Wednesday,
April 18, 2018/ 08.54
AM /
FBNQuest Research
Tensions in the Middle East have pushed the spot
price for UK Brent crude above US$70/b, and given a boost to the feelgood
factor in Nigeria. They have also masked the debate over the global demand and
supply balance, or what we could term the competing claims of the US shale oil
industry, and of OPEC with Russia and its other allies. The industry media
tends to favour the claims of shale, and can cite data showing that the US has
overtaken Saudi in production and is not far behind Russia.
US exports of crude and
petroleum products increased by 1.7 mbpd in the 12 months to December 2017, to
7.3 mbpd. Pipelines proposed or under construction between West Texas and the
Gulf of Mexico would raise export capacity by a further 2.1 mbpd.
The Permian Basin is the
star performer in the shale industry for its rising productivity based upon
technological advances. This has allowed successful operators to live with the
reluctance of banks and equity investors to fund their expansion (due to
generally mediocre returns). An increase in remote operations (from Houston)
and a near-doubling of sand used per well are two of the advances.
At the same time, we
recognize OPEC’s production restraint in conjunction with its allies (amounting
to 1.8 mbpd through to December) and the resilience of the Saudi-Russian pact.
Such agreements cover about 15 countries, and are a challenge to implement. It
would be a serious test of discipline if market conditions warranted a
deepening or extension of the accord. Tensions in the Middle East have a habit
of coming to the rescue.
The financial recovery of
the conventional oil majors is an obvious positive for underexplored oil
provinces (such as Nigeria). Total, BP and Shell all announced a solid
improvement in earnings in Q4 2017. Share buybacks, dividend increases and
healthy cash generation were common themes.
We will get a measure of
investor appetite for African energy assets from the proposed IPO next month in
London by Vivo Energy. The company is 55% owned by the oil trading house Vitol,
and owns fuel stations and retail outlets in 15 African countries. It should be
valued at about US$3bn.
The appetite for
specifically Nigerian assets will be tested by the sale of Petrobras Africa.
The company is 50% owned by the Brazilian oil player and 40% by a Brazilian
bank. Alongside interests in Angola and other African countries, it has stakes
in two offshore blocks with producing fields, Agbami (operated by Chevron) and
Akpo (Total). Industry sources conservatively value the Nigerian assets at
US$2bn. Bidding could be intense. 
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