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Tag: oil firms

  • Falling oil prices: Oil firms settle for mergers

    Falling oil prices: Oil firms settle for mergers

    With the plummeting global oil prices, small oil companies are considering mergers and acquisitions as a way out of the credit crunch in the sector, reports Ibrahim Apekhade Yusuf 

    THESE are not the best of times for operators in the oil and gas sub-sector.

    The reason for this is not far to seek: oil and gas companies worldwide are badly affected by the unprecedented drop in oil prices, with companies pulling back on investment spending, laying off workforce, suspending payment of dividends, and buying back their own shares.

    Thus, investors are selling their energy stocks following the plunge in the prices of crude oil, with shareholders bracing for a wave of dividend cuts, share-repurchase delays and worldwide reduction in capital spending.

    Global outlook

    Though the plummeting prices of crude oil is affecting operators in low cost producing environments like Saudi Arabia and the Gulf States, its most adverse effects is felt in the high cost producing countries like the North America and Nigeria.

    Even Royal Dutch Shell and Total’s track record of paying dividends could not sway investors as over $30 billion in market capitalisation was said to have been wiped off in one fell swoop in Europe at the peak of the slump in oil prices.

    The price of Brent, which hit $115 per barrel in June 2014, has witnessed a steeping decline to less than $50 per barrel, fuelling concerns that over $100 billion of new investments would be put on hold this year.

    As the oil and gas-producing companies face cash crunch, oil service companies are also not left out as the shares of even the biggest oil services provider by market capitalisation, Schlumberger Limited, dropped by over 20 per cent within the past few months.

    Dire consequences

    There have been a number of consequences of this sharp oil price fall, one of which has been an increase in merger & acquisition activity in the global oil & gas sector.

    For instance, in oil services, Halliburton and its United States rival, Baker Hughes, sealed merger deal valued at $35billion.

    The Nation can authoritatively report that the biggest potential take-over in this sector would be the discussion between Royal Dutch Shell and British Petroleum, where Shell has expressed interest to buy over BP shares despite the fact that BP is one of the largest oil firms valued at over £136 billion at its current 425p share price. If the deal sails through, that will make it one of the largest oil and gas firms in the world.

    Despite a late-year plunge in crude oil prices and robust merger and acquisition (M&A) activities, global valuers of oil and gas said that the first 10 months of 2014 fuelled an increase in the total transaction by 23 percent to $173 billion.

    This rebound in 2014 transaction value is particularly noteworthy for the industry after transaction value for global upstream oil and gas M&A deals fell by almost half during 2013 to $140 billion, the lowest level since the 2008 recession.

    In 2013, rather than shopping for deals, oil and gas companies shifted their focus to developing their vast inventories of previously acquired reserves, resources and acreage.

    “The uncertainty was caused by the severe decline in oil prices during the final two months of 2014, which nearly brought deal activity to a standstill,” said Christopher Sheehan, Director of energy M&A research.

    Nigeria not immune

    The falling oil prices has also begun to take its toll on Nigerian independent companies, including those that recently acquired assets from Shell and its partners as most of the transactions were structured on the basis of an oil price of $100 per barrel.

    With the price falling down to less than $60, it is not clear how the companies and the financial institutions that funded the acquisitions would restructure the repayment terms.

    SEPLAT, which was simultaneously listed on the Nigerian Stock Exchange and the London Stock Exchange last year, was also hit as its shares, which was listed on April 14 at N576 per share and later appreciated by 25 per cent to N720.56 on July 6, at a point recorded 34 per cent capital loss.

    Having successfully emerged as the largest Nigerian independent company through consolidation, SEPLAT initiated another landmark acquisition in the industry when it recently confirmed that it made preliminary approach to Afren Plc for a possible business combination.

    Afren, which is also listed on the London Stock Exchange (LSE), had also announced the move by SEPLAT regarding the merger talk but said it was still at a preliminary stage.

    SEPLAT has formally notified the Nigerian Stock Exchange (NSE) regarding the plan.

