By Jeph Ajobaju, Chief Copy Editor
Further production cuts may be agreed by the Organisation of Petroleum Exporting Countries (OPEC) at their meeting in Vienna in December, which may boost or hinder oil receipts, depending on the forces of demand and supply.
In the meantime, Nigeria is claiming $62 billion from oil explorers in its shores based on a Supreme Court ruling in 2018 that relied on a law dating back 26 years that compels the firms to pay more royalties once oil sells above $20 per barrel (pb).
Crude sold at $9.50 pb when the law was made in 1993 but currently trades above $60 pb in London.
Federal Attorney General, Abubakar Malami, said Nigeria has been “short-changed” under the law and is pursuing a case for recovery if it is established that the oil companies have under-paid the treasury.
“Computing the amount that should be credited to the Nigerian government if the law was effectively applied, that translates to around $62 billion against the IOCs (international oil companies),” Malami told Reuters.
“All options are on the table and there is no limit to what we can do in terms of engagement, in terms of settlement, if the need arises.”
Oil firms dispute claim
Oil companies are challenging the $62 billion claim by Abuja.
What is not disputed, however, is that oil prices rose above $100 pb in 2014 before a sharp drop that triggered a 2016 recession in Nigeria, which made the government struggle to fund its budgets.
Malami did not name the oil companies involved in the matter.
But earlier this year, industry and government sources confirmed that Shell, Chevron, Exxon Mobil, Eni, Total and Equinor were each asked to pay Nigeria between $2.5 billion and $5 billion.
“We do not agree with the legal basis for the claim that we owe outstanding revenues and the matter is pending before a court,” retorted Shell spokesman Bamidele Odugbesan.
An Exxon Mobil spokesman said the company is “not a party to the Supreme Court case and not bound by the judgment,” adding that its Nigerian affiliate “is currently reviewing the matter and considering next steps.”
And a Chevron spokesman said its companies in Nigeria “comply with all applicable laws and regulations in the country and will continue to work with the Nigerian government toward the development of the oil and gas industry.”
Negotiation with oil majors
“We have opened up a process of engagement between the parties,” Malami told Bloomberg.
“Whether those discussions will eventually translate to settlement, whether it will translate to opening up of a full-blown negotiation process, is what we wait to see.”
Under production-sharing legislation, the companies agreed to fund the development of deepwater oil fields on the basis that they would share profit with the government after recovering their costs.
Oil companies, including Shell, have gone to the Federal High Court to challenge the government’s claim, arguing that the Supreme Court ruling does not allow the government to collect arrears.
They also contend that because the companies were not party to the 2018 case, they should not be subject to the ruling.
“Taking into consideration the government’s need to attract investments, no possibility can be out-ruled,” Malami stressed. “The possibility of settlement is not out of sight.”
Oil forecasts
Two other major oil forecasting agencies joined OPEC to conclude that the cartel will have to reduce output further when the members meet in Vienna in December, in order to sustain price rise.
OPEC, the International Energy Agency (IEA), and the United States Energy Information Administration (EIA) all anticipate global oil inventories building in the first half of 2020, as they cut their forecasts for oil demand growth for 2019 and 2020.
OPEC, which has 14 members, agreed in December 2018 with non-OPEC partners. including Russia, to reduce supply by 1.2 million barrels per day (bpd) from the start of 2019.
OPEC’s share of the cut is 800,000 bpd, to be delivered by 11 members, with exemptions for Iran, Libya, and Venezuela.
A Reuters survey published on September 30 showed that Nigeria pumped beyond its quota by 265,000 bpd in September, more than any other OPEC state.
Bloomberg reports that all three forecasting agencies see oil stockpiles building again in the first half of next year if OPEC+ does not cut further.
Saudi Arabia’s oil production is expected to be back this month to where it was before the attacks on the Abqaiq and Khurais oil-processing plants on September 14.
If that pumping rate is maintained, global oil inventories will rise by somewhere between 750,000 barrels and 1.4 million barrels a day over the first half of the coming year – depending on whose forecast you take.
That would add at least 136 million barrels to global oil stockpiles, according to OPEC, and perhaps as much as 255 million, according to the IEA.
The three agencies made further cuts to their forecasts for oil demand growth this year in their latest reports and, for the first time, all of them now see global oil use increasing in 2019 by less than 1 million barrels a day compared with 2018.
All three agencies now see global oil demand growing by less than a million barrels a day this year
And those forecasts could still fall further. All three of the agencies have cut their estimates for the first three quarters of the year, making particularly big reductions to their assessments of demand growth in the first half.