Shoreline Group, a Nigerian oil producer, has halted plans to issue $500 million of Eurobonds and will cut staff as Africa’s biggest economy struggles with plunging prices for the fuel, Chief Executive Officer Kola Karim said.
In the middle of last year, Shoreline executives went on a two-week roadshow in the U.S. and Middle East to discuss a debut issue of five- to seven-year debt to buy oil and gas assets across Africa. Now with Brent crude trading below $30 a barrel and Nigeria’s central bank imposing restrictions on the amount of dollars businesses can obtain, Shoreline plans to cut 35 percent of its nearly 2,000 staff to survive the “tough” conditions, Karim, 47, said in a Jan. 19 interview in his office in Lagos, Nigeria’s commercial capital.
“We went on a roadshow and the world of oil collapsed,” he said. “We’re going to wait until end of first quarter and see how stable markets are. Mid-last year, our projections were $60- dollar oil for the next five years,” he said as he laughed.
Founded in 1997, Shoreline is one of several local businesses that bought fields in the oil-rich Niger River delta region after foreign companies including Royal Dutch Shell Plc, Total SA and Eni SpA sold onshore assets. With oil’s plunge, Karim said Shoreline is reducing production to 17,000 barrels per day for the rest of the year from 52,000 barrels per day.
Shoreline has seen its other businesses that range from construction to rope making come under pressure from foreign- exchange restrictions. Efforts by the central bank to stem the fall of the local currency have led to trading curbs, causing a shortage of dollars in a country that imports almost all manufactured goods, hurting businesses and sending the unofficial naira market rate soaring to a record 305 per dollar.
Karim said he is switching Shoreline’s focus instead to gas production and distribution within Lagos, as it costs the company more than $20 to produce a barrel of oil. Brent crude, which compares with Nigerian oil grades, traded at $27.61 per barrel as of 7:47 a.m. in London.
With a government-mandated price of $3.69 per standard cubic foot of gas to encourage local producers to sell to Nigerian consumers such as power plants, Shoreline is in talks with the African Finance Corp., African Development Bank and African Export-Import Bank to get them to lend $500 million to finance the projects, which include 125 kilometers (78 miles) of pipeline.
“That is a local business that’s tied to dollars, but is not fluctuating,” Karim said. “More importantly, there’s no downside to it because the country needs gas to energize its growth, so that’s a secure business.”