Falling crude price: Value of oil, gas firms down by N273.4bn

17 August 2015, Lagos – The crash in the global price of crude oil has impacted negatively on the performance of the oil and gas sector in the nation’s capital market for the half year 2015. As a result the value(market capitalisation) of oil companies’ shares dropped by N273.44 billion or 25.83 per cent from the corresponding period of 2014. This implies that shareholders in these companies lost the said amount.

Oil prices drop

Oil prices drop

Financial Vanguard’s review of the performance of the oil and gas sector on the Nigerian Stock Exchange, NSE shows that the sector recorded N786.56 billion in the six month period ended June 2015 as against N1.06 trillion in the first half of 2014. Market capitalisation is the total value of companies quoted on the NSE and is determined by the performance of their share prices and issued share capital.

A cursory review of the oil and gas sector on the NSE shows that in the period under review, the NSE oil and gas index, another stock market gauge, dropped by 21.2 per cent to close at 368.54points from 468.24 points in the corresponding period of 2014.

The drop in the NSE oil and gas index is a reflection of the fall in the prices of petroleum equities.   The equities are   Beco Petroleum Product Plc, Conoil Plc,   Eterna Plc, Forte Oil PLC, Mobil Oil Nigeria Plc, MRS Oil Nigeria Plc, Total Nigeria Plc, Oando Plc   and Seplat Petroleum Development Company Plc.

Further review also showed that the oil and gas sector accounted for 7.12 per cent of the equity market capitalisation for the first of half 2015 as against 7.56 per cent in the corresponding period of 2014. Oil companies listed on the NSE are facing challenges of low global price of crude oil which has made investors to either sell off their stocks or adopt a wait and see attitude. The down turn is affecting oil companies  and producing countries across the globe.

Meanwhile, the global price of crude oil from January 2015 to August 10, 2015 revealed steady decline. The prices  for January was $48, February $54, March $52, April-$57, May $62, June $60, July $54, and August $48

Reacting to the decline in the global oil prices, Arthur Berman, in an interview with Oil Price. Com, said that the current situation with oil price is really very simple.   “ Crude oil demand is down because of  high price that stayed for too long. Supply is up because of U.S. shale oil and the return of Libya’s production and now Iran. Low demand and increased supply  has resulted in low price.

The Saudis  which is responsible for the continued low price are good at money and arithmetic. Faced with the painful choice of losing money maintaining current production at $60/barrel or taking 2 million barrels per day off the market and losing much more money—it’s an easy choice: they took  the path that is less painful. If there are secondary reasons like hurting U.S. tight oil producers or hurting Iran and Russia, that’s great, but it’s really just about the money.”

Saudi Arabia  had met with Russia before the November OPEC meeting and proposed that if Russia cut production, it would also cut and get Kuwait and the Emirates at least to cut along with it. Russia said, “No,” so Saudi Arabia said, “Fine, maybe you will change your mind in six months.” I think that Russia and maybe Iran, Venezuela, Nigeria and Angola will change their minds by the next OPEC meeting in June.

“We’ve seen several announcements by U.S. companies that they will spend less money drilling tight oil in the Bakken and Eagle Ford Shale Plains and in the Permian Basin in 2015. That’s great but it will take a while before we see decreased production. In fact, it is more likely that production will increase before it decreases. That’s because it takes time to finish the drilling that’s started, do less drilling in 2015 and finally see a drop in production.

Eventually though, U.S. tight oil production will decrease. Perhaps near the end of 2015—world oil prices will recover somewhat due to OPEC and Russian cuts after June and increased demand because of lower oil price. Then, U.S. companies will drill more in 2016.

“Oil prices need to be around $90 to attract investment capital” he added. He however argues that prices have to be high and stay high for the plays to work. Also drilling can never stop once it begins because decline rates are high. Finally, no matter how big the play is, only about 10-15% of it—the core or sweet spot—has any chance of being commercial. If you don’t know how to identify the core early on, the play will probably fail” Berman explained.

Another Economist, Mr. Horsnell, said:   “Inventories are very much a second-quarter phenomenon, rather than something that carries on much beyond that. It will sort itself out, primarily because of seasonal increases in demand, but there will also be some falls in supply—the U.S.

Energy Information Administration has recorded drops in U.S. crude-oil production and expects shale-oil output to fall heavily in May. “Demand tends to be at a maximum in the third quarter, particularly demand in power generation for air-conditioning in emerging markets.”



– Vanguard

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