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Low production continues to mask gains from high oil prices

A ThisDay report, this morning, says a Floating Production, Storage and Offloading (FPSO) vessel with a capacity to process up to 22,000 barrels of oil per day, inject up to 40,000 barrels of water per day and store 2 million barrels of oil, exploded and sunk at the Ukpokiti Terminal, around Escravos, Warri South-west, Delta State. According to the report, the huge facility, TRINITY SPIRIT, was built in 1976, with a carrying capacity of 274,774 Dead Weight Tonnage (DWT), an overall length of 337.05 meters and a width of 54.5 meters. The asset is owned by Shebah Exploration and Production Company Limited (SEPCOL) which acquired all of 40% of Conoco Phillips equity interest in OML 108. The actual cause of the explosion is yet to be known as of the time of writing.

In other news, there are reports that Nigeria missed its crude oil output target for January 2022, producing 1.46 million barrels per day compared with 1.683 million bpd approved by the Organisation of Petroleum Exporting Countries. According to the reports, the country’s continued inability to meet its output target had caused the repeated plunge in oil earnings, leading to the monthly drop in the NNPC’s remittances to the Federation Account. Crude oil production as of 9M 2021 averaged 1.57mb/d, which lags the OPEC benchmark of 1.62mbpd. The uninspiring output was largely due to crude oil terminal maintenance, shutdowns, and reduced investments. Hence, growth in the sector was a negative 10.73% as of 3Q 2021.

Crude oil terminal maintenance, shutdown, vandalism, and reduced investments in the oil sector have continued to undermine oil production, masking the gains from increasing oil prices. The new Petroleum Industry Act 2021 (PIA) which was signed into law by the President on 16 August 2021 to repeal the extant Petroleum Act 2004, creates provisions and innovations that will affect various aspects of the oil and gas industry and we are hopeful that it will result in increased investments in the oil and gas sector. We project crude oil production (including condensates) will reach 1.75mbpd in 2022. While this is an improvement from 2021 levels, it still lags the 5-year average of 1.85mbpd. We expect the continued elevated crude oil price, coupled with the passage of the PIA, to incentivize drilling activities. Beyond this, we expect the commencement of 160,000 Amukpe-Escravos export terminals in 2H 2022 to support crude oil production

• FX: Last week, the Naira traded at ₦415.78/US$ from ₦415.84/US$, in the interbank market.
• Bonds:In the secondary market for Federal Government of Nigeria (FGN) bonds, yields decreased across most maturities. The yield on the 3-yr FGN bond decreased by 23 basis points, to 8.78% and that on the 30-yr FGN bond decreased by 16 basis points,12.95%. Indicative yields on US Dollar Eurobonds issued by Nigerian entities were between 1.41% and 9.63%, depending on maturity.
• Oil: The price of Brent increased by 2.43%, from the previous week's closing price of US$87.89bbl to US$90.03bbl.
• Equities:Last week, the NSE All-Share index inched higher by 0.54%. The January 2022 Year-to-date return was 8.17%. The Consumer Goods sector gained 0.41%, on average. Honeywell increased by 9.38%, while Cadbury decreased by 8.42%. For the Brewers, Nigerian Breweries and Guinness rose by 1.04% and 13.98%, respectively. The Industrial Goods sector declined by 3.26%, on average. Lafarge Africa gained 0.79%, while Dangote Cement lost 8.53%. The NSE Banking sector gained 0.67%, on average. UBA advanced by 3.05%, while GTCO declined by 0.58%. In the Agriculture sector, Presco and Okomu remained unchanged.