$3b down the drain, oil in north remains elusive

…As Firms set to trade at one kobo following NSE new pricing rules***

Stakeholders remain divided about the wisdom in the continued search for hydrocarbon resources in the north, especially as $3 billion has already been sunk without making a commercial find.

While those in favour of the search disregard the economic waste, but are encouraged by the success of oil finds in neighbouring countries like Niger, Chad and others, geologists who are mindful of the soil composition of hydrocarbon reserves, think it’s an effort in futility.

The experts noted that nature has blessed each region of Nigeria with peculiar resources, and while the south is enriched with hydrocarbons, the north is blessed with solid minerals, thus, solid minerals and hydrocarbons cannot coexist.

Industry experts, who spoke with The Guardian, said the persistent push by some northern leaders, including President Muhammadu Buhari, points to an underlining reason far beyond the quest, which is far from being of economic benefit to the country.

Already, there have been visits by some northern governors to the Nigerian National Petroleum Corporation (NNPC) on the issue. The President, Governors Ibrahim Gaidam of Yobe; Aminu Waziri Tambuwal of Sokoto; and Abubakar Badaru of Jigawa states were recently in separate closed-door meetings to discuss oil exploration in the region.

The Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), and Head of Transparency International Nigeria, Auwal Musa, described the move as unnecessary and not in the best interest of the country.

Musa said: “We should not bring regional politics to everything that can benefit the entire country. The project has not been seen as a national effort to diversify revenue. If it is seen as something meant for national interest, I don’t think there is the need for the Sokoto State governor or anyone to lobby. There are signals that it is going to favour one particular region.”

Senator Shehu Sani, during a visit of members of the Kaduna State Students Union to his office in Kaduna, noted that “past leaders have amassed wealth through this venture,” and instead called Buhari to investigate the over $3billion already spent on the project.

This also raises the issue over lack of transparency and accountability in the NNPC, as only Prof. Jerry Gana, in 2013, while serving as chairman of the Northern Nigeria Economic Summit, disclosed that N27billion was spent on oil and gas exploration in the Lake Chad Basin at that time with additional $340million budgeted.

About 40 years after the Federal Government started the search for oil in the north, many Nigerians are convinced that its intensification by the President Buhari administration may be more politically motivated, and will end up enriching a few individuals from the region.

Described as a mere geopolitics of oil, some experts insisted that the drive, if not dropped, especially now that the country’s economy is in turbulence, would remain a waste of the nation’s scare resource.

But a new directive from the Buhari-led administration has compelled the NNPC to aggressively pursue oil search in the frontier basins, its Group Managing Director, Maikanti Baru, has said. Regardless of the criticisms, Baru said the corporation would not give up on the mandate given to it by President Buhari to aggressively explore the inland basins, including Anambra, Bida, Benue, Chad, Gongola, and Sokoto.

Baru said based on preliminary results from the exploration in the inland basins so far, especially the Benue Trough, there was a strong indication that commercial quantity oil and gas find would soon be a reality.

This came amid a backlog of over $6billion Joint Venture cash call arrears, lack of support from the International Oil Companies (IOCs), global shift from fossil fuel to renewable energy, loss of interest in encouraging production of already discovered reserves and poor economic outlook.

Rather than continuing with the search, some experts argued that Nigeria should take opportunity of the rise in oil prices at the international market to produce already discovered reserves, and maximise the benefits thereof in view of the global shift to renewables.

Some, like the Managing Director, Xenergy Gas Limited, Emeka Ene, in response to The Guardian’s enquiry, drew attention to global developments, saying: “OPEC’s World Oil Outlook published in 2016 clearly indicated that global oil demand would start declining from 2030. Natural gas will still be relevant; however, it is imperative that policymakers and oil industry players factor in this shift by incorporating alternative energy in long-term economic and investment decisions moving forward.”

In the meantime, the Nigerian Stock Exchange (NSE) is to begin the implementation of new pricing rules that will remove the stopgap that has supported stocks at their nominal value. The new rules will allow shares of quoted companies to trade for as low as one kobo.

The new rules will effectively remove the current rule, which places minimum allowable price to trade for any stock at its nominal value, irrespective of the market forces.

The new rules stipulate that “notwithstanding its par value, the price of every share listed on the Exchange shall be determined by the market, save that no share shall trade below a price floor of one Kobo per unit”.

Par value is the nominal value of a share as stated in the Memorandum of Association of the company while price floor means the amount below which the price of one unit of a share shall not be permitted to trade, and the minimum amount which must be paid for a share in the event of a drop in the unit price of that share.

Regulatory documents obtained at the weekend also indicated that the amendments to the pricing technology at the stock market will see a categorisation of quoted companies under three groups with different pricing rules.

The tick size, the minimum price movement by which the price of a trading instrument can change, will also be lowered to as low as one kobo. Although all quoted companies shall continue to trade within the current pricing band of 10 per cent maximum allowable change per day.

Under the new groupings and pricing rules, which shall take effect on Monday January 29, 2018, stocks under the first category, Group A, shall consist of large-cap equities that are priced at N100 per share or above for at least four of the last six trading months, or new security listings that are priced at N100 or above at the time of listing on the Exchange.

The second category, Group B, shall consist of medium-priced equities that are priced at N5 per share or above, but less than N100 per share for at least four of the last six months, or new security listings that are priced at N5 per share or above but less than N100 per share at the time of listing on the Exchange.

The third category, Group C, where majority of listed companies fall, shall consist of equities that are priced at one kobo per share or above, but below N5 per share for at least four of the last six months, or new security listings that are priced at one kobo per share or, but below N5 per share at the time of listing on the Exchange.

The new rules expectedly link price movements and minimum quantity of equities traded that will change the published price of an equity security. Stocks under Group A shall have price change with minimum of 10,000 units; stocks under Group B shall have price movement with a minimum of 50,000 units while stocks under Group C shall have price change with minimum volume of 100,000 units.

The tick size, which is the minimum price movement that any equity shall trade, shall also be linked to the groups. Group A will have a tick size of 10 kobo, Group B, five kobo while Group C will have a tick size of one kobo. This implies that the share price of each stock shall be allowed to move up or down in multiples of its tick size.

The Nation’s check at the weekend indicated that there were only nine stocks under the “high-priced stocks” category of Group A. These include Dangote Cement Plc; Mobil Oil Nigeria Plc; Nestle Nigeria Plc; Nigerian Breweries Plc; SIM Capital Fund; Skye Shelter Fund; Nigerian Energy Sector Fund (NESF); Total Nigeria Plc and Seplat Petroleum Development Company Plc

The Nation’s check also indicated that at least two-thirds of quoted companies fall under the Group C and about a quarter of quoted companies may drop below their nominal values upon the implementation of the new pricing rules.

A large part of quoted companies have been stagnant at their nominal value for many years and have been on supply, a market euphemism for shares glut and sell pressure. Most of the stocks have been sustained by the current rule of a stopgap of nominal value.

Market pundits said the new pricing rules will enhance the price discovery mechanism of the stock market, noting that the new rules are in tandem with the market’s principle of demand and supply as price-determinant at the stock market.

Guardian NG with additional report from Nation