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Consolidation Looms for Nigerian Companies to Survive Oil Price Drop



Small oil-producing companies in Nigeria, facing slumping prices and rising debt, may need to combine to survive, the chief executive officer of one of the companies said.

“We don’t have that much leverage, the rapid drop is unprecedented for the country’s small producers,” Kola Karim, the Chief Executive of Officer of Shoreline Natural Resources Limited, said in a phone interview with Bloomberg yesterday from London.

“The reality is there have to be mergers in the industry because it is difficult in a down market when you’re a small producer trying to weather the storm alone.”
Karim’s Shoreline Natural Resources, with output of about 60,000 barrels per day, is one of more than a dozen independent oil firms owned by Nigerians, pumping between 5,000 and 100,000 barrels daily and accounting for about 20 per cent of Nigeria’s production.

Others include Seplat Petroleum Development Co., Neconde Energy Limited, Conoil Producing Limited and First Hydrocarbon Limited, among many others.

Nigeria produced an average of 2.04 million barrels per day in January, according to data compiled by Bloomberg.
Royal Dutch Shell Plc, ExxonMobil Corp., Chevron Corp., Total SA and Eni SpA run joint ventures with state-owned Nigerian National Petroleum Corporation (NNPC) that pump the rest of the country’s crude.

Most of the smaller companies obtained financing based on a price of $70 a barrel, compounding difficulties from the fall in the price of crude while they struggle to keep production steady in the face of pipeline attacks and oil theft, according to Karim.

“Already at $50 a barrel, we are under water,” Karim said. The financial pressure is compounded by the security threat, he said. “You face the devil on all sides.”

Armed groups led by the Movement for the Emancipation of the Niger Delta (MEND) are fighting for control control of the region’s oil resources.

Attacks cut Nigeria’s oil output by 28 per cent, mainly from the delta’s swamps and shallow waters, from 2006 to 2009, according to figures compiled by Bloomberg.

Though the violence subsided after thousands of fighters accepted a government amnesty offer in 2009 to disarm, a surge in oil theft in recent years by gangs tapping crude from pipelines has left output hovering close to four-year lows.

Oil prices of less than $50 per barrel makes production unprofitable for independents that pump at a cost of $30 per barrel. Taxes and extra security costs to protect installations cut into profits, according to analysts including Pabina Yinkere of Vetiva Capital Management Limited.
Oil majors, such as Shell and Exxon Mobil, with larger economies of scale, pump at lower costs of about $15 for a barrel, Yinkere said.

Brent crude, which compares with West African crude grades, rose 2.3 per cent to $55.95 per barrel as of 8.43 am yesterday in London, down 53 per cent from last year’s highest point on June 19.

As Shell, Chevron, Total and Eni sold some of their onshore assets in Nigeria over the last four years, they were acquired by smaller Nigerian-owned companies that funded their acquisitions with debt, banking on high crude prices to repay the loans, Yinkere said in a phone interview from Lagos.

Falling oil prices have also had an impact on the country’s banking sector, where about 25 per cent of loans are made to oil companies.
At First Bank of Nigeria Limited. loans to these firms account for about 40 per cent of its loan porfolio and at Access Bank Plc the figure is 35 per cent, according to data compiled by Bloomberg. The two banks are the most reliant on lending to the oil industry, the data show.

The lenders are also hurting from the 27 per cent plunge of the naira this year under pressure from declining crude prices, the source of 90 per cent of the country’s export income.

Adding to Nigeria’s currency woes is uncertainty about the general election initially scheduled to hold this month and now postponed by six weeks.

Some of the banks have started negotiations on how to reorganise the debts, Dolapo Oni, energy analyst at Lagos-based Ecobank Research, said in a phone interview.

“The banks are already starting to see that their revenues are now so low that they can no longer meet their payments,” he said.

Seplat, the leading Nigerian producer, pumping about 70,000 barrels daily, is in talks to take over London-based Afren Plc, which operates fields in Nigeria.

“I foresee a huge combination of mergers in the local market, we’re also looking for opportunities,” said Karim. “You’re better being part of a bigger player, so you can save on your cost and make good margins.”

Companies including Shoreline are now looking to boost gas output after the government raised prices to $2.50 per thousand cubic meters, with demand to Nigerian power plants set to more than double to 5 billion cubic feet a day from the current 2 billion cubic feet, according to NNPC estimates.

Nigeria holds Africa’s largest gas reserves of more than 180 trillion cubic feet.
Shoreline is in talks with companies including a subsidiary of NNPC, Nigerian Gas Company (NGC), and Ughelli Power Plc ahead of plans to increase production from its 3.5 trillion cubic feet reserves, Karim said.

His company’s focus would be on the domestic gas market as the higher prices makes it more attractive, he said. —-This Day


WAIVER CESSATION: Igbokwe urges NIMASA to evolve stronger collaboration with Ships owners



…Stresses the need for timely disbursement of N44.6billion CVFF***

Highly revered Nigerian Maritime Lawyer, and Senior Advocate of Nigeria (SAN), Mike Igbokwe has urged the Nigeria Maritime Administration and safety Agency (NIMASA) to partner with ship owners and relevant association in the industry to evolving a more vibrant merchant shipping and cabotage trade regime.

Igbokwe gave the counsel during his paper presentation at the just concluded two-day stakeholders’ meeting on Cabotage waiver restrictions, organized by NIMASA.

