Friday, 5 May 2017

To Better Monetise Ghana's Oilfields Should The GNPC Not Become A Vertically Integrated Oil Company?

Vertically integrated oil companies have always fared better than independent upstream production companies when oil prices have been low.

For that reason, having decided to use oil revenues to fund the free senior high school initiative, we had better start planning to turn the Ghana National Petroleum Corporation (GNPC) into a vertically integrated oil company, as soon as practicable.

Last year, as a result of low oil prices, independent exploration and production company, Tullow Oil, was forced to suspend dividend payments to shareholders.

However, during the same period, although oil prices were low, ExxonMobil did reasonably well and was able to distribute U.S.$12.5 billion to shareholders - mainly because it is a vertically integrated oil company.

The quoted passage below is an excerpt  from an ExxonMobil press release:

"Exxon Mobil Corporation today announced estimated 2016 earnings of $7.8 billion, or $1.88 per diluted share. An asset recoverability review was completed in the fourth quarter and resulted in a U.S. Upstream asset impairment charge of about $2 billion mainly related to dry gas operations with undeveloped acreage in the Rocky Mountains region of the U.S. Excluding the impairment charge, full year earnings were $9.9 billion compared with $16.2 billion a year earlier, reflecting lower commodity prices and refining margins.

Fourth quarter earnings were $1.7 billion, including the impairment charge recorded during the period. Excluding the impairment charge, earnings of $3.7 billion were up from the $2.8 billion reported in the fourth quarter of 2015, due to higher liquids realizations partly offset by weaker refining margins.

“ExxonMobil demonstrated solid operating performance in 2016. Financial results for the year were negatively impacted by the prolonged downturn in commodity prices and the impairment charge,” said Darren W. Woods, chairman and chief executive officer. “The company’s continued focus on fundamentals and our ability to leverage an attractive global portfolio through our integrated business ensures we are well positioned to generate long-term shareholder value.”

ExxonMobil completed five major Upstream projects during the year in Australia, Kazakhstan and the U.S., adding 250,000 oil-equivalent barrels per day of working interest production capacity. The company made three important new discoveries in Guyana, Nigeria and Papua New Guinea, and is growing its exploration portfolio, capturing 16 exploration blocks in 2016 with three additional awards to be finalized in 2017.

In the Downstream segment, ExxonMobil completed a 20,000-barrel-per-day crude expansion project at the Beaumont, Texas, refinery that increased the site’s flexibility to process domestic light crude oils. ExxonMobil is also advancing projects to increase production of higher-value fuels and lubricants, including investments at refineries in Belgium and the Netherlands.

The Chemical business continued to capitalize on its liquids and gas cracking capabilities, capturing increased specialty and commodity product demand. The company is selectively investing to extend its advantage with projects that expand production capacity for ethylene and related products around the world.

During 2016, the corporation distributed $12.5 billion in dividends to shareholders.

Fourth Quarter 2016 Highlights

•     Earnings of $1.7 billion decreased $1.1 billion, or 40 percent, from the fourth quarter of 2015. Excluding an impairment charge of $2 billion, earnings of $3.7 billion increased $927 million from the fourth quarter of 2015.
•     Earnings per share assuming dilution were $0.41.
•     Cash flow from operations and asset sales of $9.5 billion, including proceeds associated with asset sales of $2.1 billion, more than covered dividends and additions to property, plant and equipment.
•     Capital and exploration expenditures were $4.8 billion, down 35 percent from the fourth quarter of 2015.
•     Oil-equivalent production was 4.1 million oil-equivalent barrels per day, with liquids down 3.9 percent and natural gas down 1.7 percent from the prior year.
•     The corporation distributed $3.1 billion in dividends to shareholders.
•     Dividends per share of $0.75 increased 2.7 percent compared to the fourth quarter of 2015. "

End of quoted passage from ExxonMobil's press release.

This is what the BBC has also said about the direction oil prices are headed going forward:

"...the oil price has fallen to a five-month low as investor concerns re-surface about a worldwide glut.

Brent crude dropped by more than $2 on Thursday to below $49 a barrel, hitting its lowest level since oil cartel Opec struck a landmark deal to cut output on 30 November.

Analysts said investors were worried that oil nations would fail to ease supply fears at a meeting later in May.

They also pointed to higher-than-expected US oil production.

Brent crude, the international oil benchmark, dropped 4.8% to $48.38 a barrel in London on Thursday. West Texas crude lost 4.9% to $45.48.

Opec's deal in November, and subsequent supply cuts agreed by other oil producing countries, helped to boost prices earlier this year, said David Hunter, an energy industry analyst with Schneider Electric.

But the market is getting a bit "jittery" as countries decide whether to extend those cuts, he said.

Opec and other oil nations are meeting on 25 May where they will discuss the success of the six-month cutback and whether it should be deepened.

Russia, one of the non-Opec countries to sign up to the cuts, gave mixed signals on Thursday about whether it would continue.

"While the cartel is expected to extend a self-imposed production cap by another six months, it will be a challenge to convince several non-Opec members to follow suit," said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics.

"Persistent growth in US oil production ... will also make extensions of the Opec cap beyond 2017 unlikely."
'Losing faith'

Data released on Tuesday indicated US crude stocks fell 930,000 barrels last week. Analysts had been expecting a drop of 2.3 million barrels.

The US data and some investors "losing faith with Opec" are not helping the oil price, said Abhishek Deshpande, an oil analyst at Natixis.

The fall in crude prices hit global energy and commodity stocks.

US oil giants Chevron and Exxon Mobil were two of the biggest fallers on Wall Street, dropping 2% and 1.3% respectively.

In London, Shell's shares wiped out most of their earlier gains as the oil price tumbled.

The UK oil firm had started the day 3% higher after reporting better-than-expected profits, but finished trading with gains of only 0.5%."

End of quoted excerpt from BBC News.

Clearly, in light  all the above,  if as a people Ghanaians are going to have to rely on oil revenues to fund the free SHS initiative, then we had better get better value from our oilfields. That is imperative.

However, we can only do so successfully by merging and turning the combined Tema Oil Refinery Limited (TOR), the Bulk Oil Storage and Transportation Company Limited (BOST), the Ghana Oil Company Limited (GOIL) and the Ghana National Petroleum Corporation (GNPC), into one vertically integrated energy company.

That will assure the nation of sufficient money at all material times whiles the oil deposits last, to fund the free SHS initiative and other policies dependent on oil revenues even during prolonged periods of low global oil prices..

The vertically integrated GNPC will become a  west African energy behemoth with GOIL petrol filling stations spread  widely across the Economic Community of West African States (Ecowas) area.

We could also partner the governments of those sister nations to further entrench the vertically integrated national oil company's market positions in those sister  nations of ours through 50/50 win-win joint-venture deals to open petrol filling stations across their territories. Ditto build tank farms to store strategic stocks of fuel and refined products in those markets.

The government must start a scheme to buy back all GOIL's shares now in private hands, as a prelude to the merger  of  TOR, BOST, GOIL, and the GNPC.

To secure the future of the all-important  free SHS initiative, the GNPC must become a vertically integrated energy company to better monetise our oil and gas deposits.
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