    “SEPLAT has, in accordance with the  provisions of Section 10 of the Amended Listing Rules of  the NSE, notified the exchange of the announcement by Afren Plc, dated 22 December 2014. SEPLAT confirms that it has made a highly preliminary approach regarding a possible combination with Afren. SEPLAT, however, notes that there can be no certainty that an offer will be made or as to the terms of any offer,” the NSE had said in a statement.

    According to the NSE, SEPLAT acknowledged that in accordance with Rule 2.6(a) of the UK City Code on Takeovers and Mergers, by no later January 19, 2015, it must either announce a firm intention to make an offer under Rule 2.7 of the code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the code applies.

    SEPLAT added, however, that this deadline can be extended with the consent of the UK Takeover Panel in accordance with Rule 2.6(c) of the Code. The company noted that further details could be provided at this stage due to the highly preliminary status of events but assured that further announcements would be made as soon as there is the need.

    The discussions between SEPLAT and Afren had continued following an extension granted by the United Kingdom Takeover Panel to January 30, for the companies to make a final decision.

    SEPLAT had successfully refinanced its existing debt facilities with a new $700 million seven-year secured term facility and $300 million three-year secured revolving credit facility. The $700 million seven-year secured term facility was facilitated by a consortium of Nigerian banks comprising First Bank of Nigeria Limited, Stanbic IBTC Bank Plc, United Bank for Africa Plc and Zenith Bank Plc.

    On the other hand, the $300 million three-year revolving credit SEPLAT, which lost out on the assets that Shell divested in October 2014, has been on the hunt for acquisitions in Nigeria, encouraged by falling oil prices.

    The Chief Executive Officer of Shoreline Natural Resources Limited, Mr. Kola Karim, told Bloomberg recently that small oil-producing companies in Nigeria, facing slumping prices and rising debt, may need to combine to survive.

    “We don’t have that much leverage, the rapid drop is unprecedented for the country’s small producers,” he said.

    “The reality is there have to be mergers in the industry because it is difficult in a down market when you’re a small producer trying to weather the storm alone.

    “Already at $50 a barrel, we are under water,” Karim said. The financial pressure is compounded by the security threat, he said. “You face the devil on all sides.

    “I foresee a huge combination of mergers in the local market, we’re also looking for opportunities,” said Karim. “You are better being part of a bigger player, so you can save on your cost and make good margins,” he added.

    Promising outlook

    Speaking with The Nation over the weekend, an official of one of the IOCs, said that the current drop in the prices of crude oil was an opportunity for the new investors that acquired oil blocks to “drill new wells and build pipelines and wait for high price regime before going into production.”

    Mergers & Acquisition only safe option

    Unlike in the time past when many smaller oil companies never seemed to tinker with the idea of mergers as an option, the situation has since changed as more Nigerian companies have now realised the need for mergers and acquisitions in a global business such as oil.

    A landmark consolidation that took the independent Nigerian companies to the next level was witnessed in 2009, when Platform Petroleum Limited, an entity controlled by Mr. Austin Avuru, and Shebah Petroleum Development Company Limited, controlled by Mr. ABC Orjiako, formed an independent company.

    This consolidation produced Seplat Petroleum Development Company, an independent oil and gas exploration and production company incorporated and operating in Nigeria.

    Before this deal was consummated, Avuru was managing Platform Petroleum, which was one of the few companies that put their marginal fields on production.

    Founded precisely in June 2009, SEPLAT was established to facilitate the acquisition of Oil Mining Leases (OMLs) 4, 38 and 41 from Shell, Total and ENI.

    The establishment of SEPLAT marked a turning point in the operations of the Nigerian independent companies as it became the first Nigerian company to hit a production capacity of 70,000 barrels per day, which is more than the combined production capacity of all the marginal fields.

    The formation of SEPLAT and their successful acquisition of OMLs 4, 38 and 41 encouraged other Nigerian companies to form consortia to position themselves financially and technically viable to acquire bigger acreages being relinquished by the IOCs.

    Buoyed by the success of SEPLAT in the OMLs 4, 38 and 41 deals, more Nigerian independent companies came together to synergise among themselves and in some cases, with foreign entities to bid for the acreages sold by Shell, Total, Chevron, Eni and Agip.

    Recent divestments

    In the most recent divestments of onshore assets comprising OMLs 18, 24, 25 and 29 by Shell, Nigerian independent companies also formed consortia with local and foreign entities to raise the required technical and financial capacity to clinch the assets.

