Stumbling Dollar, Nigeria’s Militancy Push Oil Prices above $50

  • FG insists production stands at 1.6m bpd
  • Oando gets N94.9bn 5-year medium term Syndicated loan

Chineme Okafor in Abuja, Ejiofor Alike, Nume Ekeghe and Peter Uzoho in Lagos with agency report

Stumbling dollar and attacks on Nigeria’s oil and gas facilities by the Niger Delta Avengers (NDA), which also tightened crude oil supplies to the international market, pushed up Brent crude oil prices yesterday above $50 per barrel, even though signs of recovering US production capped the gains.

Brent crude futures were up 59 cents at $50.23 a barrel, while the US crude futures, West Texas Intermediate (WTI) were up 57 cents at $49.19 a barrel.

Reuters quoted oil traders as saying that the prices rose on a sharp fall in the dollar on Friday after weak US jobs data sparked concerns over the state of the world’s biggest economy, cutting expectations of a near-term cut in US interest rates.

A weaker dollar support fuels demand in the rest of the world as it makes dollar-traded oil imports cheaper.
The Muslim holy month of Ramadan began yesterday and is seen as supportive of prices as driving demand picks up in most Muslim-dominated countries.
Traders said prices were also propped up by attacks on oil infrastructure in Nigeria, which has already sent the country’s output to more than 20-year lows.

So far, supply cuts like those in Nigeria or Libya, have been met by rising output in the Middle East, especially Iran, which has ramped up output since the end of international sanctions against it in January.
But Iran is returning to the international oil markets more quickly than expected and is already returning to its maximum production capacity.

This means that further disruptions in global supplies might not be compensated by rising Iranian output.
Oil’s price rally, however, was capped on signs of increased output in the United States where energy firms this week added rigs drilling for oil for the second time this year, energy services company Baker Hughes Inc (BHI.N) said on Friday.

Rising prices have encouraged producers to cautiously increase activity. Drillers added nine oil rigs in the week to June 3, raising the rig count to 325 but still well below the 642 at work a year earlier, Baker Hughes said.
US crude oil production has fallen by 5.4 per cent since January and by almost 10 per cent since mid-2015 to 8.74 million barrels per day.

FG Insists Production Stands at 1.6m bpd

In Nigeria, the Minister of State for Petroleum Resources, Ibe Kachikwu, said yesterday in Abuja that in spite of the several shut-ins arising from militant activities in the Niger Delta, the country’s production output was 1.6m bpd.
According to him, “In terms of production, we are roughly at about 1.5 million – 1.6 million barrels a day, down from 2.2mbd which is the basis of this year’s budget and if peace reigns, obviously between now and August we will be able to recover substantial portion of this production so that the budget doesn’t suffer.”

OANDO gets N94.9bn 5-year medium term loan from 10 banks

Meanwhile, a consortium of 10 banks yesterday in Lagos signed an agreement to jointly provide a N94.9 billion five-year Medium Term Loan (MTL) facility for Oando Plc, to assist the company meet its financial obligations in the low crude oil price environment.

The banks are Access Bank Plc, Diamond Bank Plc, Ecobank Nigeria Limited, First City Monument Bank Plc, Fidelity Bank Plc, Keystone Bank Plc, Stanbic IBTC Bank Plc, Union Bank of Nigeria Plc, Zenith Bank Plc and FBN.
The facility, which is coming on the heels of the investment of the Helios/Vitol Group (HVI) into the downstream operations of Oando, will also help the company restructure some of its outstanding debts.

According to the agreement signed yesterday with the Managing Directors of Fidelity Bank, Access Bank, Union Bank and other representatives of the banks, the MTL will bring an immediate cash flow injection of $195 million and further repayment is expected to happen within 90 days from the proceeds of $130 million from the sale of Oando Gas & Power.

The sale is to allow Oando strictly focus on its downstream activities in the light of the recent deregulation.
The company also expects to raise an additional $800 million to $1 billion within the next 18 to 24 months as it leverages on its Oando Energy Resources (OER).

Speaking on behalf of the participating banks, the GMD/CEO of Access Bank Plc, Herbert Wigwe, said the MTL facility would allow Oando to optimise its balance sheet towards greater efficiency.

“As we all know, Oando is the largest indigenous oil and gas player in the sub-Saharan Africa and this MTL facility would allow it to optimise its balance sheet towards greater efficiency and improve its working capital. This combined with the synergy of investment by HVI into its downstream operations, will see Oando’s growth and development really take off,” Wigwe said.

The Group Chief Executive Officer of Oando, Mr. Wale Tinubu, commended the banks for providing the facility for the company, noting that it would have significant development impact on Oando’s group operations.

He said: “In a bid to return to profitability in 2016, I am happy to announce the successful completion of the restructuring of our overall debt profile into a N94.6 billion Medium Term, five-year consolidated facility, with a three-year moratorium on principal. This is the pivotal leg in our group restructuring plan of growth; via the upstream business, deleverage; via the disposal of $350 million in assets’ value in 2016, and our return to profitability in 2016, driven by our dollar earning oil export and trading activities.

“The company now stands diversified with higher weighted dollar-denominated earnings, an optimised and restructured balance sheet with lower cost of capital and longer tenors. With the upturn in global oil prices to levels above $50 per barrel, we now look forward to the successes of 2016, having ridden out the storm.”

Explaining the need for the facility, Tinubu said: “As soon as the oil prices started dropping, I don’t think anyone thought they would go from $100 to $30 before it gradually started rising back to $50. But at that point in time, you do need to take stock of your operation.

“We are a very large oil and gas company concerned with investments in the downstream where we are the leading petrol distributor to the midstream where we have pioneer works in the gas industry like the Lagos gas pipeline where we have over 150 major industries taking gas from Calabar pipeline and the pipeline in Port Harcourt.”
He said the company was badly affected by the stumbling oil prices and had to take stock.

According to him, “What we did was choose certain steps towards recreating a balance sheet that was bullet proof to be able to withstand the volatility, which we are experiencing in the oil prices, one in which we would be able to fund our operations consistently, aggressively as well as maintain the same level of service that we provide to our customers. And that plan included converting $150 million from debt to equity in the business.”

He added: “The plan also saw us choose to sell some assets, which were not core to the integral part of our corporation and some minority stakes in certain of our operations towards ensuring we brought down our overall group debt. So our group debt as of January 2015 was over $2.5 billion. I am happy to say we have brought it down to just shy of $1 billion. What we have done now with this facility is take the net borrowings of our group, stretch them out over a five-year period at a favourable interest rate to ensure that we can continue to expand our operations even in the middle of the downturn.”

Oando Plc, an integrated oil and gas company, is one of the largest integrated energy solutions provider in sub-Saharan Africa with primary and secondary listings on the Nigerian Stock Exchange (NSE) and the Johannesburg Stock exchange (JSE).