Analysts see reform opportunity for NNPC

The deal reached earlier this year over the Iranian nuclear programme is beginning to rekindle old oil alliances, leaving the state oil company NNPC in Africa’s largest oil producer fretting over the possibility of losing market share.

A South Africa delegation made up of officials from PetroSA and government aides will fly to Tehran in October to meet with Iranian oil executives, BusinessDay has learnt.

Talks are to focus on a resumption of exports of Iranian crude to South Africa, to the detriment of Abuja.

Nigeria, and particularly the NNPC, fear losing its position as South Africa’s leading supplier, if an agreement is reached between Pretoria and Tehran.

Indeed, a memorandum of understanding between the two parties was reached in mid- September, according to the National Iranian Oil Company.

Earlier in April, South African energy minister Tina Joemat-Pettersson met with her counterpart in Tehran, Bijan Namdar Zanganeh, to talk of resuming energy cooperation.

Instead of panicking over the inevitable return of Iranian oil to global markets Nigeria could use the opportunity of declining oil prices to reform its dysfunctional oil sector, analysts say.

“The current low oil price is an opportunity to review the relationship between host governments and oil and gas investors, and for African governments to do all they can to make the investment opportunities as investor-friendly as possible,” said Rob Tims, managing director oil and gas Africa, at Standard Chartered Bank.

“This is the fourth oil price slump I have witnessed in my career. The timing of the recovery is unclear, but when it does happen and the dust settles, the winners will be those countries that were able to attract investment dollars despite the downturn. The losers will be inflexible countries that stick to the old rules of the $100 a barrel world,” said Tims, whose oil and gas team advised Seplat on its acquisition of OMLs 53 and 55 from Chevron.

Buying 51 million barrels of oil in 2014, South Africa was the biggest African importer of Nigerian crude.

However before sanctions were imposed in 2012, South Africa purchased nearly 100,000 bpd of Iranian oil.

Iran has the world’s fourth-largest proven oil reserves and the world’s largest natural gas reserves, according to BP figures for the end of 2014.

Nigeria gets 70 percent of government revenues and 95 percent of export earnings from oil and has been hit hard by the plunge in global oil prices.

The Natural Resource Governance Institute, an international watchdog, noted in a report released in August that previous administrations have “neither developed (NNPC’s) own commercial or operational capacities, nor facilitated the growth of the sector through external investment.”

Under the Iranian deal, all energy, economic and financial sanctions imposed by the US and EU, with most applied by the UN, will be lifted on “implementation day”, when Iran has demonstrated it has complied with limits on its nuclear operations designed to prevent it from building a bomb.

Some observers say oil and gas companies will want to show a willingness to return to Iran but at the same time without taking on too great a risk.

In March, 47 Republican senators sent an open letter to the Iranian leadership, warning that the next US president could undo any nuclear agreement with the “stroke of a pen.”

“If I was in (the oil executives’) shoes,” says Dominic Bokor-Ingram, portfolio adviser for frontier markets at asset manager Charlemagne Capital. “I would want to see this deal hold for a couple of years before committing a few billion dollars. If the US reimposes sanctions, any money that they put in is, shall we say, not 100 per cent safe.”

Patrick Atuanya