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NLNG Courts Investors for New Lagos State Oil and Gas Dockyard

 

Nigeria LNG Limited is looking for investors for a new dockyard that it is looking to develop in Badagry, Lagos State. The company revealed this at an investment forum for banks and financial institutions. The need for the dockyard is as a result of NLNG's plan for six new vessels. The US$1.6 billion contract for the vessels, awarded to Samsung Heavy Industries and Hyundai Heavy Industries revealed the need for new dry-docking facilities for the very large crude carriers (VLCC).  

 

Without new facilities in the country, the vessels will have to be taken abroad for servicing at very high cost, in terms of time and money, to the company. Following the conclusion of feasibility studies by Royal HaskoningDHV, an independent, international engineering and project management consultancy headquartered in the Netherlands, the dockyard will be located in Badagry.

 

Speaking at the event, Babs Omotowa, NLNG's managing director and chief executive officer said: "This dry-dock, when completed, holds huge potential for investors and for Nigeria. Our LNG vessels and very large crude carriers (VLCC) of other companies in the oil and gas, and marine industries, which are currently maintained overseas, resulting in millions of dollars in capital flight, will soon be maintained in-country with significant value-added for the Nigerian economy."  

 

NLNG considered seven locations, Badagry, Lekki FTZ, Ladol Island, Ogogoro Island, Olokola FTZ, Onne, Bonny, before Badagry was chosen as the most suitable. The new dockyard will fill a long-standing need for an operational dockyard to cater for very large crude carriers (VLCCs) and liquefied natural gas (LNG) carriers. The company pointed out that the dockyard would have clients queuing up to use its facilities. First, NLNG will be a major client with 13 vessels currently in its fleet and 6 new vessels. It will also be able to cater, not just to the Nigerian market, but also to the wider West African sub region where owners of such vessels currently have to use docking facilities in Asia, Europe and the Americas at very high expense.  

 

If the project goes ahead it will boost local expertise as NLNG has been able to secure training opportunities for 600 young Nigerians who will learn about various aspects of ship-building.

The dry-dock is also planned to be operated and managed according to best international standards, and when completed, will generate revenue and add jobs to the economy.

 

NLNG is owned by four shareholders, namely, the Federal Government of Nigeria, represented by the Nigerian National Petroleum Corporation, NNPC (49%), Shell Gas BV, SGBV, (25.6%), Total LNG Nigeria Limited (15%), and Eni International (N.A,) N. V. S. a. r. l (10.4%).

 

New Threat for Nigerian Crude Market as US Opens Door to Lightly Processed Crude Exports

 

With crude prices continuing to tumble due to global oversupply, the situation is bound to get worse for Nigeria following a US Department of Commerce guidance that effectively opens the door to US exports of ultra light crude. Following the clarification, producers in the US, once Nigeria's largest importer of crude oil, will be able to sell lightly processed crude abroad. After approving the export application of two Texas producers, the door to US condensate exports is now firmly unlocked.

 

The US guidance states that the decades old ban on the export of crude oil, stemming from the Arab oil embargo of the 1970s, remains in place but condensate that has been processed through a crude oil distillation tower is a petroleum product and so is not subject to the ban. There are few restrictions to the export of petroleum products in the US.

 

The Department of Commerce clarification came after a year of increasing agitation from producers for the situation to be made clearer. Although analysts agree that the guidance goes a long way towards making the situation more certain, it does still leave some questions unanswered, particularly regarding the degree of processing that meets the requirement of the Department of Commerce. The guidance issued by the Department recognizes that the problem and suggests that those who are unsure should apply for formal classification from the US Bureau of Industry and Security (BIS). This seems to open the way to self-certification in the first instance and clarification from BIS, only if unsure.

 

In terms of processing, the guidance explains that: "In order for liquid hydrocarbons to be classified as petroleum products, there must be material processing through a crude oil distillation tower. If there is no processing in the distillation tower, or the processing is de minimis, the liquid hydrocarbons will not qualify as petroleum products." This means that producers can do the light distillation needed in the fields and can export without a need to get the crude to refineries first. More details of what will qualify as processing are to be found in the guidance.

