Oil majors’ HY1 losses may hurt Nigeria’s 2017 revenue projections

The dip in profits reported by oil majors in their second-quarter 2016 outlook released last week may yet put further strain on Nigeria’s depleting oil revenue and 2017 budget projections, as taxes and royalties from their operations in Nigeria plateau.

This comes as OPEC’s crude oil output was disrupted in July by militant attacks in Nigeria and political disputes in Libya, according to a Bloomberg News survey.

Shell Petroleum Development Company ( SPDC) paid $4.9bn to the Federal Government last year,  ExxonMobil’s 2014 Energy Outlook series states that it contributes about $6bn yearly to the government from its operations.

These revenues are at risk, based on a dip in earnings reported by the International Oil Companies (IOC’s), and analysts are intensifying calls for diversification of the economy as they say oil prices will remain depressed far longer than anticipated because the projected rebound failed to materialise.

Chevron Corporation reported a loss of $1.5bn for second quarter 2016, compared with earnings of $571 million in the second quarter of 2015, while Exxon’s profit fell 59 percent to $1.7 billion in comparison to the same period.

Investors expressed their disappointment by driving Exxon shares down by 2.3 percent to $88.15 while Chevron’s shares dipped by 0.2 percent to $101.58 shares.

Exxon revenue sank 22.2 percent to $57.7 billion, missing S&P Global Market Intelligence analyst estimates of $64 billion. Chevron’s revenue fell 24.4 percent to $27.8 billion, missing estimates of $29.6 billion.

Also, Royal Dutch Shell reported that its second quarter 2016 CCS earnings attributable to shareholders were $0.2 billion, compared with $3.4 billion for the same quarter a year ago. Second quarter 2016 CCS earnings attributable to shareholders excluding identified items were $1.0 billion, compared with $3.8 billion for the second quarter 2015, a decrease of 72 percent.

“The second quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world,” said John Watson, Chairman and CEO of Chevron Corporation.

Low oil prices and persistent attacks on oil and gas infrastructure by militants calling themselves Niger Delta Avengers contributed to the losses reported by the IOCs in their second-quarter results.

Oil prices fell below $30 a barrel during the first quarter, the lowest in 13 years and gradually settled around $40 upon the second quarter, achieving $45 dollar average for 2016. Last week, oil prices dipped by about 20 percent from their high watermark for 2016, reached in June.

Nigeria’s 2017 budget is predicated on oil benchmark price of $42.5 per barrel and production volume of 2.2 million barrels per day, in a low price environment where IOC’s are divesting from Nigeria and new investments have been too few and far between for the past 20 years.

“There has not been any significant investment in Nigeria’s oil exploration in the past ten years. We are fast depleting our oil reserves and are not trying to explore new fields,” said Isreal Aye, oil and gas consultant and managing partner, SterlingPartnership.

Analysts have long called for diversification of the economy, as the way out of current economic headwind.

“Crude oil market conditions have profound implications for the Nigerian economy. The main impacts include: government fiscal operations, naira exchange rate, capital flow reversals, stock market, foreign reserves, inflation and interest rate, among others,” said Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI) in his calls for diversification.

Militant  attacks on strategic Chevron’s assets in Nigeria, including Okan offshore platform in Escravos, oil wells at Marakaba pipeline in Warri, and Bibi oil wells, RMP 22, 23, 24 in Warri North Local Government Area, all in Delta State, have led to production outages and huge repairs.

The Nigerian affiliates of Exxon shut its 400,000 per day Qua Iboe terminal in Akwa Ibom State after declaring a force majeure – or freedom from contracted obligations because of extraordinary circumstance – which the company attributed to ‘system anomaly’ but which militants under the aegis of the Niger Delta Avengers claimed responsibility for.

Shell Nigeria suffered a debilitating attack on its Forcados terminal in February, which led to a shut-in of about 300,000 barrels per day production.

Output from the 13 established members of the Organisation of Petroleum Exporting Countries (OPEC) excluding new entrant Gabon, fell by 80,000 barrels a day last month, a Bloomberg survey of analysts, oil companies and ship-tracking data showed. Nigeria led the decline with a 70,000-barrel-a-day monthly drop to 1.52 million, while Libya and Saudi Arabia reduced output by 20,000 and 40,000 barrels a day respectively.

Gabon joined OPEC on July 1, becoming the smallest member with average output of 210,000 barrels a day. Because the group expanded to 14 nations, total production in July actually increased to 33.24 million barrels a day from 33.11 million the prior month. The African nation initially joined the group in 1975, but ended its membership 20 years later.

Libya’s production fell by 20,000 barrels a day to 300,000 in July. The Arabian Gulf Oil Co. haltedoutput at the Sarir field last month after a protest by oil-facility guards shut the Eastern port of Hariga, blocking exports.

OLUSOLA BELLO & ISAAC ANYAOGU, with agency report