Market Report: Producers Need to Cut Costs
On Monday 31st of July, at the Nigeria Annual International Conference and Exhibition organised by the Society of Petroleum Engineers in Lagos, the Minister of State for Petroleum Resources, Dr Ibe Kachikwu said that oil companies may be forced to lower the cost of oil production. Other countries like the United Arab Emirates have significantly cut costs and are the lowest-cost producers in the world. The current production cost is $28.99, which would be reduced significantly to $10 upon review of the National Petroleum Policy. Kachikwu said only oil companies who are able to drive down costs will be given favourable consideration in the oil sector in Nigeria. Kachikwu also paid a visit to Dangote’s refinery site and urged that construction of the facility be sped up. Kachikwu also stated the government is ready to assist in ensuring the project is completed by the deadline of December 2019 so that importation of refined petroleum products would stop completely. The construction of the refinery will enable Nigeria to to retain over $7.5 billion (N2.295 trillion) annually through import substitution.
On 2nd of August, The Nigerian National Petroleum Corporation (NNPC) revealed its plans to extend the West African Gas Pipeline (WAGP) from Ghana to Cote d’Ivoire, as part of the Federal Government’s West Africa energy integration policy. The Group Managing Director of NNPC, Dr Maikanti Baru, said the extension of WAGP to Cote d’Ivoire would facilitate easy transmission of gas within the West African sub-region. Baru also said this opportunity will pave way for the NNPC and Cote d’Ivoire to open a new vista for future bilateral discussion, which would lead to the growth and development of the oil and gas sector. The Deputy Director, Production, of Cote d’Ivoire’s Ministry of Petroleum, Mr Patrick Marshal, said “the visit was to learn from Nigeria some of its best practices in personnel management, exploration and production, in the oil and gas industry”. Baru expressed the readiness of NNPC to develop the capacity of the delegation.
The Research & Development (R&D) Division of the NNPC and CypherCrescent Limited (a top Nigerian petroleum engineering research, software development and asset management support company) have signed a partnership to use innovative technology to enhance oil & gas production and optimize workflows. The partnership focuses on petroleum engineering, research & development, hydrocarbon fluid characterisation, production improvement through well & reservoir management (WRM) data democratisation. CypherCrescent aims to provide an innovative, cost effective business-intelligence solution for exploration & production companies. A Structured Engineering Presentation and Analyses Library (SEPAL) software suite was created for this purpose and it is the fi rst of its kind in the global E&P industry, designed to integrate data. The Group General Manager (GGM), NNPC R&D Division, Dr Bola Afolabi, confirmed the satisfactory implementation of the SEPAL software with minimal cost implication, which led to the discovery of a remarkable additional production potential.
On Wednesday 2nd of August, Hyperdynamics Corporation (HDYN) announced that the Pacific Scirocco deep water drillship has reached its target drilling location 165 kilometres offshore the Republic of Guinea in Northwest Africa and is making final preparations to spud the Fatala-1 well later in the week. Hyperdynamics’ President and Chief Executive Officer, Ray Leonard said “We expect to complete final provisioning preparations today to be ready for the spudding of the well no later than Friday. Drilling is expected to take approximately 40 days to reach a total depth of 2,500 meters below the mud line. The next six weeks or so are going to be an extremely busy and exciting time for Hyperdynamics, as we seek to unlock what we believe is world-class oil potential from this largely untested basin offshore the Republic of Guinea in Northwest Africa.”
Earlier in July, Hyperdynamics received a letter from the government of Guinea confirming that a two-year appraisal period will be granted to the consortium of SCS Corporation Ltd, HDYN’s wholly-owned subsidiary and South Atlantic Petroleum (SAPETRO) in the event of an oil discovery with the drilling of the Fatala-1 well. The letter was signed by the Director of ONAP (Guinean equivalent of the Ministry of Oil), Diakaria Koulibaly, in response to the official request sent by SCS Corp, for the two year appraisal period.
On Thursday 3rd of August, oil prices traded higher as investors stayed optimistic after weekly U.S. supply data painted an upbeat picture on domestic demand for crude and refined products. The U.S. West Texas Intermediate crude for September contract was up 21 cents at $49.81 a barrel at 8:45 AM ET (12:45 GMT), while the ICE Futures Exchange in London Brent oil for October delivery tacked on 28 cents at $52.64 a barrel. The U.S. Energy Information Administration (EIA) weekly report for Wednesday 2nd August showed a 1.5 million barrel drop in U.S. crude supplies in the week ending July 28.
Oil prices have been under pressure in recent weeks due to the steady increase in U.S. shale output despite production cuts by OPEC and non-OPEC members. OPEC/non-OPEC producers extended a deal to cut 1.8 million bpd in supply until March 2018. Thus far, the production cut agreement has had little impact on global inventory levels as U.S. shale output and supply from producers that are exempt from the OPEC deal (Libya and Nigeria) continues to increase. Oil traders looked ahead to a technical meeting of some OPEC and non-OPEC producers in Abu Dhabi next week to assess how the group can increase compliance with production cuts that began at the start of this year.