swing from mid-June.
“The price of the ORB (OPEC reference basket) is assumed to average 55 U.S. dollars per barrel during 2015 and to resume an upward trend in both the medium and long-term,” the report forecast, saying the oil price would reach 70 U.S. dollars a barrel in 2020 and 95 dollars per barrel in 2040.
The nation’s oil and gas industry is not immune from development in the global oil space as some companies have had to suspend production and intense activities on their operations as a result of dip in the international price of crude oil.
Unfortunately also, the insolvency of the Nigerian National Petroleum Corporation, (NNPC), is further complicating the already miserable situation.
The state run oil firm is having difficulty funding its obligation to International Oil Companies, IOCs, as it owes its Joint Venture (JV) partners $2.839 billion, about N567.76 billion, between January and November 2015.
Report from the NNPC, in its Monthly Financial and Operations for November 2015, obtained shows that it was only able to pay $3.395 billion to fund its JV cash call obligation with IOCs, instead of a total of $6.774 billion.
The JV cash call is a first line charge to Federation Account, and the 2015 approved budget requires monthly funding of about $615.8 million and a monthly funding of $615.8 million translates to $567.76 billion for the 11-month period.
The huge indebtedness to the IOCs in the JV arrangement was irrespective of the fact that the NNPC last remitted dollar proceeds from its crude oil export to the Federation Account in the month of March 2015.
A breakdown of JV cash call funding and amount remitted to the Federation account,according to the report stated that the NNPC paid $300 million for its JV obligation in January and $320.8 million each for February and March, while it remitted $76.642 million, $346.21 million and $184.98 million to the Federation Account for January, February and March respectively.
From April till November, no single remittance was made to the Federation Account, while it paid $502.386 million, $338.103 million, $387.93 million, $419.411 million and $225.74 million for the months of April, May, June, July and August respectively.
For the months of September, October and November, it paid $271.994 million, $445.79 million and $402.55 million respectively, for its JV cash call funding obligation.
The NNPC blamed the development on its declining crude oil export revenue, occasioned by the persistent decline in the prices of crude oil in the international market.
According to the NNPC, the crude oil export proceeds are no longer sufficient to service the JV Cash call obligation and remit to Federation Account.
It said: “JV cash call is a first line charge to Federation Account and 2015 approved budget requires monthly funding of about $615.8 million. NNPC is, therefore, mandated to sweep all the export receipt to JV Cash Call funding implying a zero remittance to Federation Account.”
The NNPC stated that current total export receipt was 9.7 per cent lower than previous receipt by $43.24 million, noting that the outlook is attributable to 11 per cent drop in export lifting relative to previous month lifting.
It said: “Total export crude oil and gas receipt for the period of January-November 2015 is $4.54 billion. Of the total receipts, the sum of $0.61billion was remitted to Federation Account while the balance of $3.94 billion was used to fund the JV Cash Call for the period. Thus, JV funding has gulped more than 86 per cent of the proceeds.”
Conversely, on the allocation of Naira proceeds, the report stated that the NNPCremitted N1.003 trillion to the Federation Account from January to November 2015 from the sale of domestic crude oil.
Giving a breakdown of NNPC Naira remittances, the report disclosed that N69.634 billion was for debt repayment while N933.097 billion was for transfers to the Federation Account.
Meanwhile, one of the indigenous oil companies in Nigeria, Oriental Energy Resources said it has reduced capex and suspended development drilling to keep a lid on expenditure and focused on required to maintain,rather than expand production due to the low oil price environment.
Its Technical Director,Mustafa Indimi,said his company does not expect significant production growth in 2016 because of current restriction on Capex,but intend to resume drilling activities in late 2016,if crude prices optimize.
Activities at the nation’s upstream sector in 2016 are expected to be lively as Kaduna refinery is back on stream producing 2million litres daily.