The Nigerian 2022 fiscal budget suffers further shock as crude oil production contracted to an all-time low of 0.972mbpd in August 2022. Based on data from the National Upstream Petroleum Regulatory Commission (NUPRC), crude oil production fell m/m by 11.47% to 0.972mbpd in August from 1.08mbpd in July 2022. We note that crude oil production maintained a steady decline from 1.4mbpd in January, to 1.26mbpd in February, to 1.24mbpd in March, to 1.22mbpd in April and to 1.02mbpd in May 2022. There was a transient recovery in June to 1.16mbpd but production declined again to 1.08mbpd in July and 0.97mbpd in August. The persistent decline, which has been largely attributed to crude oil pipeline vandalism and theft, continues to constitute a critical fiscal strain. At 1.6mbpd budgeted for 2022, the total expected volume from January to August amounts to 388.8 million barrels, while the actual volume produced was 283.76 million barrels. Consequently, as of 31 August 2022, there was a cumulative (January to August) shortfall of 105.04 million barrels amounting to a Gross Revenue shortfall of US$7.67bn at US$73 per barrel budget benchmark.
We recall that the Nigerian National Petroleum Company Limited is yet to make any remittance to the Federation Account in the 2022 fiscal year due to the escalated petrol subsidy which has gulped N1.55trn in H1 2022. Based on the four-month fiscal report of the economy released by the Minister of Finance, Zainab Ahmed, FGN’s retained revenue was only N1.63trn, 49% of the prorated target of N3.32trn. The revised government expenditure for 2022 was estimated at an all-time high of N17.31 trillion. Revenue projection of N9.96trn will likely underperform estimate as already being seen in Q1. In our view, oil revenue will significantly fall short of target, but non-oil revenue will outperform budget estimates. For non-oil revenue, we believe that targets, particularly on VAT and CIT collections are achievable. As at Q2 2022, we had seen improvements in both CIT (+51.32% y/y) and VAT collections (+17.16%). Likewise, we are also optimistic on the revenue from CIT payments, given our positive outlook for improved companies’ profitability in the year, which translates to higher tax payments.
Based on news reports, crude oil theft, which has increased significantly in the past year, appears to be a major problem limiting crude oil production. Based on a Punch news report, the Federal Government has spent N12.43bn between January and June this year on pipeline protection and maintenance. We recall that on 30 August this year, NNPC reported that a multi-billion-naira pipeline surveillance contract had been awarded to a former leader of the Movement for the Emancipation of Niger Delta, Government Ekpemupolo, popularly known as Tompolo. We consider efforts to curb the menace of crude oil theft, a national emergency as losses to oil theft and official leakages could begin to exceed official receipts of oil revenues if numbers being published are anything to go by.