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By Dayo Johnson

There are strong indications that the COVID-19 is affecting oil firms, leading to a sharp drop in oil demand as a result of storage for produced crude.

In a statement, Chairman, Forum of Oil and Gas Managers in Nigeria, Philips Martins, noted that at the sharp drop in crude oil may lead to companies filing for bankruptcy or consider other strategic opportunities.

He argued that many of these companies had engaged in high-profile debt and currently account for 90% of the N3 trillion, or $8 billion of all debts owed by companies producing oil in Nigeria, mostly at high interest rates to local banks.

According to him, these companies also suffer from high average cost of production and unlike oil majors operating in the country whose average cost of producing is about $22 a barrel, the indigenous operators need between $35 and $40 a barrel to survive.

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Martins said a couple of these indices are deploying unprecedented and aggressive strategies to survive the global oil price rout.

He argued that one of such firms, the fifth-biggest independent producer in the country, had suspended a planned $1.5 billion, 50-well campaign, to more than double output to 100,000 barrels a day by next year.

Martins expressed worry an AIM-listed indigenous company’s situation may be critical since it has several factors working against it.

Besides, he noted that the company has also made effort to reduce its general and administration by laying-off almost 40% of his staff and upper management in April.

He also expressed worry that the effort may not be adequate since the company had not been meeting its contractual obligations, especially to its employees since April.

The Chairman stated that staff of the firm are currently considering other options, noting that in saner climes, the company should have filed for bankruptcy protection instead of owing employees’ salaries, but that the company may have depended on the lack of Nigeria’s institutional capacity to take undue advantage of the weak.

Also, industry sources claimed that the company would not be able to raise the extra funds required for a field project expansion, which has been delayed till 2022 until oil price gets better.

He lamented that the nightmare scenario could present lucrative buying opportunities for the industry’s bigger players, adding that “this is because struggling oil companies, either in bankruptcy or before it, will be forced to sell off prime assets at fire sale prices.

“There will be a lot of companies that will not survive this low-price and dismal-demand environment. The indigenous operators need to come up with more disciplined and balanced capital programmes and focus more on profitability.

“The companies that survive will be the leanest left standing and the Nigerian oil and gas industry space will not be the same once prices recover.”

Vanguard