Last year the FGN’s fiscal position was severely constrained by oil production losses. However, towards the end of Q1 2017 output picked up. Industry sources suggest that oil production was about 1.90 million barrels per day (mbpd) in February. Based on data from the NNPC, this level is 7% lower than the 2.04 mbpd recorded in February 2016. We note that the current production level is considerably higher than the 1.58 mbpd recorded in December, the low point of 2016 other than August (see chart).
On Wednesday the Bonga deep-water oilfield was reopened following a one month shutdown for maintenance purposes. This is expected to increase daily production by c. 200, 000 b/d. This could shore up total oil production and push it closer to the projection of 2.20 mbpd in the FGN’s budget proposals.
Piracy continues to pose a security issue for deep-sea production as regular occurrences of siphoning crude oil from tankers are still reported.
However, the latest oil production level (1.90 mbpd) suggests that the FGN’s efforts in tackling security issues surrounding oil assets in the Niger Delta region have been somewhat successful. According to the NNPC, the cost to the government from pipeline vandalism amounted to N2.1trn from January until September last year.
Sources: NNPC, Financial and Operations Report, January 2017; FBNQuest Research
Apart from production, revenue for the FGN is also a function of oil prices. In Q1 2017 the oil price averaged US$54/b, compared with US$35/b recorded in the corresponding period of 2016. The improvement in oil receipts can be cited as one reason for the CBN’s recent fx interventions, which have brought some level of liquidity into the market.