Nigeria loses $5bn as Petrobras divests assests

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Federal Government’s drive to attract new investments to the country’s petroleum industry has suffered a major setback, as Brazilian oil major, Petroleo Brasileiro SA, Petrobras, Wednesday, commenced moves to sell off its stake in some Nigerian oil blocs valued at $5 billion or N795 billion.

The sale of the oil blocs is expected to bring about an increase in the presence of Asian oil majors in Nigeria, following interest in increasing their portfolios through the acquisition of additional production assets.

Divesting from the oil blocks will help the company concentrate more on exploration activities in a vast deep sea region off the coast of Brazil known as the subsalt, believed to contain dozens of billions of barrels of high quality oil.

Losses to Nigeria
The planned divestment of N795 billion is about 16 per cent of Nigeria’s 2013 budget, which is N4.98 trillion. The amount is more than the sum allocated to power, works, health and agricultural and rural development.

The total amount allocated to these four sectors is N618.4 billion, with power getting N74.26 billion; health – N279.23 billion; works – N183.5 billion; agricultural and rural development – N81.41 billion.

Also, the amount is bigger than the N668.56 billion allocated for security and higher than the N426.53 billion allocated to the education sector.

Ironically, the Brazillian President Dilma Vana Rousseff, visited Nigeria in February to discuss economic ties with President Goodluck Jonathan, during which discussions focused on concerns about the slide in Petrobras’ operations  and the Brazilian government’s rising debt levels that could jeopardise the oil company’s investment grade credit rating.

Apparently, discussions between the two parties could not strengthen economic relationships as expected in view of this divestment.

In addition, Vanguard also learnt that the company has relinquished two oil blocs,  Oil Prospecting Licence, OPL 315 and OPL 324 in the Niger Delta, after unsuccessful oil find.

The two blocks were awarded during the administration of former President Olusegun Obasanjo and the company had spent hundreds of millions of dollars on the assets without striking oil.

Company sources told Vanguard that the parent company in Brazil has closed down its business unit, which oversees its operations worldwide.

Reasons for divestment
Sources further disclosed that the divestment will help the company redirect its investment towards higher return activities such as exploration and production to finance a five-year, $236.7-billion capital spending plan.

According to sources close to the deal, the auction of the oil blocs, which will commence around May 2013, is expected to help the company raise cash and carry out its capital spending plan.

Petrobras has already contracted Standard Chartered Bank to oversee the process of the sale with oil majors in Asia, said to be interested in the acquisition of the blocs.

Petrobras holds eight per cent stake in the offshore Agbami bloc located in Oil Mining Lease, 127, operated by United States energy major, Chevron and a 20 per cent share of the offshore Akpo project in 130, operated by French oil firm, Total.

Crude oil production from the Agbami field began in 2008. Output from the project can reach 250,000 barrels per day (bpd) and it holds estimated reserves of 900 million barrels.

Akpo began production in 2009, and has plateau output of 175,000 barrels per day of light condensate oil and nine million cubic metres of gas.

It has proved and probable reserves of 620 million barrels of condensate and more than 28 billion cubic metres of gas.

Chief Executive Officer, Petrobras, Ms Maria das Graças Foster, set a goal for asset sales of $9.9 billion this year, hoping it would free up cash, avert the sale of new shares, reduce debt and protect the company’s investment-grade ratings.

She said the plan should help Petrobras more than double current production by the start of next decade, to about 5.2 million barrels of oil and natural gas equivalent a day, and help Brazil become self-sufficient in refined products as well as crude oil.

In its previous five-year plan, announced last year, Petrobras had hoped to sell about $15 billion of assets to help finance capital spending.

But as it rushed to sell assets, the company found potential buyers reluctant to pay top dollar for projects such as its oil leases in the Gulf of Mexico.  However, Standard Chartered and Petrobras declined comment.

Vanguard also discovered that the decision to close shop in Nigeria may not be unconnected with the new offshore pre-salt oil find, discovered in the deep water about 125 miles off the coast of Rio de Janeiro. The newly discovered oil field is expected to yield about 35 billion barrels of recoverable oil equivalent, more than double Brazil’s existing reserves.

“Subsalt discoveries that have been evaluated so far suggest a volume of recoverable oil more than double Brazil’s proven reserves. That means we could have three times our reserves just with the volumes that have already been evaluated,” said Marco Anthonio Martins Almeida, secretary of oil and gas at Brazil’s Ministry of Mines and Energy.

He also said that the BM-S-8 block operated by Petrobras in the Santos Basin alone likely has 1 billion barrels of recoverable oil. Petrobras said it found good-quality oil in the Carcara well in the block located in the Santos Basin, on January 2, this year.

According to Petrobras, the new subsalt oil discovery opens a new exploration frontier in the Santos Basin. It stated that the first well drilled in the offshore BM-S050 bloc, dubbed Sagitario, was found to contain high-quality oil. Petrobras operates the bloc with a 60 percent stake. Petrobras is spending about $237 billion through 2016 to develop the subsalt area, with crude oil production from the region expected to increase in 2014.

Partners respond
The General Manager, Government, Policy and Public Affairs, operator of Agbami field, Mr. Deji Haastrup, in an email response to Vanguard’s enquiry, said, “As a general rule, we do not comment on matters such as this.”

Also, Total, the operator of the Akpo field, did not respond, neither did Ms Tumini Green, the spokeswoman for the Nigerian National Petroleum Corporation, NNPC, the principal partner in the two assets.

Preparing for the divestment
Ahead of the planned divestment, Vanguard also gathered that Petrobras, located at the imposing SAPETRO building on Adeola Odeku, Victoria Island, Lagos, failed to renew its rent, after its expiration in December.

Buoyed by the subsalt oil discovery, Vanguard learnt that Petrobras decided to close shop in Nigeria where it has spent a lot of money without commensurate financial returns. But its decision to quit has not gone down well with labour union which is threatening legal action.

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