All over the world, national oil companies are acting as enablers of their economies, Nigeria’s state-owned oil corporation cannot afford to be complacent, writes ISAAC ANYAOGU.
The dizzying pace of structural changes in the global oil market has seen state-owned oil companies morph into savvy investors driving the next wave of innovations in technology, pubic offers and oil trading. It doesn’t seem the message is reaching home.
In a world where shale producers ambush oil prices, where geopolitical risks starts with tweets by the US President or Yemeni rebels ramming bomb-laden drones into Saudi oil facilities, where climate change shames profits from fossil fuel and Asian consumers determine oil demand, the Nigerian National Petroleum Corporation (NNPC) cannot afford to just play the role of a national accountant, content to balance the books of government.
National Oil Companies (NOCs) control over 90 percent of the world’s proven oil reserves and over 70 percent of daily oil production. Since they are not just fringe players, their actions shape the global outlook of oil.
Founded 42 years ago, the NNPC is a behemoth superintending over 25 different business units spanning oil exploration, gas production, crude oil refining, marketing and shipping services. It runs several ventures including medical services, properties and renewables. Therefore, it often finds itself using proceeds from a few profitable ventures compensating for its many loss-making entities.
Read also: NNPC, NLNG seal $2.5bn gas supply deal
“Progressive NOCs have moved beyond conventional wisdom and ditched clichés,” says Dave Ernsberger, global Head of Commodities Pricing at SP Platts, an energy intelligence platform on a report about NOC activities globally.
Saudi Aramco provides a fitting backdrop to illustrate the changing roles of NOCs. Saudi Aramco is the world’s most profitable company, the biggest oil producer and it is going public within the next two years. The oil nation is banking on the IPO to raise some $100billion to help usher in a new economy less dependent on oil.
With an oil production capacity of about 12 million bpd and posting a profit of $46.9 billion in the first half of 2019, Aramco is betting that institutional investors will rush to buy the 5 percent stake set to be sold by the Saudi government
During campaigns for the last general elections, presidential candidate of the People’s Democratic Party, Atiku Abubakar proposed privatising the NNPC as part of plans to make Nigeria a $1 trillion economy by 2023. This proposal was meant with derision but the NNPC has not fared any better managed by people with ideas that were progressive during the Neolithic age.
NOCs these days are as concerned about their stock price as they are about their rig counts. Three Chinese National Oil companies – China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (SINOPEC) and China National Offshore Oil Corporation (CNOOC) development and production capital expenditure (Capex) in Africa’s upstream sector is projected to reach $15 billion by next year.
Egina commenced production at the end of 2018 and is expected to reach peak production of approximately 200,000 barrels of crude oil per day (bpd) in 2019 on the back of Chinese NOC investment. CNOOC, the biggest China’s offshore sector investor spent $2.3 billion in 2006 to acquire 45% stake in Nigeria’s OML 130 deepwater license, a lucrative contract that holds the Akpo and Egina fields.
The NNPC manages Nigeria’s oil on behalf of the state and Federal Government, yet it has been unable to vie for divestment deals by International Oil Companies (IOCs) in the sector. Its subsidiary, the Nigerian Petroleum Development Corporation (NDPC) is not in contention to buy Brazil’s Petrobras 16% stake in the Akpo field and 13% stake in the Agbami field. Yet, Lukoil, Russia’s second biggest national company is most likely to snap up the fields.
NNPC has no only been proven incompetent at managing fields allocated to its subsidiaries; it has also failed to pay its share of costs for the crude it is allocated leading to cash call areas. It has only settled about half of $5.1 billion cash call arrears. It has managed to run aground Nigeria’s refineries who according to its latest report posted over N90bn though it didn’t refine a barrel of oil.
Read also: Oil attacks unquestionably sponsored by Iran, says Saudi defence military spokesman
Globally, as banks cut their paper trading in oil after the financial crises, NOCs have stepped in to provide liquidity. “Several had seen the opportunity to fill the space left behind by the banks, and take on positions through their own fully-fledged trading businesses. Often, they were doing this in joint ventures with majors or merchant traders; increasingly, though, they were doing it on their own,” Ernsberger said.
With bank exposure to the oil sector responsible for a significant proportion of bank’s poor balance sheets, the NNPC is unable to fill the role other NOCs play in providing liquidity to ensure investments into the sector does not stagnate. While its counterparts report profits, its losses are so significant, it reports meagre decrease in losses as surpluses.
Following the exit of IOCs in various Liquefied Natural Gas projects including Olokola and Brass projects have stalled. Nigeria’s state-owned oil firm, is incapable of mustering the financial capacity to see them through, it doesn’t even have enough credibility to convince investors to partner with it.
The current NNPC boss, Mele Kyari has is seeking to burnish the image of the corporation perceived as a cesspool of corruption. Unlike his predecessor, who was successful at looking successful, Kyari says he will enthrone transparency. Three months into his reign, the corporation is yet to have an independent audit of its books. It keeps publishing monthly operations statement that the corporation warns it cannot vouch for its accuracy.
Aramco has taken actions to become more open following its decision to list. In March this year, it published earnings figures, issued a bond prospectus the next month for its $12 billion international bond sale and its first independent audit of its oil reserves. In August, it held its first ever earnings call with analysts and published half year earnings.
According to Robert Perkins, SP Platts Senior Writer, EMEA Oil News, Middle Eastern and Asian NOCs are driving the next wave of downstream development and rapidly growing proprietary trading businesses – in some cases turning from pupil to teacher for the international oil companies that were the source of such expertise for generations.
Nigeria’s NNPC on the other hands furthers a wasteful fuel subsidy programme that sees more budgetary allocation than health and education. The NNPC now says that all the petrol used in the country now comes through its Direct-Sales-Direct-Purchase programme, an arrangement that replaced the corrupt fuel swap arrangement it used to have, though both arrangements aren’t that different as it entails swapping crude for its derivatives, mainly PMS.
A smarter arrangement could have been establishing a toll arrangement where the pays refineries to sell Nigerian crude and take control of marketing all its derivatives. But this arrangement will curb the current rentier system by cutting out the middle man necessary to oil political patronage.
NNPC recently gleefully announced that it has discovered oil in the Gongola basin but is yet to disclose how much this enterprise has cost the nation. The Corporation didn’t respond to questions about the discovery. However, the volume of Nigeria’s unsold crude cargoes and OPEC’s production quota on the nation’s output, if not the inherent security threat in the activity under the threat of insurgency, should have been a clear message that digging for crude in the north was a dangerous folly.
Understandably, the NNPC under different governments have assumed roles that it should not be undertaking. It should begin to develop a blueprint on how it will be relevant in the emerging global oil market. It cannot just be content to be government’s accountant and balancing the books however important it thinks this task it. Since it has a many professionals in its employ, their role is to advise the government and make representations to lawmakers, if it involves tweaking the law that set it up so it can play the role of national oil company that benefits the country.
