Market Report: Plans Afoot to Secure Financing to Repair Refineries in Nigeria

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The Federal Government of Nigeria launched the Nigerian Upstream Cost Optimization Program, which is aimed at boosting industry collaboration and process enhancement, according to Minister of State for Petroleum Resources, H.E. Timipre Sylva.

The program aims to cut down the cost of crude oil production to $10 per barrel as a reduction of oil extraction costs remains pivotal to allowing the country to maximize profits from oil. The minister further stated that the high cost of oil production will rob the country of its desire to attract foreign investment and be a globally competitive oil player.

He listed a few issues that need to be fixed including capital expenditure, operational cost, a high magnitude of crude loss and the multiplicity of tariff. He noted that currently, the average total cost is now below $30 per barrel for joint venture contracts and less than $20 for production sharing contracts, urging that more needs to be done to reach a consensus to facilitate a reduced cost of extraction.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Alhaji Mele Kyari, said the corporation is making progress towards securing $2 billion in financing by June 2021 in a bid to overhaul the Warri and Kaduna refineries. Kyari also mentioned that an effort to finance repairs to the Port Harcourt refinery was underway after a pre-finance bid for more than $1 billion was oversubscribed. He further stated that repayment of finance raised will be from profits and fuel cargoes from the refineries and not in oil cargoes.

Kyari stated that NNPC is renegotiating commercial contract terms with major oil firms to allow for investment in the sector to continue to flow, which is crucial for the nation’s economy. He anticipated that the new commercial terms would be finalized before the Petroleum Industry Bill is passed.


Tullow Oil announced it had signed two separate sale and purchase agreements with Panoro Energy for all of Tullow’s assets in Equatorial Guinea (the EG Transaction) and the Dussafu asset in Gabon (the Dussafu Transaction).

Transaction Highlights include $180 million asset sales consisting of up to $105 million for the EG Transaction, up to $70 million for the Dussafu Transaction and a further $5 million consideration to be paid after both transactions have completed. EG Transaction: $89 million upfront cash consideration subject to customary completion adjustments; contingent cash payments of up to $16 million linked to asset performance and oil price.

Dussafu Transaction: $46 million upfront cash consideration subject to customary completion adjustments; contingent cash payments of up to $24 million linked to asset performance and oil price. Sale of c. 6,000 barrels per day (bpd) of 2021 production and c. 20 million barrels of 2P reserves, with an effective date of 1 July 2020. The Government of Equatorial Guinea has approved the EG Transaction and confirmed that no tax arises on the disposal. Completion of both transactions and receipt of funds is expected in the first half of 2021.

These are all value accretive transactions, which further strengthen the balance sheet and are in line with Tullow’s strategy of focusing on high-margin, self-funded production with strong cash flows. These transactions will have a neutral impact on the group’s 2021 operating cash flow at $50 per barrel and increase Tullow’s 2021 pre-financing free cash flow by c. $0.1 billion.


On February 11, crude oil prices dipped as two leading industry bodies issued cautiously optimistic forecasts for 2021 global demand. The U.S. West Texas Intermediate crude futures were down 0.6% at $58.33 a barrel, while Brent crude futures were down 0.4% at $61.23 a barrel at 11:50 AM ET (16:50 GMT).

The U.S. Energy Information Administration’s weekly report for February 10, recorded a draw of 6.644 million barrels for the week ending February 5, against analysts’ forecast of a much larger than expected 985,000-barrel build and the 994,000-barrel build reported the week before.

The International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) have predicted a solid rebound in demand in the latter part of 2021. They trimmed their forecasts of the year overall due to the impact of longer-than-expected lockdowns at the start of 2021 in much of the Northern Hemisphere, notably in Europe.

The IEA shaved 200,000 bpd from its January estimate to an average of 96.4 million bpd and said that “the forecasts for economic and oil demand growth are highly dependent on progress in distributing and administering vaccines, and the easing of travel restrictions in the world’s major economies.” It noted that it expects U.S. supply to remain mostly steady at 11.4 million bpd, noting that most U.S. companies have given few signs of increasing output to their shareholders.

Meanwhile, oil prices have been given a boost due to the global COVID-19 vaccine rollouts that began at the end of 2020, large stimulus packages and cuts in supply by producers. Saudi Arabia unilaterally reduced supply for February and March earlier in the year. The supply cuts were in addition to cuts made by other members of OPEC+.


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