    For instance, the Aiteo-led consortium acquired OML 29 along with the 60-mile Nembe Creek trunk line sold by Shell and its partners in a $2.562 billion deal.

    Other members of the consortium include Tempo Energy Resources – promoted by Timi Aladetimi, who is also the owner of Ankorpoint Energy – which has a 10 per cent stake, while Taleveras, owned by Igho Sanomi, holds five per cent equity in the consortium.

    According to the shareholding structure, total number of shares of the consortium is 2.7 billion units, with Aiteo Energy Resources Limited, owned by Benedict Peters, holding a total volume of 2,294.999,999 billion shares.

    Oil prices of less than $50 per barrel makes production unprofitable for smaller companies that pump at a cost of $30 per barrel. Taxes and extra security costs to protect installations cut into profits, according to analysts, including Pabina Yinkere of Vetiva Capital Management Ltd. Oil majors, such as Shell and Exxon Mobil, with larger economies of scale, pump at lower costs of about $15 for a barrel, Yinkere said.

    Meanwhile, over $1billion has been invested in the Nigerian oil and gas industry to create capacity and execute Nigerian Content scopes provided on the Egina deep water project, the Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Engr. Ernest Nwapa, said at the weekend.

    Egina-Total Exploration and Production’s $15bn deep water project is the first major oil and gas project to be started under the Nigerian Content Act and it includes an FPSO unit, an oil offloading terminal and subsea production systems such as risers, 52km of oil and water injection flowlines, 12 flexible jumpers, 20km of gas export pipelines, 80km of umbilicals and subsea manifolds.

    Speaking in Port Harcourt, Rivers State, when he unveiled Saipem’s new double/ quadruple joint plant, the Executive Secretary stated that the investment worth $60million was made towards delivering Saipem’s Nigerian Content scope on the Egina project.

    He added that the plant was worthy of celebration as it confirmed that the Board’s strategy to include Capacity Development Initiatives (CDIs) in major projects was working.

    He informed that CDIs would promote opportunities for training, knowledge and technology acquisition, adding that shop floors were expanding and capacity to execute work in Nigeria had increased substantially.

    Speaking further, Nwapa reiterated that over $5bn worth of investments have been made in Nigerian yards since the signing of the Nigerian Content Bill into law by President Goodluck Jonathan in 2010, especially by PETAN member companies and other firms like Aveon, Cameron, Ladol, Nigerdock, FMC, Tenaris, EWT etc while about 40,000 technical jobs were being created per annum.

    He credited the president, Dr Goodluck Jonathan, and the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, for providing the political support and conducive environment to implement the Nigerian Oil and Gas Industry Content and Development Act.

    “Their support strengthened the Board to overcome local and international resistance from very powerful forces,” he added.

    The Executive Secretary also commended Total for its continued investment in Nigeria despite the challenging economic environment, particularly the fall in crude oil prices, adding that NCDMB was focusing more on its developmental roles owing to the need to build collaboration to achieve targets set by the Act.

    Already, their partnership had achieved several firsts in the industry, one of which is PCNL’s qualification to produce the 5LPP coating on pipes and joints. Another company, Mudiame, also secured accreditation to carry out high tech qualification tests on the project.

  • ‘Oil firms must clean up spills in Niger Delta’

    ‘Oil firms must clean up spills in Niger Delta’

    Environmental degradation arising from crude oil exploration in the Niger Delta region has remained an issue. An environmentalist, Valentine Opone examines these issues, reports JOSEPH ESHANOKPE.

    Erosion is a major challenge confronting the Southeastern part of the country.

    An Environmental Specialist Valentine Ottis Opone said the problem could be solved through proper understanding.

    He said: “We must first understand the problem. Erosion is the geological process in which the earth’s surface is worn by natural forces such as water, wind and waves. It breaks down rocks, mountains and land surfaces, which are carried away by wind, rain or rivers. Even the smaller particles add to the erosion as they move along and pound against exposed earth.”

    Opone, who is also a member of the National Registry of Environmental Professionals, United States (US), said in agriculture, erosion destroys topsoil, which is high in organic matter and fertility.

