The Nigerian National Petroleum Corporation (NNPC) is targeting up to a $3.5-$5 billion cash-for-crude prepayments from some of the world’s top commodity traders to fund oil and gas upstream projects as well as related infrastructure. This is coming as the Organisation of Petroleum Exporting Countries (OPEC) and Russia looks set this week to prolong oil supply cuts until the end of 2018 on the condition that they may review the deal when they meet again in June 2018 if the market overheats.
The sharp drop in global oil prices hit Nigeria hard in 2014 and 2015 that pushed it into its first recession in 25 years. Though the country returned to growth-mode in the second quarter, the cash-strapped NNPC, which has been weighed down by billions of dollars in old debts, has also been looking to bring in outside cash. Reuters quoted NNPC sources as saying that Standard Chartered Bank was hired to advise on the oil prepayments and a request-for-proposal was issued a few weeks ago for a $3.5 billion to $5 billion loan to be repaid with crude over five to seven years.
But both spokespersons for Standard Chartered and the NNPC declined to comment on Reuter’s request. However, the sources added that a decision was expected before the end of this year.Around seven trading firms were still in the running, one added, with top trading houses including Glencore, Vitol and Trafigura being among the active contenders.The corporation is said to be seeking three off-takers, one of the sources said, against 70,000 barrels per day of crude.
Vitol already has a major presence in Nigeria after buying petrol stations via a joint venture with Oando Plc and private equity fund Helios.Vitol is also among a list of majors traders, including Trafigura, that participate in a swap scheme to deliver refined products in exchange for crude. Profit margins for trading firms have been slowly eroding over the last few years as transparency in oil markets has increased, Reducing arbitrage opportunities, once based on privileged information.Increasing traded volumes is one way to raise profits and competition is fierce for prepayment deals with state oil firms.
NNPC has had cash-flow problems for years and has been chronically behind payments for its stakes in upstream joint ventures with Shell, Chevron, Total, Eni and ExxonMobil. After project development began to stall following the collapse in oil prices, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu reached a deal last year with its major foreign oil producers to repay $5.1 billion over five years, interest-free.
NNPC has already leveraged over 300,000 barrels per day of crude to cover current fuel imports via a crude-for-product swap scheme as well as debts to traders dating back nearly a decade. In a related development, OPEC and Russia this week, look set to prolong oil supply cuts until the end of 2018 while signalling that they may review the deal when they meet again in June if the market overheats.
But with oil prices rallying above $60 per barrel, Russia has questioned the wisdom of extending existing cuts of 1.8 million barrels per day until the end of next year as such a move could prompt a spike in U.S. production. Russia needs much lower oil prices to balance its budget than OPEC’s leader Saudi Arabia, which is preparing a stock market listing for national energy giant Aramco next year and would hence benefit from pricier crude.
Six ministers from OPEC and non-OPEC oil producers including Saudi Arabia and Russia gathered in Vienna yesterday – one day ahead of today’s full OPEC meeting – to review recommendations by their delegates. On Tuesday, a joint OPEC/non-OPEC committee recommended extending cuts until the end of 2018 with an option of reviewing the arrangement at the next OPEC meeting in June, three sources from the OPEC said. Benchmark Brent and US crude prices declined yesterday for a third consecutive day although Brent remained above $63 per barrel.