Oil & Energy
PPMC Expands Business Portfolio With N12bn Profit
The weekly activities of the Nigerian National Petroleum Company Limited (NNPC Ltd.) started with one of its subsidiary, the Petroleum Products Marketing Company (PPMC), brandishing an impressive financial record of N12.95 billion profit.
The profit was for the year ended Dec. 31, 2021 representing a 260 per cent increase over its net profit of N3.59 billion in 2020.
Mr Umar Ajiya, the Alternate Chairman of PPMC Board of Directors and Chief Financial Officer (CFO) of NNPC Ltd., disclosed this during the company’s 32nd Annual General Meeting (AGM) which held in Abuja.
Ajiya said that the leap in profit was due to the adoption of a commercial mindset in the company’s operation, a quality he said was required for survival in today’s business environment.
He disclosed that the company also achieved 85 per cent reduction in demurrage cost from 64.9 million dollars in 2020 to 9.46 million dollars in 2021 due to effective vessels/cargo programming and increased PMS demand.
He noted that the figure surpassed the target of 50 per cent demurrage cost reduction that had been set for the year.
Ajiya listed some of the company’s achievements for the 2021 financial year to include sustenance of products supply sufficiency, zero fuel queues throughout the year with peaceful industrial harmony, and automation of business processes.
On the outlook for the future, the CFO informed that PPMC was looking at expanding its products portfolio.
Also in the week the NNPC Ltd. got the green-light to sign an agreement with the Economic Community of West African States (ECOWAS) for the construction of the Nigeria-Morocco Gas Pipeline.
The Minister of State for Petroleum Resources, Chief Timipre Sylva, who disclosed this said the Federal Executive Council (FEC) gave the approval at its weekly meeting presided over by Vice-President Yemi Osinbajo in Abuja.
Speaking at a press briefing after the meeting, Sylva explained that the cost of the Nigeria-Morocco Gas Pipeline was yet to be determined as it was still at the Front End Engineering Design (FEED) stage which normally precedes cost evaluation.
“The ministry of petroleum resources presented three memos to the council.
“In the first memo, the council approved for the NNPC Ltd. to execute MoU with ECOWAS for the construction of the Nigeria-Morocco gas pipeline.
“This gas pipeline is to take gas to 15 West African countries and Morocco and through Morocco to Spain and Europe.”
According to the Minister, FEC also approved the sum of N3.8 billion for the construction of a switch-gear room and installation of power distribution cables and equipment for the Nigeria Oil and Gas Park in Ogbia, Bayelsa State.
He said the park was designed to support local manufacturing of components for the oil and gas industry.
He said the third memo approved by FEC was for various contracts including the construction of an access road and bridges to the Brass Petroleum Product Terminal (BPPT) in the Niger Delta for N10.5 billion including 7.5 per cent Value Added Tax (VAT).
Still in the week under review, the Federal Government gave the assurance that works on two of the roads funded by the NNPC Ltd. under Tax Credit Scheme would be completed between January and May 2023.
The projects are Section II of the Suleja – Minna Road and the Agaei – Baro Road which are for dualisation and construction respectively.
Director Highways Construction and Rehabilitation, Federal Ministry of Works and Housing, Mr Folorunsho Esan, gave the assurance during an inspection tour of the roads.
A statement by the Director of Press and Public Relations, Ministry of Works and Housing, Blessing Lere-Adams, disclosed that the Ministry was satisfied with the pace and quality of work on the roads.
On the Suleja – Minna Road, Esan was quoted as saying: “My impression is that the contractor is on the site making progress and we can see the various aspects of work, the earthwork, the pavement work and even the asphalt laying is going on smoothly.
“The only challenge is that of security but it is being taking care of with the presence of security agents”.
Speaking on the 52-kilometre Agaei – Baro Port Road which connects the Lambata – Bida highway, Esan said: “Work is progressing, 14kilometres have been asphalted, earthwork is up to 32 kilometres and the rest which is about 18 kilometres is still outstanding but we have the assurance that the work will be delivered on target”.
The Director said the road when completed would boost the economy of the North Central region in particular and the nation in general as it led to the Baro Port through which goods and services can be brought into the country and exported to other countries.
The two roads were among the other 21 critical roads selected for funding by the NNPC because of their importance to the economy of the nation, especially in terms of the movement of petroleum products across the country.
The contractors working on both projects also expressed confidence that the projects would be completed and delivered on target as funding was readily available.
The Chief Financial Officer of the NNPC Ltd., Mr Umar Ajiya, said within the week that the NNPC-Gas and Power Investment Company (NGPIC) would leverage on the opportunities provided by the Presidential Power Initiative (PPI) roadmap for the electricity sector to boost company’s cash flow.
