- Oil hits $80/bl as Shell declares force majeure on Bonny Light exports
It’s meant to be a cash cow, but the state oil company of Africa’s biggest producer is bleeding money.
The Nigerian National Petroleum Corporation, the Abuja-based behemoth that dominates Nigeria’s energy industry, has recorded losses for at least last three years, culminating in a total loss of N546.63 billion, statements on its website show.
The corporation’s unaudited financial operations reports showed that NNPC reported losses of N267.14 billion, N197.49 billion and N82 billion in 2015, 2016 and 2017, respectively, in contrast to its budgets that showed operating surpluses of N466.94 billion, N334.04 billion and N601.15 billion for the three years under review.
NNPC will probably register another loss in 2018, according to Ecobank Transnational Inc., as its refineries and fuel-retailing arm fail to generate profit.
The pain for NNPC, which produces oil and natural gas in partnership with Royal Dutch Shell Plc, Exxon Mobil Corp. and Chevron Corp., comes even as national energy firms from Norway to Saudi Arabia thrive with crude prices recovering from their crash in 2014.
It also lays bare President Muhammadu Buhari’s difficulty in fulfilling his election campaign pledge to modernise a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.
With oil accounting for more than half of government revenue and 90 per cent of export income, the company is a primary target of those seeking access to state funds and is vulnerable to political interference.
Tensions erupted last year between Emmanuel Kachikwu, the chairman of NNPC, and Maikanti Baru, the managing director, over how more than $20 billion of contracts were agreed.
“The very public power tussle shows the difficulties in reforming the organisation,” Malte Liewerscheidt, an analyst at Teneo Intelligence, said in an email to Bloomberg from Abuja.
Until a pending but long-delayed Petroleum Industry Governance Bill (PIGB) designed to overhaul the petroleum sector and split up parts of NNPC comes into effect, “political considerations will continue to interfere with vital business needs,” he said.
Nigeria’s state oil company has lost money three years running, hugely missing its targets
The state oil company doesn’t publish full audited financial results, though it releases limited numbers on its operating performance. These include earnings for core units, but exclude items such as taxes and dividends from a 49 per cent shareholding in Nigeria LNG Ltd., one of the world’s biggest exporters of liquefied natural gas.
Those numbers show that NNPC made an N82 billion ($246 million) operating loss in 2017. That was an improvement from 2015 and 2016, but still far from the operating income it budgeted for at N601 billion.
In each of the past three years, NNPC forecast a profit and finished in the red.
Higher oil prices have boosted exploration and production, the most profitable part of NNPC and which earned almost N183 billion ($600 million) in 2017.
But its ill-maintained refineries, which operate at a fraction of their combined capacity of 445,000 barrels a day, lost about N30.5 billion ($100 million).
Even bigger shortfalls came in the fuel-retailing business, which has to contend with the government’s cap on petrol prices, and the corporate headquarters unit, which lost almost N122 billion ($400 million), more than any other part of the company.
While NNPC’s exploration and production business will probably improve this year, the refineries and retailing subsidiaries will continue to be a drag, especially if the government maintains the ceiling of N145 a litre for petrol, according to Ecobank.
The bank predicts that NNPC will make an operating loss of as much as N80 billion in 2018.
Ndu Ughamadu, spokesman for NNPC, said that while the refineries are struggling to make money, the company’s overall performance will probably be better this year. He declined to say if NNPC was forecasting a return to profit.
It made a loss of N1.6 billion in January, the latest month for which results have been released.
The problems at NNPC offset the benefits to Nigeria’s struggling economy of Brent crude’s more than 50 per cent rise in the past year to almost $80 a barrel.
Still, there have been improvements within the company and the country’s overall oil sector, according to Moody’s Investors Service.
NNPC’s reduction of debts owed to joint-venture partners may help increase Nigerian oil production to around 2.5 million barrels a day by 2020 from 2 million today, said Aurelien Mali, an analyst at Moody’s.
“The clearing of arrears is a huge step forward that will unleash extra investment from international oil companies,” Mali said in an interview in Lagos. “NNPC is key for the government. It’s going in the right direction.”
It has some catching up to do. Its financial position contrasts with those of state oil firms in other major producers. Saudi Aramco is gushing cash, making a net income of $34 billion in the first half of 2017 alone, according to numbers seen by Bloomberg.
Brazil’s Petrobras, Mexico’s Pemex and Norway’s Statoil all improved their results in 2017 and made operating profits. So did Angola’s Sonangol in 2016, when it last published data.
Meanwhile, crude oil prices climbed above $80 per barrel Thursday for the first time since November 2014, on concerns that Iranian exports could fall because of renewed United States sanctions, which will reduce supply in an already tightening market.
This is coming as Shell Petroleum Development Company (SPDC) Thursday suspended shipments of Nigerian Bonny Light crude to the international market after it declared force majeure.
The crude oil market has continued to push higher as geopolitical concerns drove trading, with the global benchmark, Brent crude futures reaching an intraday high of $80.33 per barrel Thursday before receding to $80.16 per barrel.
West Texas Intermediate (WTI) crude futures also hit their highest since November 2014, at $72.30 per barrel.
U.S. President, Donald Trump’s decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC’s third-largest producer has boosted oil prices.
France’s Total had warned on Wednesday that it might abandon a multibillion-dollar gas project in Iran if it could not secure a waiver from U.S. sanctions, casting further doubt on the European-led efforts to salvage the nuclear deal.
Reuters reported that a rapid decline in Venezuela’s crude production has further roiled markets in recent months.
Also global inventories of crude oil and refined products dropped sharply in recent months owing to robust demand and OPEC-led production cuts.
Oil stocks are expected to drop further as the peak summer driving season nears, offsetting increases in U.S. shale output, according to reports.
In Nigeria also, shipments of Bonny Light crude were suspended Thursday, after an outage prompted Shell to declare force majeure.
The force majeure, which took immediate effect, followed the shutdown of the Nembe Creek Trunk Line.
Though Shell did not disclose the volume of oil affected by the force majeure, exports of Bonny Light were expected to run at around 195,000 barrels per day in June.
The Nembe Creek Trunkline, operated by Aiteo E & P, and the Trans Niger Pipeline (TNP) are the two major pipelines used by Shell and other producing companies operating in the eastern Niger Delta to pump crude oil to the Bonny export terminal in Rivers State.
An official of Aiteo, who spoke off the record, told THISDAY Thursday that the company noticed a drop in pressure, prompting the shutdown.
“We are suspecting sabotage but it is too early to conclude as investigation is still ongoing,” he added.
In the western Niger Delta, the Trans-Forcados pipeline (TFP), operated by Heritage Oil, was shut down after a leak was found on the facility on May 7.
The TFP is the major trunk line in the Forcados Pipeline System with an export capacity of 400,000 barrels per day and the second largest network in the Niger Delta after the Bonny pipeline system in the eastern Niger Delta.
International oil companies (IOCs) and Nigerian independents operating in the western Niger Delta lose 250,000 barrels per day to the closure of the TFP.
Shell has not yet declared force majeure on exports of the Forcados crude grade.