 

The only other issue with the guidance is that condensates are not adequately defined. Condensates are relatively light hydrocarbon liquids that are present as gaseous components in the raw natural gas produced from many natural gas fields. Recovered mainly from gas reservoirs, condensates are very similar to light stabilized crude oil. It condenses out of raw gas if the temperature is reduced to below the hydrocarbon dew point temperature of the raw gas.

 

The energy industry uses API gravity - how heavy or light petroleum is relative to water - to distinguish between different crude grades. Lighter crudes have higher gravity. Crude is generally considered to be condensate if its API gravity is over 45º API but what exact API gravity qualifies as condensate is largely a matter of whom you ask.

 

The problem for OPEC producers is that the growth of US shale production, which has a relatively high API gravity compared to US conventional crude, has seen an increase in light crude oil inventories in the US. Experts estimate that as much as 12 per cent of current US oil production could qualify as condensate. This means that, thanks to shale production, the opening of US oil exports will have a big impact on the global market.

 

The implications for Nigeria is that within a year, analysts say about one million barrels of lightly processed condensate, which competes with Nigeria's light, sweet crude, will come onto the global market. There are already reports that Nigeria is struggling to find buyers for its crude. The opening of the US export market can only make things worse as the predicted one million barrels is dumped onto the same European and Asian markets where Nigeria is currently selling most of her crude exports.

 

Analysts are predicting that with the opening up of US condensate exports, oil prices, which have been tumbling this year, are unlikely to make a recovery anytime soon.

 

The full Department of Commerce guidance is available on our website, http://www.NOGintelligence.com.

 

OPEC Basket Down to $45.74 a Barrel Thursday, 8 January 2015

 

The price of OPEC basket of twelve crudes tumbled down to $45.74 dollars a barrel on Thursday, although it made a gain of just over $1 on the previous day's price of $44.85, according to OPEC Secretariat calculations.

 

Global oil prices have now achieved the biggest fall since the global crisis of 2008 as Saudi Arabia continues to influence OPEC against a price cut. The OPEC nation with the deepest pockets, it is keen to play chicken with the US to the point of brinkmanship. Shale oil has much higher production costs. OPEC member countries, who refused to cut production in their November meeting are still not budging, preferring - with Saudi Arabia's influence - to wait out the inevitable slow down in expensive US fracking if the price situation continues. Already, the strategy seems to be yielding fruit, as there are reports that applications for new US well permits dropped by nearly half in December.

 

For many OPEC member nations, it is a tough time as they wait it out. With current oil prices well below the budget price for most OPEC nations, many of them will be on tenterhooks as they wait, hoping they don't go bust before US shale oil production drops to a level significant enough to reign in falling prices. While they wait, Nigeria's external reserves continue to drop.

 

Central Bank of Nigeria recently revealed that reserves dropped from $36.8bn at the end of November to $34.8bn at the end of December - $2bn in three weeks. At the same time, Reuters has revealed that Nigerian crude oil exports in February are set to fall to around 1.87 million barrels per day (bpd) from around 2.03 million bpd in January. The situation looks bleak and Nigeria is in for a difficult time as the waiting game continues.

 

The new OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

 

Seplat Clarifies Reports of Preliminary Approach for Afren

 

The dually (Nigeria and London) listed Africa focused oil company has released a statement followed Afren's announcement in December of an approach by Seplat. In the statement, Seplat confirmed that it had made the approach but stressed that the approach was highly preliminary and that there was no certainty that an offer would be made or as to the terms of any offer.

 

Interestingly, Seplat refers in the statement to an approach for "a possible combination with Afren" leading to speculation that any offer is likely to be in the form of a merger rather than an acquisition.

 

In accordance with the rules of the UK City Code on Takeovers and Mergers (the "Code"), the company has until 5pm on the 19th of January to either announce a firm intention to make an offer or announce that it does not intend to make an offer. The deadline can however be extended with the consent of the takeover panel.