“NIMASA and shipowners should develop merchant shipping including cabotage trade. A good start is to partner with the relevant associations in this field, such as the Nigeria Indigenous Shipowners Association (NISA), Shipowners Association of Nigeria (SOAN), Oil Trade Group & Maritime Trade Group of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).

“A cursory look at their vision, mission and objectives, show that they are willing to improve the maritime sector, not just for their members but for stakeholders in the maritime economy and the country”.

Adding that it is of utmost importance for NIMASA to have a through briefing and regular consultation with ships owners, in other to have insight on the challenges facing the ship owners.

“It is of utmost importance for NIMASA to have a thorough briefing and regular consultations with shipowners, to receive insight on the challenges they face, and how the Agency can assist in solving them and encouraging them to invest and participate in the maritime sector, for its development. 

“NIMASA should see them as partners in progress because, if they do not invest in buying ships and registering them in Nigeria, there would be no Nigerian-owned ships in its Register and NIMASA would be unable to discharge its main objective.

The Maritime lawyer also urged NIMASA  to disburse the Cabotage Vessel Financing Fund (CVFF)that currently stands at about N44.6 billion.

“Lest it be forgotten, what is on the lips of almost every shipowner, is the need to disburse the Cabotage Vessel Financing Fund (the CVFF’), which was established by the Coastal and Inland Shipping Act, 2003. It was established to promote the development of indigenous ship acquisition capacity, by providing financial assistance to Nigerian citizens and shipping companies wholly owned by Nigerian operating in the domestic coastal shipping, to purchase and maintain vessels and build shipping capacity. 

“Research shows that this fund has grown to about N44.6billion; and that due to its non-disbursement, financial institutions have repossessed some vessels, resulting in a 43% reduction of the number of operational indigenous shipping companies in Nigeria, in the past few years. 

“Without beating around the bush, to promote indigenous maritime development, prompt action must be taken by NIMASA to commence the disbursement of this Fund to qualified shipowners pursuant to the extant Cabotage Vessel Financing Fund (“CVFF”) Regulations.

Mike Igbokwe (SAN)

“Indeed, as part of its statutory functions, NIMASA is to enforce and administer the provisions of the Cabotage Act 2003 and develop and implement policies and programmes which will facilitate the growth of local capacity in ownership, manning and construction of ships and other maritime infrastructure. Disbursing the CVFF is one of the ways NIMASA can fulfill this mandate.

“To assist in this task, there must be collaboration between NIMASA, financial institutions, the Minister of Transportation, as contained in the CVFF Regulations that are yet to be implemented”, the legal guru highlighted further. 

He urged the agency to create the right environment for its stakeholders to build on and engender the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders.

“Lastly, which is the main reason why we are all here, cessation of ministerial waivers on some cabotage requirements, which I believe is worth applause in favour of NIMASA. 

“This is because it appears that the readiness to obtain/grant waivers had made some of the vessels and their owners engaged in cabotage trade, to become complacent and indifferent in quickly ensuring that they updated their capacities, so as not to require the waivers. 

“The cessation of waivers is a way of forcing the relevant stakeholders of the maritime sector, to find workable solutions within, for maritime development and fill the gaps in the local capacities in 100% Nigerian crewing, ship ownership, and ship building, that had necessitated the existence of the waivers since about 15 years ago, when the Cabotage Act came into being. 

“However, NIMASA must ensure that the right environment is provided for its stakeholders to build and possess the needed capacities to fill the gaps; and ensure that steps are being taken to solve the challenges being faced by stakeholders. Or better still, that they are solved within the next 5 years of its intention to stop granting waivers”, he further explained. 

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Breaking News: The Funeral Rites of Matriarch C. Ogbeifun is Live



The Burial Ceremony of Engr. Greg Ogbeifun’s mother is live. Watch on the website: and on Youtube: Maritimefirst Newspaper.

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Wind Farm Vessel Collision Leaves 15 Injured



…As Valles Steamship Orders 112,000 dwt Tanker from South Korea***

A wind farm supply vessel and a cargo ship collided in the Baltic Sea on Tuesday leaving 15 injured.

The Cyprus-flagged 80-meter general cargo ship Raba collided with Denmark-flagged 31-meter wind farm supply vessel World Bora near Rügen Island, about three nautical miles off the coast of Hamburg. 

Many of those injured were service engineers on the wind farm vessel, and 10 were seriously hurt. 

They were headed to Iberdrola’s 350MW Wikinger wind farm. Nine of the people on board the World Bora were employees of Siemens Gamesa, two were employees of Iberdrola and four were crew.

The cause of the incident is not yet known, and no pollution has been reported.

After the collision, the two ships were able to proceed to Rügen under their own power, and the injured were then taken to hospital. 

Lifeboat crews from the German Maritime Search and Rescue Service tended to them prior to their transport to hospital via ambulance and helicopter.

“Iberdrola wishes to thank the rescue services for their diligence and professionalism,” the company said in a statement.

In the meantime, the Hong Kong-based shipowner Valles Steamship has ordered a new 112,000 dwt crude oil tanker from South Korea’s Sumitomo Heavy Industries Marine & Engineering.

Sumitomo is to deliver the Aframax to Valles Steamship by the end of 2020, according to data provided by Asiasis.

The newbuild Aframax will join seven other Aframaxes in Valles Steamship’s fleet. Other ships operated by the company include Panamax bulkers and medium and long range product tankers.

The company’s most-recently delivered unit is the 114,426 dwt Aframax tanker Seagalaxy. The naming and delivery of the tanker took place in February 2019, at Namura Shipbuilding’s yard in Japan.

Maritime Executive with additional report from World Maritime News

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