Further Strike Puts Downside On Long Term Oil Growth
BMI View: Chadian oil workers have chosen to strike for the second time in 2014 after Chinese oil company Great Wall Drilling was unable to meet worker demands. We highlight that the new oil worker union, which has threatened to strike again, could act to further deteriorate the operating environment and dissuade much needed investment in Chad. This in turn could weigh heavily on the country's economy, which relies heavily on oil exports for revenues.
As previously highlighted (see, 'Strikes Could Worsen Difficult Operating Environment', January 20), the risk of industrial action in Chad's oil and gas sector is putting downside pressure on output. Earlier this year, oil and gas employees elected their own union representatives, a move opposed by employer Great Wall Drilling. In reaction, workers decided to interrupt drilling work for a minimum of three days in January, outlining the possibility of future strike action if their conditions were not met. Among the proposals was a 200% pay increase.
Great Wall Drilling, a CNPC subsidiary, reportedly agreed to increase oil and gas worker salaries by 2% by 2015. The offer was only made following the threat of new strike action, though was not sufficient to prevent a work stoppage. Around 1,600 employees are now taking part in a three day strike from midnight Sunday (March 9) to Wednesday (March 12).
The large discrepancy in pay requested and pay offered is partly related to the fact that some workers are struggling to finance the trip to the drilling sites. Many of the workers live in the capital N'Djamena and commute to the oil and gas sites which are around 200km to 300km away in the Bongor and Logone basins. Workers are reportedly given just 3,000 Francs (US$6.30) for these trips which is insufficient to cover the total cost.
We therefore maintain our concern that Chad's declining oil output will continue to face further pressure as the improved mobilisation of Chadian oil sector workers will both slow oil developments and see greater labour costs for Great Wall Drilling. Leaders of the union have highlighted the further willingness to strike again.
|Chad Oil Production & Consumption ('000b/d)|
According to Reuters, operations at the country's 20,000 barrel per day (b/d) refinery have been unaffected, while oil production levels remain consistent. Strike action is therefore most likely impacting exploration and development work, hindering the crucial progress needed to boost oil output in a country heavily dependent on the oil sector.
|High Dependency On The Oil Sector|
|Chad - Export Revenues, US$bn|
IMF and African Development Bank estimates see growth in oil export revenues over 2014, peaking in 2015. However, we see considerable downside risk to this forecast emerging from both the growing assertiveness of Chadian oil workers and a weakening oil price over the coming years. Increasing challenges in the operating environment in Chad could further dissuade investment in to the oil sector putting strain on the country's finances.