    Topsoil is relocated. Thus, soil erosion reduces crop land productivity and contributes to pollution of adjacent water courses, he added.

    He said it also causes soil compaction, low organic matter, soil structure, poor internaldrainage, salinisation and soil acidity.

    “Indeed, soil erosion is not peculiar to the southeast or other parts of the country. It is a common global environmental problem and undermines sustainable development in various economies and societies,” he said.

    Why is it predominant in the Southeast?

    He said when sheet erosion is neglected, fluvial erosion and mass wasting, acting singly or in combination, washes away the top soil and once a sandstone is exposed, it disaggregates easily leading to gullying. At a stage, the erosion becomes intractable and so rapid that control measures become too expensive and most times overwhelming and erosion sites abandoned.

    Opone explained that the formation of gullies has become one of the greatest environmental disasters facing many towns and villages in the south. This region is fast becoming hazardous for human habitation. Hundreds of people are affected yearly in towns and villages and thus have to be relocated. Yet, the rate of increase in gully erosion has continued unabated without a permanent solution.

    The economic cost of gully erosion in the South is devastating. It leads to great losses of land every year. In addition, highways are ruined due to gullies, leading to numerous vehicle accidents and deaths.

    Although gullies are initiated by natural cracks in the earth, most of them in the Southeast are not natural and can be averted. Most of the causes are traceable to bad management practices, such as roads without proper drainage or catchments pits, unguided cultivation that cause flooding, indiscriminate channelling of flood water and others.

    The government should invest in funding huge engineering projects to curb the erosion menace. The government has done little to curb this menace. It should ensure that soil degradation should be of major concern to it. Experts once predicted that the southeast stands the risk of losing most of its arable soil to erosion, if urgent attention is not given to mitigate it.

    What are the solutions? The most effective known method for erosion prevention is to increase vegetative cover on the land, which prevent both wind and water erosion. Terracing is an extremely effective means of erosion control, which has been practiced for thousands of years. Windbreaks (also called shelterbelts) are rows of trees and shrubs that are planted along the edges of agricultural fields, to shield the fields against winds. Traditional planting methods, such as mixed-cropping (instead of mono cropping) and crop rotation, have also been shown to significantly reduce erosion rates.

    Over the years, the people of the area most affected by this menace devised means of controlling it by applying, such anti-erosion measures such as digging of catchments pits, contour-waling, tree planting etc. These efforts proved to be of little effect and the problem continued unabated. Reasons for failure were, among others, inadequacy and unsuitability of methods used and, most importantly, the intractability of the problem. Afforestation in the areas is more susceptible to gully formation; and planting of local cover crops, such as leguminous plants.

    However, small scale activities that require low technology input can be undertaken. Immediate control measures should be encouraged and practised. Reduction of surface runoff from impervious surfaces; drainage of surface runoff- this include the establishment of interception, division and primary (trunk) drains and the construction of interception ponds; planting of grasses on available favourable surface to reduce the amount of bare soils exposed to the erosive force of the rains and to control erosion.

    On oil spill management, he said oil spillage is a common occurrence in the Niger Delta and that it occurs due to some reasons. They include corrosion of pipelines and tankers, sabotage and oil production operations. There is inadequate or non-functional production equipment. But the largest contributor to the oil spill is the rupturing of production infrastructure or the leaking of production infrastructure as a result of ‘very old and lack of regular inspection and maintenance.

    ‘’One reason corrosion accounts for a high percentage of oil spills is that as a result of the oil fields in the Niger Delta, there is an extensive network of pipelines between the fields, as well as numerous small networks of flowlines – the narrow diameter pipes that carry oil from wellheads to flow stations-allowing many opportunities for leaks.

    ‘’Sabotage is done by what is popularly called bunkering. It is a situation where saboteurs attempt to tap the pipeline. In the process, sometimes the pipeline is damaged or destroyed. Sabotage and theft through oil siphoning has become a major issue in the Niger Delta, contributing to further environmental degradation.’’

    He speaks on the oil spillage impact on the ecosystem. He said: “Spills destroy crops and aquaculture through the contamination of the groundwater and soils. The consumption of dissolved oxygen by bacteria feeding on the spilled hydrocarbons also contributes to the death of fish.

