As Coronavirus pandemic continues to rage and disrupt international economies, the African Energy Chamber (AEC), as well as other analysts, have stated that Nigeria and other African countries stand to lose over $110 billion in taxes, petroleum exports, jobs, and contracts to local companies over the next three months.
According to the AEC, though the fundamental belief is to let the market work for itself, it encourages African countries that have engaged petroleum operators and local service companies to find ways to relieve the burden on exploration programmes and local companies.
Already, companies are already taking a hit on their exploration programmes and have to find ways to raise capital to successfully drill wells.
Oil prices plunged to the lowest level in 18 years yesterday as the worsening impact of the coronavirus chaos continues to roil the markets despite massive stimulus from major central banks.
At 7:11 pm GMT, WTI Crude had plunged to $21.64, down 20.82 per cent on the day and the lowest level since 2003. Brent Crude was trading down 11.64 per cent at $26.87, the lowest price since the beginning of 2016.
With Brent plunging to multi-year lows, the price of the OPEC basket of thirteen crudes stood at $30.36 a barrel yesterday, compared with $30.63 on Monday, according to OPEC Secretariat calculations.
At those prices, no OPEC producer can balance their budget and have enough oil revenues to cushion the blow from the looming global recession.
The last time Brent Crude was this low was in early 2016 when a glut weighed heavily on oil prices.
This time around, the glut will be much larger than the 2016 record oversupply, by two to four times, as per estimates from IHS Markit.
“Extensions are needed to ensure that these companies maintain success in the near term and OPEC member states need to immediately engage with the leaders of Saudi Arabia and Russia to ensure that oil markets are not oversupplied.
“As a possible solution to these growing issues, African governments should consider imposing immediate cancellations or postponements of tax payments for a period of up to three months for African owned service companies, indigenous exploration and production companies, and all international and local companies working on exploration programmes,” the body added.
“It is a hard time for African oil and gas. And if the oil price does not see a hike soon, there is a likelihood that a lot of jobs will be lost in many petroleum-producing countries and, those who were expecting to see first oil soon will be heavily impacted,” stated NJ Ayuk, Executive Chairman of the African Energy Chamber and CEO of Centurion Law group.
He added that “final investment decisions, new field developments and gas projects also stand to see delays or cancellations which will have a massive effect on many African businesses and communities who view the industry as an opportunity to move from poverty to the middle class.”
This, the African Energy Chamber believes will help employers pay employees and improve their liquidity and reduce some of the losses in revenue while preventing job losses. African players were already strained by low profits and difficultly accessing capital for oil and gas projects.
Should the price war continue, many marginal field producers will likely go out of business, exploration programmes will be halted, licensing rounds will fail and the majors will have to make the difficult decisions of scaling back operations.