Economy | Oil & Gas

Improved Oil Production Due to FG Curbing Oil Theft

Jan 11, 2023   •   by United Capital Research   •   Source: United Capital   •   eye-icon 211 views

According to Nigerian Upstream Petroleum Regulatory Commission (NUPRC), crude oil production rose by 4.2% m/m to 1.24mbpd in Dec-2022, from 1.19mbpd in Nov-2022. On a yearly basis, crude oil production climbed 3.2% from 1.20mbpd a year earlier. The increase is primarily attributed to the Federal Government’s strong effort to improve output and curb oil theft. Also, the resumption of operations in the Trans-Forcados Oil Pipeline System and the recovery of illegal pipelines supported improved oil output. Overall, the average crude oil production in 2022 printed at 1.14mbpd, down 13.5% y/y compared to its average print in 2021.
Taking a broader view, the sector’s performance remains underwhelming, contributing only 5.7% to the entire economy in Q3-2022. According to the National Bureau of Statistics (NBS), oil GDP contracted for the tenth consecutive quarter by 22.7% in Q3-2022. Legacy inhibitions such as oil thefts, pipeline vandalism and low CAPEX allocation remain strong headwinds to Nigeria’s upstream oil and gas sector, thus hampering output. Notably, in Q3-2022, oil production averaged 998,020bpd, the lowest in several years. Thus, this shows the troubled impact of international companies’ divestment from Nigeria.
Although oil output has improved in recent months, we note that it is still substantially below the nation's OPEC+ production quota (1.74mbpd). However, we believe that if the efforts against oil thefts and recovery of illegal pipelines are continued, it will support oil revenue generation in 2023 and the budget deficit at large. In addition, given that oil is the primary export product in Nigeria, we expect improvement in oil export receipts, thus bolstering Nigeria’s external reserves and FX liquidity. Notwithstanding, we remain pessimistic about the FG's ability to sustain its efforts to completely address the structural challenges hurting output, thus shifting focus to the debt market to finance the budget amid ailing government revenue.


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