Post COVID-19: Nigeria, Other Oil Nations Risk Recession – Expert
An energy law expert has predicted that in the post COVID-19 era, most oil-producing economies in the African continent, including Nigeria, will plunge into recession with untoward consequences.
Onyeka Cindy Ojogbo, an Associate Attorney with South Africa-based Centurion Group, said the oil industry disruptions from COVID-19 pose unique and significant challenges in the economies largely dependent on oil revenues.
She noted that already the budgets of countries like Nigeria, Equatorial Guinea and Angola have been made mostly impractical and with annual budgetary goals now unachievable due to the unprecedented events.
“Nigeria is expected to cut its 2020 national budget by $4.9 billion. That budget was prepared based on the estimation of crude prices at $57/barrel. With the Brent price at slightly over $20 today, the country is most probably headed towards a recession,” unless there is the discovery of an anti-COVID-19 vaccine, she said.
According to the attorney, COVID-19 has resulted in induced low demand for oil, leaving prices equally low. There have also been disruptions in the industry distribution chain and the businesses of international oil and gas companies that the African oil market relies heavily on.
For instance, oil and gas producers and service companies from Port Harcourt, Luanda to Juba and emerging producers like Senegal and Mozambique are now faced with a myriad of financial and legal issues. Oil projects have either been suspended, like in the case of BP which issued a force majeure on the LNG facility for the African Tortue Ahmeyim project in Senegal. The Tullow Deepwater drillship contract in Ghana has also been terminated.
More and more oil companies are taking the frustrations of COVID-19 on their contractual agreements with host countries. The contracts include Production Sharing, Joint Venture, Service and other Financing Contracts.
Ojogbo said with no end in sight, companies need to consider and take all necessary actions to mitigate all associated risks. “There may be a need for oil-producing governments to reconsider their position under oil contracts,” she said, adding that companies should consider their position and begin to prepare for this possibility.
She said that in the post-COVID-19 era, oil companies will face tax redemption issues, noting that some countries are currently offering tax reliefs and fiscal packages to companies to mitigate any adverse economic impacts.
“It is important that companies determine their eligibility for these reliefs. For example, the government of Equatorial Guinea has granted some tax reliefs which include a reduction in the minimum income tax from 3% to 1.5%. However, this relief does not currently apply to companies in the oil and gas sector.
“Other governments have provided some extension for tax payments. It is likely that governments may offer specific reliefs and tax exemptions to oil and gas companies going forward if the industry woes continue,” Ojogbo stated.
With the impact of the pandemic on operations, the Centurion Associate said it comes as no surprise that several companies in the industry have already declared force majeure. She cited the example of Shell, which was lauded for ground-breaking success at Forcados, Nigeria, but declared force majeure thereafter. The force majeure was however lifted and the Forcados Oil Pipeline system, the second largest in the Niger Delta, reopened.
Another major challenge oil firms will face in the post COVID-19 era is with maintaining their staff on ground and ensuring that adequate levels of health and safety measures are always provided. “Companies must consider the current employment regulations and measures applicable in their countries of operation and ensure strict compliance,” she said, adding that the company must ensure that adequate COVID-19 policies and health measures are put in place to protect the employees.