• Nigerian investigative journalist with access to Niger Delta militants
• Nigerian boots on the ground at election time
• Financial journalists in the Gulf
• Geneva-based investigator looking into Softbank
• Former Softbank exec
Niger Delta Oil in the Election Aftermath
With all the results in from Nigeria’s 36 states, President Muhammadu Buhari appears to have met all the requirements for victory and re-election to a second four-year term, with 56 percent of the vote to his main rival Atiku Abubakar’s 41 percent.
However, all the signs point to a controversial victory, with opposition parties alleging tampering with results, deliberate suppression of votes and outright falsification of results by the ruling All Progressives Congress, using the full force of incumbency and the security agencies to achieve this objective. Some of the allegations of the opposition have been borne out by election observers, who identified many cases where the number of votes cast exceeded the number of people accredited in a process where both were supposed to happen simultaneously. The implication of this is that rather than expect the concession of the main challenger, Abubakar, Nigeria may be entering a period of prolonged electoral dispute as a legal challenge goes through the courts, with all the uncertainties it entails.
For Nigeria’s oil-producing Niger Delta, the electoral outcome has implications for the future trajectory of peace in the restive region. The victory of Buhari means that the dream of people in the region to have greater autonomy and control over their resources, promised by Abubakar but opposed by Buhari, will remain deferred. For this reason, improved relations between the regime and the oil region remain unlikely, and things will most likely deteriorate.
The oil region also experienced the worst of election-related violence, with 25 of the over 40 deaths nationwide recorded in Rivers state, whose capital is the oil-industry hub of Port Harcourt. The region also experienced deliberate government voter suppression, ensuring it had a very low turnout, diminishing the electoral impact of the president’s unpopularity in the area. With the pre-election reinforcement of troops and incidents of overreach by the soldiers, there’s a heightened likelihood of resumption of politically motivated attacks on oil industry infrastructure.
Threats to Oil
An influential militant leader named Government Ekpemupolo, or Tompolo, who has been wanted since 2016 by the Buhari government, may seek to undermine the regime by sabotaging oil experts, rather than remain in hiding for another four years. Going on apace is the underground economy in the theft of crude, particularly from onshore pipelines, for local refining or for sale to vessels waiting offshore. Aiteo Group, which bought over the Nembe Creek Trunk Line feeds the Bonny Export Terminal from the central delta area a few years ago, said in a recent report to the authorities that sometimes as much as 45 percent of crude injected into the pipeline is lost to oil thieves.
While the oil theft and the accompanying lucrative trade is likely to continue due to complicit security forces, the government remains vulnerable to politically motivated attacks on the oil infrastructure. Nigeria needs output of 2.3m bpd and above to balance its budget but has managed less than 1.7m bpd on the average in the last two years.
Keep this in mind: Every time in the past that the militants have come close to cutting most exports, the government always made concessions--whether under military strongman late Sani Abacha, former presidents Olusegun Obasanjo, Umaru Yar-Adua and Buhari. To stand a chance of winning over the region, Buhari will have to match Abubakar’s promises, which he seems unlikely to do so and may adopt further strong-arm tactics to deal with unrest.
Oil Industry Reforms
The industry, of course, wants Buhari—but only because he is the lesser ‘evil’. There's urgent need to reform oil industry regulations and incentives to boost investments, but Buhari has at best been lethargic about it. A Petroleum Industry Governance Bill sponsored passed by the outgoing government wasn't signed into law by Buhari, who objected to some of its provisions. Uncertainty, therefore, continues to loom over the industry, putting off significant investments.
In the circumstance, many industry watchers will be keen to see how Buhari handles the renewal of 47 oil licenses held by a number of oil majors and local companies that are due to expire this year. Some are prospecting leases and others are mining leases, with at least 17 of them belonging to Shell. The mining leases operate for 10 years at a time, while prospecting leases are for three years.
With Nigeria seemingly unable to tame the unrest in the oil region, the leading oil majors are continuing their flight offshore, where the likes of Shell, Chevron, ExxonMobil, Total and Eni have made huge discoveries in the past decade. Part of the result has been the sub-optimal exploitation of Nigeria’s onshore fields, many of which have been divested by the oil majors to smaller independent producers, without the requisite technology to pump at full capacity.
Abubakar had said he would sell the state-owned Nigerian National Petroleum Corp to the public if elected, to end the corruption that sees it used as a government piggy bank. Buhari has made no such promise and would likely run the company the same way it’s run today, as an institution for the distribution of patronage.
Violence and a renewal of pipeline attacks is just around the corner, so watch for Nigerian crude to be taken offline.
More Saudi Drama, this time the Chinese are Biting Big
Saudi Arabia’s Crown Prince MBS went on a spending spree in Asia last week, pledging $100 billion investments in India, sealing a $10-billion refinery and petrochemicals complex deal in China and promising another $20 billion in investments in Pakistan. The investment pledges are clearly targeted with a view to securing the future of Saudi Arabia’s crude oil and the strategy of diversifying into value-added products with a focus on petrochemicals. This is where Aramco gets in bed with Iran’s friends, while MBS hopes—tongue in cheek—to use Saudi cash to tame the Chinese and Indian friendship with Iran.