Afren shares have been under pressure, falling 72 per cent last year, after a scandal, led to the sacking of some top executives of the company including founder and CEO of the company, Osman, Shahenshah. Although shares in Afren surged 14 per cent after the initially announcement, the company, which urgently needs an injection of finance, is ripe for a takeover.

 

Seplat meanwhile has been on the hunt for assets after its attempt to go after IOC divested assets have ended in without success so far. There is Chevron's Oil Mining Lease (OML) 53, which it is hoping it will still get it if the law suit brought by Britannia-U, said to have been the highest bidder in the auction, fails.

 

Another acquisition attempt at IOC asset divested assets came with the latest Shell divestment. This attempt has so far also failed. Crestar won that auction and after parting company with its main financiers, the Africa Finance Corporation, the new e&p company, SPV, is said to have won financial backing from Seplat in return for an equity stake in the deal. Unfortunately, that attempted acquisition has also fallen apart after the Nigerian National Petroleum Corporation decided to exercise a right of pre-emption to acquire the asset itself.

 

After amassing a $500 million war chest in its dual listings, Seplat is keen to make some acquisitions in the oil rich Niger Delta where success rates average at about 40 per cent, although the company is said to also be looking at other parts of Africa. The company says that any offer to Afren will have to be at a realistic price, something which is easier to achieve in view of sliding oil prices.

 

Eland Oil Secures $75 million RBL Facility for OML 40 Development

 

West Africa focused Eland Oil & Gas, an oil & gas production, development and exploration company listed on the London Stock Exchange's Aim has secured a new reserves based lending ("RBL") credit facility of up to US$75 million from Standard Chartered. The facility, which matures in four and a half years, is secured against OML 40's reserves and will be repayable on a quarterly basis from September 2016 at 7.75 per cent over LIBOR.

 

Standard Chartered, who will commit $35 million to the facility, is the lead arranger of the syndicated loan. They have begun marketing the syndication of the remaining $40 million with commitments expected by the end of Q1 of 2015.

 

The facility will be used to continue the development of Opuama field in OML 40 and for working capital. The agreement of the facility comes after the company announced a significant upgrade in the reserves and resources of OML 40 following a new competent persons report (CPR) provided by Netherland, Sewell & Associates Inc. (NSAI) in October of last year. The CPR upgraded OML 40 gross Proved Plus Probable ("2P") reserves from 54.2 million barrels (mmb) to 81.4 mmb, with 25.3 mmb net to Eland (before royalties), and 20.2 mmb net to Eland (post royalties). Eland expects the addition of future reserves and production growth to add to the size of the available RBL.

 

Last year, Les Blair, one of the founders of Eland, stepped down as CEO and George Maxwell took over. Les Blair stays on board as an adviser to the company. The company also strategically beefed up its board with the appointment of Mr Henry Arthur John Turcan as Non-Executive Director. Turcan established Novum Securities, an independent stockbroking business focused on UK listed securities in 2006. He is an original shareholder in the company and acknowledged by the company as instrumental in introducing much of the current shareholder base.  

 

Commenting on the facility, George Maxwell said: "I am delighted that we have signed this RBL facility.  The strong commitment from SCB in the current market conditions highlights the robustness and value of our asset base even accounting for the current lower oil price environment."

 

Only last December, the company announced that it had satisfied all the conditions precedent to accessing its US$22 million loan facility with Standard Chartered Bank.

 

In 2014, Eland's joint venture company, Elcrest Exploration and Production Nigeria sold a total of 115,722 bbls gross of crude oil for an average price of $103.77 per barrel.

