COVID-19: Petroleum explorationists, others call for CBN’s intervention

Following the crash in global oil prices occasioned by the coronavirus pandemic, indigenous Petroleum Explorationists have called for urgent intervention of the Central Bank of Nigeria, CBN, as they would be unable to meet their financial exposure to commercial banks at the current oil prices.

Former President, Nigerian Association of Petroleum Explorationists, NAPE, Mr. Abiodun Adesanya, who confirmed the very poor state of the industry in an interview, stated that only a direct intervention of the Federal Government through the CBN could rescue the situation.

Mr. Adesanya, who is also the Chief Executive Officer of Degeconek, a hydrocarbon asset management consultancy, said moratorium on principal and interests for a considerable period will help the oil, and gas companies recover as the oil prices would take some time to rebound even after the Covid-19 pandemic.

Vanguard investigation revealed that the total exposure of the oil and gas industry to Nigerian banks, which stood at N3.4 Trillion as at December 2019, has risen to between N4-6 Trillion.

Given that this exposure represents 20 percent of total banks’ credit to the private sector as at December 2019, Mr. Adesanya warned that without direct CBN intervention, this might lead to systemic shocks within the banking system, capable of affecting depositors monies and limiting the capacity of banks to support critical sectors of the economy, as Nigeria plans its way out of the current economic crisis

Mr. Adesanya, who noted that it would also lead to massive job losses as many indigenous players may not survive the present shock, said: “If unchecked the present situation threatens to wipe out the gains of this administration and successive ones in implementing the Local Content Act, which has created many opportunities to indigenous companies to significantly play in the industry.”

“Crude oil prices have maintained a steady decline in prices from the middle of February 2020, coupled with the price war between Saudi Arabia and Russia, which further dragged down prices. Following the easing of the price war and OPEC’s decision to cut the production quota of member countries, the market has not gotten the needed respite. As the oil glut continues on the back of slow uptake occasioned by the coronavirus pandemic. Prices have continued to tumble with a lot of unsold inventory creating storage issues especially in markets such as the United States of America. This distortion in normal market pattern has resulted in one of the worst crises in the energy sector in recent history.

“Nigeria’s over-reliance on crude oil earnings for macroeconomic stability has continued to make the economy highly susceptible to the uncertainty, which comes with price volatility and this threatens to destroy its fiscal buffers and resilience.

Speaking at a webinar organised by NAPE, yesterday, former Managing director, Niger Delta Exploration and Production Plc, Dr. Layi Fatona, said: “These days, there are many more sources of availability of crude. Take for example, the impact of shale fracking in the United States has put into the global market. That has changed the dimension and characteristics of this particular dip because there is a lot more oil available in other places than it used to be. I think this is something that Nigeria needs to take cognisance of.”

In terms of options, he said: “Our strategy not ought to be what we get out of our oil production. It also ought to be from what get from processing it. I want to stress that Nigeria must learn to create more value from its crude oil.

“There is no reason why Nigeria should not be a crude oil processing hub for the rest of Africa. Imagine if there are refineries to take our two million barrels of oil every day, converting the million barrels of crude into refined products. Imagine the diversity of revenue that will come from selling not just crude, but also refined products. We have lost substantial ground in that we have not invested in creating more out of the available chain in every barrel of crude oil we have produced since inception.”

On his part, Prof. Omowumi Iledare, the Ghana National Petroleum Corporation (GNPC), told Vanguard that “the local players themselves need to start considering innovative ways of reducing their cost of production. With Saudi and Russia combined average unit production cost at $6 per barrel, a critical survival index for the industry operators will be downward review of unit cost, currently averaging 30 dollars per barrel, which makes local producers uncompetitive when benchmarked against other climes.”

Source: Vanguard

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