This is in line with the current reality of the Petroleum Industry Act (PIA),
Speaking at the 2nd Annual General Meeting (AGM) of the NGPIC, Ajiya, who is also the Chairman of the company’s Board of Directors, said NGPIC was determined to harness the potentials in both brownfield and greenfield portfolios to expedite business growth.
He disclosed that having achieved significant milestones in the Brass Fertilizer and Petrochemical Project, NGPIC would soon sign the Financial Closure agreement to commence the Engineering Procurement and Construction (EPC) of the integrated 10,000 Metric Ton Per Day (MTPD) Methanol Plant.
While commending the management and staff of the company for their commitment to the growth and development of the company, Ajiya urged all stakeholders to put in more effort towards improving on the current profit after tax, which stood at 1.81 billion naira for the year ended Dec. 31 2021.
Ajiya listed some of the achievements of NGPIC to include, completion of its 2nd Audited Financial Statements with improved profitability; completion and successful synchronisation of two Gas Turbines for the 450MW Okpai Phase 2 Independent Power Plant at Kwale, Delta State.
Others were the production of additional 320MW from the Phase 2 of the 450MW IPP ready to be wheeled into the national grid; and the take-over of management of Okpai and Afam VI JV IPPs for business profitability, among others.
Speaking on the contributions of the company to the overall objective of the NNPC, the Managing Director of NDPIC, Dr Jamari said efforts were on to position the business entity towards becoming strategic revenue stream, emphasising that NGPIC had enough potentials to increase the bottom line of the nation’s oil company.
“One thing I will assure the public is that by the time we conclude our activities in terms of acquiring some additional power plants and building some others, this and company will be the strongest company in future in the portfolio of subsidiaries of the NNPC Ltd”.
NNPC Gas Power Investment Company Ltd. (NGPIC) is a subsidiary of the NNPC Ltd.
It was incorporated on July 21, 2016 and commenced business in 2020 with main focus on power generation and other gas and power investment services.
In the meantime, CEO/GMD NNPC Ltd, Malam Mele Kyari, reiterated his commitment to sustain the strategic energy partnership between Nigeria and Spain.
Kyari disclosed this while addressing Nigerian and Spanish business leaders on investment opportunities in the Nigerian Oil and Gas Industry, in Madrid, Spain, on the sidelines of President Muhammadu Buhari’s state visit to Spain, Wednesday.
Buhari had earlier met with the Spanish President, Pedro Sanchez, King of Spain, His Majesty, King Filipe VI, and gave a speech at the headquarters of the World Tourism Organisation (WTO), in Madrid.
During the visit, Buhari said Nigeria looked forward to increasing bilateral relations with Spain, even as he signed bilateral agreements and Memorandum of Understanding (MoUs) with the Spanish leader, covering areas of prisoner transfer, sports and culture and the economy.
Describing the partnership between Nigeria and Spain as an important one for the NNPC, GMD/CEO said “26 per cent of all LNG produced in Nigeria end up in Spain, while 14 per cent of all Crude Oil produced in Nigeria end up in this country; clearly for us as a business, it is an important market for my company.”
Kyari explained that the world would need energy for today and for the future, in industries such as power, IT and automobile.
“We know that energy transition is real. We know that net-zero by 2050-2060 is real.
“But it doesn’t mean zero hydrocarbons in 2050-2060; it means that you are going to have a cleaner use of hydrocarbons,” Kyari added.
He said investors must see where their money can come out from and when they invest, they must see that they can recover their cost and make some margin from it.
While noting that in line with global acceptance of gas as a transition fuel, Nigeria had since declared 2021-2030 as the decade of gas.
“In our country today, we have a legislation that has clearly created a commercial National Oil Company which will be unveiled by our President in the coming days.
“Together with the Spanish business community, I am confident we can build this industry,” Kyari said.
Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) raised Nigeria’s oil production quota from the 1.772 million barrels per day (mbpd) target approved in June to a new target of 1.799mbpd for July.
A statement issued by OPEC said the decision was taken at its 29th OPEC and non-OPEC Ministerial Meeting.
The new target is 27,000bpd higher than the approved quota for June.
According to the statement, OPEC+ also adjusted upward the monthly overall production by 648,000bpd for the month of July with a target production of 43.206mbpd.
The statement said: “The 29th OPEC and non-OPEC Ministerial Meeting was held via videoconference on June 2.
“The meeting noted the most recent reopening from lockdowns in major global economic centres. It further noted that global refinery intake is expected to increase after seasonal maintenance.
“The meeting highlighted the importance of stable and balanced markets for both crude oil and refined products”.
It said the meeting extended the compensation period until the end of December as requested by some underperforming countries, and requested that underperforming countries submit their plans by June 17.
The statement added that the meeting directed that compensation plans should be submitted in accordance with the statement of the 15th OPEC and non-OPEC Ministerial Meeting.
The figure is 70,000bpd higher than the average crude oil production in April, which stood at 1.35mbpd.
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.