    “In agricultural communities, often a year’s supply of food can be destroyed immediately. Because of the careless nature of oil operations in the region, the environment is becoming inhabitable. People affected by it complain of health issues, including breathing and skin diseases. Many of them have lost such rights as access to food, clean water and good jobs.

    “The Niger Delta is one of the world’s most important wetland and coastal marine ecosystems and has a population of 31 million. Oil was discovered in the area in 1958. Since then, there have been many oil spills. with communities located around oil installations mostly affected. The Department of Petroleum Resources (DPR) estimated that 1.89million barrels of crude oil were lost between 1976 and 1996, out of 2.4million barrels spilled in 4,835 incidents.

    “The United Nations Development Programme (UNDP) in a report states that there were 6,817 oil spills between 1976 and 2001, accounting for a loss of three million barrels of oil. Out of these, 70 per cent was not recovered.

    How do we manage oil spill? He said: “There may never be a solution until the people who are found are sanctioned. The first objective in finding a permanent solution should be to clean up every inch of the land and every drop of oil that has been spilled in the last 50 years. A thorough and planned clean up will provide immediate employment for thousands of affected youths that are taking up arms, kidnapping and disrupting the lives of the people of the Niger Delta. The government must embark on immediate massive public works for road construction, among others.

    “The cause of the unrest in the Niger Delta is poverty and exploitation. Nigeria must formulate a policy that changes its oil and gas industry from extractive to domestication and local processing.

    “As total clean up is planned, the process of massive engagement of youthful and teachable hands should top the agenda of the government. For example, the Local Content Act and the PIB. These laudable ideas

    “From the government, if implemented, as intended will ensure that the locals who own properties or infrastructure around oil exploration zones shall be adequately compensated and relocated while the youth are also engaged. Similarly, with the evolvement of sophisticated human capital development in the Niger Delta, more support companies will be formed and encouraged, ultimately, to reduce further the state of idle mindedness which has also been largely traced to oil theft and sabotage.

    The administration of President Goodluck Jonathan has done so well for the oil rich zone, the onus is on the industry captains to follow the same procedure in tandem with environmental methodologies in ensuring that the total environment is safe and free of menace.

    Urbanisation problem

    Urban development or urbanisation means the increasing number of people living in the urban areas. It leads to growth. The UN said half of the world’s population would live in urban areas at the end of 2008. By 2050, it said 64.1 per cent and 85.9 per cent of the developing and developed world will be urbanised.

    Urbanisation is linked to modernisation and industrialisation. It is not merely a modern phenomenon, but a transformation of human social roots on a global scale. It has some effects. As cities develop, there fewer or no jobs, and as a result, many cannot afford housing in cities and have to dwell in slums. That is why urbanisation is often seen as a negative trend. But it also has many advantages. There are opportunities of proximity and diversity. For example, cities have more markets than the rural areas.

    Impact on shelter

    There is an upsurge of people in city centres. The increase in housing deficit arises from unemployment. The growth of cities have been accompanied by urban sprawl, environmental expansion pollution, deterioration in infrastructure and urban decay.

    What the government can do to address the situation

    Urban development is an important issue for the government. The federal and state governments should invest more resources in urban areas through, for instance, transport. They should engage in building capacity, knowledge, and skills in the urban areas.

  • Dickson accuses oil companies of double standard

    Dickson accuses oil companies of double standard

    The Governor of Bayelsa State, Seriake Dickson, on Wednesday berated oil companies and accused them of operating with double standard in the Niger Delta region.

    Dickson spoke in Yenagoa when the Ambassador of the Kingdom of the Netherlands to Nigeria, Ambassador Bert Ronhaar, visited him.

    He insisted that the oil-producing companies had refused to embrace international standards and best practices in their operations.

    He said such actions by the companies had contributed significantly to environmental degradation and endemic poverty.

    He lamented what he described as “the brazen manner resources of the Niger Delta are expropriated,” adding that activities of the companies had placed the region in a precarious situation.

    “The ecosystem and livelihood of people in the Niger Delta have been negatively impacted upon as a result of oil exploration and exploitation activities over the years,” he said.

