Nigeria’s Oil Projects Threatened as IOCs Suffer $27.8bn Loss
In all realities, the emergence of the COVID-19 pandemics has affected almost every area of life and the oil sector is not left of this unplanned predicament. In view of the economic effect of the pandemic several major oil and gas projects in Nigeria may suffer further delays as international oil companies operating in the country saw their financial capabilities take a dive downward in the second quarter of this year.
This slump in oil prices caused by the coronavirus pandemic has forced many companies, including IOCs to slash their capital budgets and suspend some projects. The global oil benchmark, Brent crude, plunged to as low as $15.98 per barrel in April, its lowest since June 1999. It traded around $44 per barrel on Monday.
Royal Dutch Shell last Thursday said that it posted a loss of $18.4bn in the second quarter of this year, compared to a profit of $3.5bn in the same period of 2019. The company warned that the outlook for oil demand continued to be uncertain, saying it had cut its exploration drilling plans for this year from 77 wells to just 22.
Shell cut its capital spending budget for this year in March from around $25bn to $20bn. ExxonMobil on Friday reported its biggest-ever quarterly loss of $1.1bn and confirmed plans to make deeper spending cuts.
The oil giant, which suffered a loss of $610m in Q1 2020, slashed capital spending by 30 percent this year to around $23bn. Chevron Corporation posted its worst quarterly loss of $8.3bn in Q2 in at least three decades and warned that the pandemic wreaking havoc upon energy markets might continue to drag on earnings.
“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.
It was reported in December last year that a number of oil and gas projects valued at $58.4bn in Nigeria were facing an uncertain future as the IOCs failed to sanction them several years after they were announced. The recent collapse in oil prices and demand caused by the coronavirus pandemic and the price war between Saudi Arabia and Russia has compounded the challenges facing the projects.
Meanwhile, before the pandemic, industry experts had said the regulatory and security challenges in the country had put a damper on the IOCs’ appetite to take final investment decisions on the projects.
The projects that have not reached FID include Shell’s $9.7bn Bonga South-West/Aparo, which would add 143,274 barrels per day in extra crude production capacity at its peak flow. It has the potential to boost Nigeria’s daily production by nearly 10 per cent.
Other projects without FID are ExxonMobil’s $6.2bn Bosi (126,784 bpd), Chevron’s $8.2bn Nsiko (95,685 bpd), ExxonMobil’s $8.2bn Owowo West (138,301 bpd), ExxonMobil’s $6.1bn Uge-Orso (99,532bpd) and Nigerian Agip Exploration Limited’s $9.2bn Zabazaba (146,739 bpd).
One of the major indigenous independent oil companies in the country, Seplat Petroleum Development Company Plc, posted a loss of $145.3m (N49.8bn) in the first half of this year, compared to a profit of $120.4m (N37bn) in the same period of 2019.
“The sharp drop in oil prices and demand may slow down the speed with which indigenous producers pursue the aspiration to ramp up production to about 50 per cent of Nigeria’s daily oil and gas production,” the Managing Director/CEO, ND Western Limited, an indigenous operator, Mr Eberechukwu Oji, said.
Ayooluwa Joshua