NOCAL Cites Reasons For Financial Problems

The National Oil Company of Liberia (NOCAL) has given reasons why the institution is currently facing with financial problems.

According to a statement released yesterday, NOCAL said due to the wave of oil price slide currently sweeping across the world most especially in oil producing countries and countries carrying on exploration like Liberia, it has taken a toll on those nations’ economic standings.

The oil company also stated the Ebola virus outbreak also had some real effects on the sector scaring investors away from Liberia’ oil basin.

The statement said this crisis may lead to ’employee’s redundancy, little or no budget support to national budget, reduction in national capacity building, streamlined economic and social development, etc.

The release said Liberia may not obtain value for money, as there is opportunity for new players to enter the African market including Liberia, potentially at a low cost due to the decline in oil prices’. See full text of statement below:The wave of oil price slide currently sweeping across the globe, specifically among oil producing nations and countries undertaking exploration activities, has undoubtedly taken a toll on the economic standing of many nations, including Liberia. Exploration activities in Liberia are being hampered by the decline in oil and gas prices. The Ebola virus outbreak also had some real effect on the sector. The drop in oil prices is already having a significant impact on Liberia, which has been grappling with the effects of long-term poverty, budget support, unemployment, and most importantly, attracting major oil and gas companies to our basin.

This trend may lead to redundancy of employees, little or no budget support to national budget, reduction in national capacity building, streamlined economic and social development, etc. Lastly, Liberia may not obtain value for money, as there is opportunity for new players to enter the African market including Liberia, potentially at a low cost due to the decline in oil prices.

Drop in crude-oil prices, which began in the summer (June-July) of 2014, may be as disruptive as the quadrupling of oil prices that created the oil shock of 1974. As you may be aware, over the course of just a few months in 1973-1974, the price of oil surged from $3 to $12 per barrel.

 

OIL SHOCK

The new price created new global economic powers: oil-producing countries primarily in the Middle East and North Africa. It also dealt a severe blow to the economies of the United States, Europe, Japan, and other oil importers. The oil shock altered power relations between the world’s main geopolitical players and created new ones. Higher oil prices had many unexpected consequences- from breeding oil wars to creating newly super-rich countries like Saudi Arabia.

Some of the effects of the decline in oil prices have been clear and immediate; happy consumers at gas stations and frantic government officials in oil-exporting countries forced to cut public budgets and consequently risk social and political turmoil, a cascading effect along the oil and gas value chain, etc. Low prices could cause deferred and cancelled investments which could begin to create an environment in which new supplies are less plentiful, causing baseline oil prices to move closer to $100/bbl.

Some examples:

  • Gabe Collins Baker Hostetler LLP Houston deferred and cancelled investments in US shale oil fields (Oil and Gas Journal, 06/01/15);

 

  • Petro bras stands to forgo US$28 billion (70 billion) a year in potential cash from oil sales after royalties at 32% dropped from US$100/bbl (average Brent price is between US$60-67.5 from May 1 to current), and this has managed to erase the gains of an output bonanza that investors and the government were counting on to boost profit, finance expansion, pay debt and fund schools and hospitals;

 

  • Angola cabinet proposed a US$14billion budget cut taking an assumed price of US$40/bbl. from previous projected price of US$81/bbl. This prompted the National government to stress that 2015 would be “difficult economically” and that some public spending would have to be cut, including on fuel subsidies and infrastructure

 

Effect on NOCs/National Governments

Sonangol/ Angola

Oil revenue accounts for around half of Angola’s GDP, 80 percent of tax revenues and 90 percent of export earnings. Hence, the economic and social effects include:

  • A projected budget deficit of around 8.1 percent of GDP for 2015;
  • Major development projects delayed or cancelled e.g. a $5 billion plan to expand electricity coverage and billions more in road construction.
  • Trimmed 20% off fuel subsidies, which estimated to cost 4.5% of GDP in the last half of 2014;
  • Half of Angolans living on less than $2 a day were angered at paying more for petrol, while infrastructure deteriorates and public services are cut back.
  • Increase in unemployment

Ghana/GNPC

  • High inflation of 16.8 %
  • Oil export revenue plummeted from 700 million annually to 500 million at a benchmark output of 37.42 million barrels in the current year;
  • Lower oil prices coupled with evidential weak forex inflows and lower corporate tax receipts is reversing the recent stability of the Cedi at a devaluation of 40%;
  • Increase in unemployment

Nigeria/NNPC

  • Central Bank of Nigeria decided to devalue the Naira by nearly 8% and raise interest rates by 100 basis points to 10% to protect forex reserves;
  • Depletion of external reserves – from $34.5 billion to $34.4 (within just five days – January 14, 2015 to January 19, 2015). Note that the external reserve is an accumulation of revenue from international trade involving the exportation of goods, and in Nigeria’s case; crude oil;
  • Depletion of Funds for Federal and States Allocation- the Excess Crude Account (ECA) which stood at $4.1 billion in November 2014, had been depleted to $3.1 billion (Minister of State for Finance);
  • Delay in Salaries of Civil servants- As a result of the scarceness of funds from the current economic state and depleting Excess Crude Account, the payment of salaries of workers(civil servants) in the different tiers of government; federal, state and local government is being affected;
  • Increase in unemployment.