    Dickson traced the history of oil exploration and said the Royal Dutch Shell Petroleum Company struck oil in commercial quantities at Oloibiri in Bayelsa State in 1956.

    But he said the area had suffered neglect.

    He said: “We have major issues of how to combat flooding, erosion of our communities and damaged ecosystem. There are also frightening scientific predictions that if urgent steps are not taken, most of the communities in the Niger Delta will be wiped away in the next couple of years.

    “There is now a disconnect arising from the decades of what is perceived to be nonchalant attitude by the international oil companies. The communities now see the operating companies as buccaneers who do not care about them and their conditions.

    “Their (IOCs) concern is only the oil and not the people’s well-being. The activities here are such that you have double standards in terms of adherence to environmental rules, regulations and procedures.”

    He vowed that his administration would join forces with other stakeholders to champion the need for environmental rights and justice in the country.

    “The environment has to be respected in the Niger Delta the same way it is protected and preserved in Europe and America.

    “An oil spill is an oil spill wherever it occurs, whether it is in the Niger Delta or in the Gulf of Mexico,” he said.

    He commended the visiting Ambassador for deepening diplomatic relations between Nigeria and the kingdom of the Netherlands.

     

     

  • Ex-militants allege rejection by oil firms

    Some Niger-Delta ex-militants under the Forum for Peace in the Niger Delta have said it was unacceptable for multi-national oil companies operating in the region to deny them employment opportunities.

    They said ex-militants who acquired skills and undergone various training programmes under the Presidential Amnesty Committee were being rejected by the oil firms.

    President of the forum, Pastor Reuben Wilson, who spoke at a forum in Benin City urged states and federal government to prevail on oil companies operating in the region to empower the youths to become self-reliant in their chosen profession.

    Pastor Wilson noted that employing the youths would help to stop them from engaging in crimes and other social vices.

    He said, ‘’When they returned with their certificates and apply for job, they were rejected by oil companies. The federal government should talk to these oil companies. The boys are very sound.”

    Senior Special Assistant to Edo State governor on Water ways Security, Robert Okubor, urged the youths to be good ambassadors of the country.

     

  • Nigerian Content Fund gets $100m from oil firms

    Nigerian Content Fund gets $100m from oil firms

    •Onne Port $2b Phase 4 jetty ready in 2014

     

    Oil companies have already contributed about $100 million towards the

    Nigerian Content Support Fund (NCSF) to be launched in October. The fund represents one per cent of oil firms’ profit.

    Speaking at the Nigeria oil and gas Trade and Investment Forum, in Onne, Rivers State, the Executive Secretary, Nigerian Content Development and Monitoring Board ( NCDMB), Ernest Nwapa, said: “The designated accounts for NCDF and procedure for payment of one per cent sum has been set up. The structure for NCDF has been developed and approval secured for award to Financial Advisors.

    “The new fund would be used as a pool to attract and facilitate venture capital. Professionals will run the NCDF, which closes all the identified gaps in the old fund.”

    Nwapa said the structure of the new arrangement would insulate the operations of the fund from the NCDMB, but added that the board still has overall responsibility for the fund.

    He said industry cooperation would be required to succeed in using funds for targeted capacity, and attributed the growth of the Nigerian Content from five per cent in 2004 to 35 per cent in 2010.

    The implementation of the provisions of the Act, which was signed into law by President Goodluck Jonathan on April 22, 2010, is envisaged to ensure the retention of about $40 billion in the Nigerian economy within the next four years at an average of $10 billion yearly.

    According to statistics, the Nigerian economy currently retains only $4 billion out of the yearly oil and gas expenditure, estimated at $20 billion.

    The new legislation also has a capacity to create over 30,000 direct employment and training opportunities; as well as enhance the establishment of three to four new pipe mills to service the demands of the industry and develop one or two dockyards.

    Also, the $2billion Phase 4 jetty under construction in Onne Oil and Gas Free Zone, Port Harcourt, would be completed in 2014,.

    The Head, Commercial, Intels Nigeria Limited, Iuri Tarmulus, who stated this during a tour of Onne Port, last week, said over 30 million cubic meters of sandfilling has been done, while about $500m has been invested.