Global rating agency, Fitch Ratings has said that the Nigerian oil and gas sector continues to suffer from security issues and weak oil prices that drag down the ratings of indigenous companies in the sector, it noted that significant oil oversupply and increase in oil inventories contributed to the collapse in the global oil prices since the second half of 2014, pointing out that the 14-member OPEC, of which Nigeria is a member, was partially responsible for the supply glut. Global oil supply reached nearly 98 million barrels of oil per day in October 2016, up 0.8mmbopd on September 2016, due to a record OPEC output of 33.8mmbopd, according to the International Energy Agency.
Oil & gas companies responded by cutting upstream capex, which was expected to drop by over 40 per cent in 2016 on 2014. Companies are adapting to the USD50/bbl environment by improving efficiencies of existing operations and developing new resources in regions where infrastructure already exists. According to Fitch Rating, the breakeven prices for some new projects have been cut dramatically on cost optimization, crude inventories could continue going up in 2017 unless OPEC agrees to cap production at its Vienna meeting at the end of November 2016. Although OPEC had preliminarily agreed to cut production to 32.5mmbopd-33mmbopd, tensions between Saudi Arabia and Iran threaten to derail the alliance, sending prices down.
Nigeria remains Africa’s largest oil producer, but its production has dropped by 25% in 2016 due to security issues and the closure of a number of export pipelines. Nigeria has a healthy proved reserve life of 43 years, but its future oil production will be driven by the resolution of security issues and infrastructure problems. We view positively Nigeria’s recent ‘Seven Big Wins’ programme, which covers sector regulation, upstream and downstream projects, security, as well as transparency and corporate governance. The list of proposals includes disclosing fiscal rules and contract terms, promoting energy affordability and constructing another Nigeria LNG train. Another welcome sign is Nigeria’s reported $5billion settlement with western oil majors to cover their exploration and production costs since 2010. On the other hand, the long-overdue Petroleum Industry Bill, a cornerstone of President Buhari’s oil sector reform, is still far from final, and the recent rebel activity in the Niger Delta region is only delaying the bill’s passing.
Read more at: http://www.businessnews.com