…Condition forcing firms to slash capital budgets

The slump in oil prices caused by the Coronavirus is believed to have forced many companies, including International Oil Companies (IOCs) to slash their capital budgets and suspend some projects.

These poor performances has forced analysts to suspect that several major oil and gas projects in Nigeria may suffer further delays as international oil companies operating in the country saw their financials take a dive in the second quarter of this year.

Brent crude, which is the global oil benchmark, reportedly plunged to as low as $15.98 per barrel in April, its lowest since June 1999. It traded around $44 per barrel on Monday.

On the other hand, Shell last week posted a loss of $18.4 billion in the second quarter of this year, compared to a profit of $3.5billion in the same period of 2019.

Shell said it had cut its exploration drilling plans for this year from 77 wells to just 22. The company confirmed that its capital spending budget for this in March from around $25 billion to $20 billion.

Last Friday, ExxonMobil reported its biggest-ever quarterly loss of $1.1 billion and confirmed plans to make deeper spending cuts. The company, which suffered a loss of $610 million  in Q1 2020, slashed capital spending by 30 per cent 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.

News had it 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.
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 on) 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, Eberechukwu Oji said.

By Chibisi Ohakah, Abuja

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