New Telegraph

Oil: Nigeria’s chances doubtful in record $1.4trn cash flow

A new report by Deloitte has revealed that the global oil and gas industry could be heading for a record $1.4 trillion cash flow by the end of the current year. With fiscal discipline and new investors in exploration and production as some of the factors to drive the process, it is, however, doubtful if Nigeria can contribute much to the expected revenue for a number of reasons.

 

According to the report, oil and gas exploration and production (E&P) firms globally could generate combined cash flows of a record $1.4 trillion this year, thanks to high prices in the on-going readjustment in the energy markets. It noted that high oil and gas prices and financial discipline had turned the tide for the global upstream industry and its efforts at capital discipline have paid off.

Capital discipline has resulted in the oil and gas industry being “in one of its healthiest periods currently, with its lowest ever leverage ratio (20 per cent) and one of its highest ever dividend yields (six per cent), compared to other sectors,” according to Deloitte.

The consultancy estimates  hat the industry will see its highest ever free cash flow of $1.4 trillion in 2022 if Brent Crude price averages $106 per barrel. Big Oil and U.S. shale producers alike reported record or close to record earnings and cash flows for the second quarter amid soaring commodity prices and multi-year high refining margins.

Global upstream is set to generate up to $1.5 trillion in surplus cash by 2030, possibly with 70 per cent of this surplus generated by 2024. This additional cash could be enough to fund and balance both low-carbon and core oil and gas priorities this decade, Deloitte said.

Moreover, the U.S. shale industry could potentially become debt-free by early 2024 if prices stay strong and discipline prevails. Shale producers, which generated negative cash flows in nine out of the    last ten years, will likely see record-high free cash flows in 2021-2022 that could overcome the decade-long loss of $300 billion, according to Deloitte. Strengthened with massive cash flows, the global upstream industry could raise low-carbon capital expenditures to 30 per cent of total capex by 2030 in certain scenarios, up from per cent currently, the consultancy said.

“The oil and gas industry has faced real disruption over the past few years, some of which originated long before the Covid-19 pandemic began to make its impact. However, the unexpected result of this volatility is that the industry seems to be in a relatively strong position,” Amy Chronis, vice chair, U.S. Oil, Gas and Chemicals Leader, Deloitte LLP, said, commenting on the report.

“Those who invest in new business models and remain  resilient to the changing market dynamics will be more likely to sustain, lead and win throughout this energy transition.”

Although a report at the beginning of the year had projected Nigeria’s oil production to hit 1.7 million barrels per day in 2022, this has not been the case as July records showed that Nigeria could not meet its OPEC output for the month.

The report by CardinalStone Research had indicated that it expected a forward leap for the industry in 2022, aided by progress across the upstream, midstream, and downstream sub-sectors. The firm stated that in the upstream, oil production ws likely to be positively impacted by increased drilling activities and sturdy oil prices.

Despite the projection of earning more as a result of  higher oil prices, reverse was the case as the opportunities provided by Russian invasion of Ukraine revealed. With the oil price hitting $100 and above, Nigeria still earned less from the windfall. In addition, CardinalStone Research had projected that refinery projects were also slated to reach key milestones in the midstream, headlined by the expected launch of Dangote Refinery in mid-2022.

Elsewhere, the report said that the likely extension of petrol price regulation could keep margins mostly flat for downstream marketers while players in unregulated petroleum product markets are likely to remain clear winners.

The firm noted that while a $100/bbl looks unlikely in the near term, the answer lies in an assessment of primary drivers of global demand and supply.

Read Previous

Food, beverage firms target N201.7bn sugar imports

Read Next

Nigeria, U.S. in race for $17.9bn collaboration software revenue

Leave a Reply

Your email address will not be published. Required fields are marked *