This is introducing our very first oil and gas roundup brought to you by Oloibiri Advisory. This is a weekly summary of some of the topical issues in the oil and gas industry in Nigeria and around the world.
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Oil prices
Crude oil price is everything to Nigeria.
It’s been bumper time for prices as it has sustained its upward trajectory despite the typical headwinds of shale and plateauing demand. For better context, on May 3, 2017, Brent oil price was $49/barrel, today its $75/bbl, a 50% increase within a year. This increase can be largely attributed to a better disciplined OPEC reining on production and the shadow of Trump withdrawing from the Iran Nuclear deal.
The prognosis is also optimistic as production cuts from OPEC and Venezuela continue and Saudi just increased its Official Selling Prices for June 2018 against experts’ expectations. That move is counter-intuitive and deserves some investigation. Could it be related to the expectations that Trump will pull out of the Iran deal by May 12 and the expected bump in prices? Well, world peace and higher oil process are both desirable for the Nigerian.
At current prices, we have a $30 premium on budget crude oil benchmark and with the Niger Delta militant interventions on the wane, the cautious bullishness of all economic projections for the next few months may not be far-fetched.
Asset Renewal Season
Critical! Critical!! Critical!!!
Very interesting times for the Nigerian upstream sector as the licenses on many oil acreages expire in 2019. The Petroleum Act which is the principal law governing the oil and gas industry stipulates that leases shall only last for twenty (20) year after which they are due for renewal.
The first set of Joint Venture assets were signed in 1991 by the Babangida regime culminating in a wave of renewals in the year 2000. Most were renewed without any problems but this time around the game has changed. Most of the fields are now owned by diverse but mostly local players who only recently bought in during the Shell divestments of 2010-2014. Some are politically exposed while others have corruption cases to answer.
Can any company be denied renewal of its lease? There is a remote possibility but no precedence for that and even the Petroleum Act provides leverage to the lease owners.
The first schedule in the act suggests that “the lessee of an oil mining lease shall be entitled to apply in writing to the Minister, not less than twelve months before the expiration of the lease, for a renewal of the lease either in respect of the whole of the leased area or any particular part thereof; and the renewal shall be granted if the lessee has paid all rent and royalties due and has otherwise performed all his obligations under the lease”. This clause implies that renewal is expected to be automatic providing justification for legal intervention in case any company is denied renewal.
Here is to hoping for a drama free renewal season.
Assets for Sale
It’s been quiet on the Oil and Gas Mergers and Acquisitions for a while but there are still opportunities in the market.
Addax, the perennially troubled oil producer is being proposed for sale by the Chinese. The company, originally named Ashbert Oil, was acquired by Chinese major SIPEC in 2009 but has since faced strenuous legal troubles in Switzerland and the USA. The company’s production has also dropped with little upside expected from its assets in the nearest future. The Chinese are mulling over a sale. The staff have also been on an intermittent industrial action in recent times. You interested in buying?
Petrobras, the Brazilian major also wants to exit as part of its long-term strategic plan. With stakes in Akpo, Agbami and Egina, three gigantic oil fields, the successors would be gaining access to world-class assets with robust upsides. The King of Nigerian PEs, Helios will also be selling its stake alongside Petrobras.
Neconde, the part owner of oil and gas-rich asset OML 42 is also reportedly attempting to sell down its equity. Buyers may need to consider the financial exposure of the promoters of Neconde and the imminent need to renew the asset lease.
Statoil and Chevron wants $1 Billion from Nigeria
Statoil and Chevron are Production Sharing Contractors to Nigeria/NNPC in OML 28 and there has been a longstanding dispute on the interpretation of the terms of the PSC agreements.
NNPC, as Nigeria’s representative has aggressively interpreted certain clauses in the PSC, eventually lifting $1 Billion more oil than the duo of Statoil and Chevron agrees it qualifies for. Arbitration proceedings have been held – in Abuja and NNPC lost. NNPC approached the courts to vacate the arbitration award and won. All the courts in Nigeria have sided with NNPC’s position.
Now, Statoil and Chevron have headed to a US Court for respite citing a certain legal basis for such. Does the US court have jurisdiction on such cases? Can Nigeria afford a $1 Billion reimbursement in kind at the moment?
Lekoil takes the gloves off.
Lekoil, the AIM listed Nigerian focused minnow is also testing the law and inadvertently setting a precedent with regards to Ministerial powers on oil and gas M & As.
Lekoil, farmed into OPL 310, a field close to Lagos State in 2013 and got a 22.86% stake. In 2015, after the other promoter Afren self-immolated, Lekoil sought to buy its 17.14% interest in OPL 310 bringing theirs to 40%, without the third promoter’s (Optimum Petroleum) consent.
Optimum insists the sale could not have been undertaken without its consent and sought to block Ministerial approval for the 17.14% acquisition.
Lekoil is seeking judicial interference to hasten approval by the Ministry of Petroleum because the prospecting license expires in February 2019 and the dispute is inhibiting the development plan for the acreage.
Hopefully, this dispute gets settled out of court quickly because its befuddling how the parties, original co-venturers’ relationship has deteriorated to the point of risking a loss to reconciliation. Optimum used to have copies of its protest letter to DPR on its website but that has been removed. That’s a good sign.
Furthermore, Lagos state should be interested in this dispute because the asset’s STOIP and GIIP of 2 Billion barrels and 2,6tcf could drastically improve Lagos’s finances and provide access to cheaper gas. Nobody wins in this avoidable dispute.
Head on the NERC at last
After over 2 years of lacking leadership, the National Electricity Regulatory Commission had its Lead Commissioner inaugurated today. For a country undergoing serious power reforms, it was an egregious error to leave NERC without a head.
Better late than ever. In the absence of a head, the power of regulation and policy-making seemed to have gravitated towards the Minister of Power. Clawing that back won’t be fun.
We wish Prof Momoh a wonderful time at NERC. Up NEPA!!
Azura: Mother of the Rose and Queen of the Night Sky
In contemporary mythology, Azura is one of the most revered Deadric Princes, often called ‘mother of the rose’ and ‘queen of the night sky’. Fitting name for the first Private Independent Power Plant in Nigeria. Completed in record time, it’s a Nigerian miracle. 450 MW capacity added to the grid. God bless Nigeria.