 

Effects on International Oil Companies

Chevron

 

  • Chevron announced a cut in capital spending in response to the plunge in crude given fiscal terms and production costs around the world; ?cuts will are focused on Chevron’s upstream oil and gas exploration and production business, particularly outside the US, where investment is planned to fall from $28.3bn last year to $23.4bn this year;

 

  • Nearly half of Chevron’s planned upstream spending for 2015 will go to projects that are already under construction and nearing completion;

 

  • That investments decision would favor only the most attractive opportunities to move forward.

 

See below some selected statistics on Layoffs per IOCs and the cascading effects

 

 

  • Royal Dutch Shell

Shell, the largest European oil group, is expected to cut its capital spending this year by $1bn-$2bn from last year’s $35bn.

 

  • ConocoPhillips

 

This company announced that it planned a 33 per cent cut in spending this year given the declining trend in oil prices. (Forbes)

 

Pressure on suppliers to cut their prices as contracts are renewed;

  • Oil Field Services- about 59,000 laid off:

Ø      General Electric cut 500,

Ø      Halliburton- 6,620,

Ø      Baker Hughes-6, 991 ,

Ø      Schlumberger- 9,000,

Ø      Husky oil Sands- 1000

Ø      Petrleos Mexicanos- 10,000, etc.

 

  • E &P – more than 10,000 laid off:

Ø      Total- 2,000

Ø      Talisman- Sinopec- 300

Ø      Shell- 600

Ø      Chevron- 162,

Ø      ConocoPhilips-130,

Ø      Apache- 250

Ø      BP-555

Ø      Sasol-1, 500

Ø      Nexen Energy (adecision of CNOOC) – 400

Ø      Talisman Energy slashed 200 workers, etc.

 

On the aggregate, the worldwide oil and gas industry, including oilfield services companies, parts manufacturers, and steel pipe makers, has laid off at least 75, 000 workers so far

 

Smaller companies like Quicksilver Resources, WBH Energy Partners (a small Texas Oil Producer) filed for bankruptcy protection (Forbes) while Hyperion Exploration, a publicly traded junior light oil and gas company in Calgary, Canada, was preparing in December for the sale of the roughly 4-year-old company to a Chinese firm, Tri-Win International Investment Group (CNBC)

 

Seismic Data Companies

 

As a result of extended low oil prices, seismic spending is becoming increasingly dependent on economic factors and less contingent on technical and operations factors, according to a survey by Merrill Lynch & Co., New York.

TGS NOPEC

  • Revenue dropped from $222 million in Q1 2014 to $172 million in Q1 2015
  • Profit declined from 69 million in Q1 2014 to 28 million in Q1 2015
  • Expected sales dropped from US$750 million to 630 million for Q1 2015
  • Announced cost reduction programme that included reduction of total work force by 10% effective April 2015
  • Balance sheet sum shrunk from 1.76 billion to 1.69 billion as at March 31, 2015

Petroleum Geo Services

  • Summary Stock price fell by 15%
  • Revenue dropped from 292.5 million Q1 2014 to 251 million Q1 2015
  • Late sales dropped from $64.8 million in Q1 2014 to $56.7 million Q1 2015.
  • Weak vessels utilization impacted financial performance.

 

SeaBird Exploration

 

  • Revenues for Q1 2015 were $24.2 million, a decrease of 28% compared to Q1 2014 and down 14% relative to Q4 2014.
  • Contract revenues for the period were $23.0 million, down 25% from Q1 2014 and a decrease of 2% from Q4 2014.
  • Multi-client revenues were $1.2 million, down 62% from $3.2 million reported in Q1 2014 and a decrease of 74% from $4.6 million reported in Q4 2014.
  • EBITDA (Earnings before interest, taxes, depreciation, and amortization) was $8.2 million compared to $10.2 million for Q1 2014 and negative $28.5 million for Q4 2014.
  • Vessel utilization for the period was 58%. Contract surveys during the first quarter represented 58% of vessel capacity compared to 52% during the fourth quarter 2014. None of the company’s vessels were utilized for multi-client surveys during the period, compared to 5% of vessel capacity in Q4 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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