Aramco is already involved in a massive refinery project in India, sharing a 50% stake in the $44-billion Ratnagiri project with the UAE’s Adnoc, but it is willing to expand its presence in one of the fastest-growing economies globally.
But while the China outreach is going down in full public splendor, behind the scenes there are some other worrisome developments. Investors, beware.
Softbank—behind MBS’ Vision Fund—is being eaten alive by internal rivalries and no less than a war between two of its highest ranking figures—Marcelo Claure and Rajeev Misra, who are both clamoring to dig up dirt on each other to gain more control. To do this, they’re using the dirtiest of private intel agencies and PR spinners. But it’s Masa now who is really running the show. At some point, this is going to explode and investors will be left holding the bag, or they will find suddenly that SoftBank can’t borrow loads of money anymore or launch new funds. And allegations of money mismanagement, which are in the rumor stage among high-level Saudi sources—could end up being outed in public. If you’re a conservative hedge fund, it’s probably time to rethink things. Our sources smell trouble on the horizon.
Global Oil & Gas Playbook
Deals, Mergers & Acquisitions
• Targa Resources has struck a deal with two private equity firms to sell them a 45% stake in its midstream assets in North Dakota for $1.6 billion. The buyers are GSO Capital Partners and Blackstone Tactical Opportunities, and the assets include crude oil and natural gas gathering pipelines, a gas processing plant, and a storage facility with a capacity of 125,000 barrels of crude.
• Petrobras has hired Spanish bank Santander’s investment banking unit in Brazil to assist in the sale of its liquid petroleum gas distribution business as part of efforts to shrink the largest debt pile in the global oil and gas industry. First announced in 2016, the deal was last year blocked by the country’s antitrust regulator. Petrobras said last year it planned to divest assets worth $26.9 billion between this year and 2023.
• UK-based independent energy company RockRose Energy has struck a $140-million deal to buy the North Sea business of U.S. Marathon Oil. The assets to pass into Rock Rose’s control include a 37-40% operated interest in several fields in the Grater Brae Area, a 47% interest in the Foinaven East field, and a 28% stake in the Foinaven field, operated by BP. The seller’s net production share of participation this year is seen at 24,000 barrels of oil equivalent daily.
Tenders, Auctions & Contracts
• Adnoc has leased a take in a network of 18 oil pipelines to KKR and BlackRock for a total $4 billion over a period of 23 years. The stake, of 40%, will be managed by a group of KKR and BlackRock funds with the remainder of the pipeline network remaining in the hands of the Emirati company. The pipelines have a combined capacity of 13 million barrels of crude oil and condensates daily. The $4 billion is just the sum of the upfront proceeds for Adnoc.
• Mexico’s president, Andres Manuel Lopez Obrador, has frozen all new joint venture contracts between Pemex and foreign oil and gas companies after an audit unveiled a debt pile of $106 billion, accumulated during the term of Obrador’s processor Enrique Pena Nieto. The Obrador government has pledged to bail out Pemex by providing it with more than $5 billion in various forms of financial support.
• France has allocated almost $800 million for investments in EV battery cell production over the next five years. Europe as a whole is far behind China and South Korea in the battery department and now attempts are being made to rectify matters and develop some local production capacity to reduce reliance on Asian imports.
Discovery & Development
• China’s CNOOC announced a major discovery in the Bohai Sea, which is the largest in the oil and gas industry for the last five decades, the company said. The proven reserves of the deposit, in the Bozhong 9-6 gas field, are in excess of 100 billion cu m of natural gas, CNOOC said. The discovery lies just 100 km from the Beijing-Tianjin-Hebei area, which is China’s most intensive consumer of energy.
• Trade in liquefied natural gas this year will rise 11% to 354 million tons, Shell said in its latest LNG Outlook. Demand for the fuel will increase to 384 million tons in 2020 and more capacity will come on stream but more investments are needed for supply to keep up with demand, Shell warned.
• Audi and E.on will together start building what will be the largest rooftop PV installation in Europe later this year. The installations will be located in Hungary, spanning a total 160,000 sq m on the rooftops of two logistics facilities owned and operated by the German carmaker.
• China has suspended hydraulic fracturing operations in the Sichuan province after protests from local communities that the fracking has caused heightened seismic activity. A series of four earthquakes shook the area in the last three days, with most of them weak but one reaching a magnitude of 4.5 and allegedly causing two deaths.
Politics, Geopolitics & Conflict
• Islamic militants last week attacked a convoy traveling to Anadarko’s LNG project in Mozambique in what was the first attack of this kind against the energy industry in the country.
• Protests against Sudanese president Omar al-Bashir are intensifying after a state of emergency the incumbent declared last week.
• Workers from several oil platforms in the North Sea are preparing for a strike arguing that Total, the owner of the platforms, is pressuring them into accepting unacceptable rotation changes.
• The UAE will try to broker a deal between warring Libyan fractions in a bid to accelerate the restart of the country’s largest field, Sharara, which has been closed since December.