 

NLNG Secures US Court Protection Order on LNG Finima

 

Nigeria LNG Ltd. and its shipping affiliate, BonnyGas Transport Ltd, have secured a court order in a US federal court in New York to protect their vessel LNG Finima and other assets from arrest or attachment. The vessel is caught in the fallout from the collapse of OW Bunker and Trading. This follows the insolvency of the OW, who NLNG contracted with, left the physical supplier NuStar Energy Services unpaid. District Judge Valerie Caproni, ordered OW, NuStar Energy Services and ING Bank to desist from issuing arrest orders against the 133,000-cbm LNG Finima (built 1984), which is owned by Nigeria LNG's Bonny Gas Transport.

 

NuStar alleges that it supplied bunker to the LNG Fininma through OW. Following non-payment of $2.46 million for the delivery and in view of OW's bankruptcy, it obtained an order for the arrest of the ship from a US federal court in Lake Charles, Louisiana. However, it did not have the chance to enforce the order as the ship delivered its cargo to a terminal in Altamira, Mexico.

 

In the meantime, NLNG and its subsidiary sought a court order from a federal court in New York to block the arrest of the ship. The order NLNG obtained means, they said, that: "This renders redundant an arrest order obtained ... by the physical supplier in Louisiana, and operations in the Bonny Gas fleet should be able to continue normally and without interruption by any of the competing claimants."

 

The invoice amount is being paid into court. It will be released to the party adjudged by the court to be entitled to it among conflicting claims to payment for bunker deliveries arranged through OW. In the meantime, following the interpleader action, no steps can be taken against any Bonny Gas or NLNG assets.

 

Shell Agrees To Pay £55 million Compensation over Niger Delta Oil Spills

 

Six years after two devastating oil spills that destroyed the livelihoods of communities in the Bodo area of the Niger Delta, oil giant Shell has agreed to make an out-of-court settlement of £55 million to victims of the oil spills. The £55m will be split between £35m for 15,600 individuals and £20m for the community. The announcement was made by Amnesty International and the Centre for Environment, Human Rights and Development (CEHRD), which have been monitoring the developments and campaigning for the rights of the affected communities. 

 

Shell had long since admitted the responsibility for the 2008 spills but the two sides have continued to argue over the amount of oil spilled and the quantum of compensation to be paid. With the case headed for a hearing in a London court in spring, both parties have now managed to reach agreement on the compensation to be paid to the victims.

 

Amnesty International points out that the wait has taken its toll on Bodo residents, many of whom had their fishing and farming livelihoods destroyed in the spill.  

 

"The compensation is a step towards justice for the people of Bodo, but justice will be fully achieved when Shell properly cleans up the heavily polluted creeks and swamps so that those who rely on fishing and farming for their income can begin to rebuild their livelihoods," said Styvn Obodoekwe, Director of Programmes of CEHRD.

 

Speaking of the victory, Pastor Christian Kpandei, a Bodo fish farmer whose fish farm was destroyed by the oil spill said: "I am very happy that Shell has finally taken responsibility for its action. I'd like to thank the lawyers for compelling Shell to make this unprecedented move."

 

Shell had always accepted that the two oil spills were the fault of failures on the company's pipeline at Bodo, but publically claimed that the volume of oil spilt was approximately 4,000 barrels for both spills combined, even though the spills were reported to have gone on for weeks. 

 

In 2012 Amnesty International, using an independent assessment of video footage of the first oil spill, calculated that the total amount of oil split exceeded 100,000 barrels for this spill alone.

 

During the legal action in the UK, Shell admitted that its figures were wrong and that it had underestimated the amount of oil spilt in both of the Bodo cases. Shell was also forced to reveal that it had been aware, at least since 2002, that most of its oil pipelines were old, and some sections contained "major risk and hazard". In a 2002 document Shell stated that outright replacement of pipelines was necessary because of extensive corrosion. 

 

An internal Shell email from 2009 revealed that Shell knew it was exposed over spills in Ogoniland - where Bodo is situated; the email stated "the pipelines in Ogoniland have not been maintained properly or integrity assessed for over 15 years".

 

The Bodo community, were represented by UK law firm Leigh Day and several teams of lawyers, including Sterling Partnership in Nigeria and Crowther Solicitors in London, in the legal action for compensation which began in 2011.

 

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