OGR July - August Edition 2020

TOP STORY
Production Agreement, subscribing to the
concept of compensation by countries that
are unable to attain full conformity (100%)
in May and June to accommodate it in July,
August, and September.
According to Nigeria's Minister of State for
Petroleum Resources, Nigeria joined
OPEC+ to cut supply by up to Ten (10)
Million Barrels per day between May and
June 2020, Eight (8) Million Barrels per day
between July and December 2020 and Six
(6) Million barrels per day from January
2021 to April 2022, respectively.
Chief Timipre Sylva
"Based on reference production of Nigeria
of October 2018 of 1.829 Million Barrels
per day of dry crude oil, Nigeria will now be
producing 1.412 Million Barrels per day,
1.495 Million Barrels per day and 1.579
Million Barrels per day respectively for the
corresponding periods in the agreement.
"It is expected that this historic intervention
when concluded will see crude oil prices
rebound by at least $15 per barrel in the
short term, thereby enhancing the prospect
of exceeding Nigeria's adjusted budget
estimate that is currently rebased at $30
per barrel and crude oil production of 1.7
Million Barrels per day.
"It is therefore pleasing to note that
despite the production curtailments that
this historic agreement will entail, all
planned industry development projects
will progress as they will be delivered after
the termination of the 9th OPEC/Non-
OPEC Ministerial Meeting Agreement on
adjustments in April 2022," the minister
added.
Nigeria misses a 5-month oil revenue target
and could only collect about half of its
budgeted revenues in the first five months
of this year as low oil prices and output took
a toll on the Federal Government income.
According to Bloomberg, total earnings by
the federal government from January to
May were N1.48 trillion ($3.8 billion), which
was 56% of targeted revenue for the period,
quoting the Finance Minister Zainab
Ahmed, during a presentation to lawmakers.
Also, earnings from crude sales accounted
for about half of the total revenues with
non-oil income contributing to the balance.
"Although Nigeria's total production
capacity is 2.5 million barrels per day,
current crude production is about 1.4
million barrels per day – in compliance with
the Organization of the Petroleum
Exporting Countries' (OPEC) production
quota – and an additional 300,000 barrels
per day of condensates, totaling about 1.7
million barrels per day," Ahmed had said.
Oil production will average 1.86 million
barrels a day in 2021, rise to 2.09 million
barrels a day in 2022, and 2.38 million
barrels in 2023. The report said on the
expenditure side, N1.25 trillion was spent
on debt service and N1.32 trillion for
personnel cost, including pensions, Ahmed
said.
World Bank has also forecasted that Nigeria
will lose up to 70 percent of its earnings
from crude oil sales in 2020, cutting total
general government revenue to 5.3 percent
of GDP for the year following the impact
and outcomes of the ongoing Covid-19
pandemic.
In a recent World Bank report titled: 'Nigeria
Development Update 2020,' the Bank
stated that prices of crude oil which
accounts for the majority of Nigeria's
foreign exchange earnings were expected to
remain low, supported mostly by a
persistent supply glut and slowed recovery
of the economies of Nigeria's trading
partners.
According to the Washington-based
institution, the pandemic forced Nigeria to
revise its benchmark on oil production and
price from 2.3 million barrels a day (mbd)
and $57/b to 1.9mbd and $28/b.
"Oil prices are expected to stay below prepandemic
levels in 2020–21 because of
slowed economic activity and a persistent
supply glut. After averaging $65 per barrel
(bbl) in 2019, the baseline scenario for this
report assumes that prices of Nigerian crude
oil will average $30/bbl in 2020 and $40/bbl
in 2021.
"Oil prices are projected to begin recovering
gradually in the second half of 2020, but
accumulated inventories will continue to
push prices down through 2021 even as
global demand recovers, and the Covid-19
crisis subsides," it added, suggesting that
with the right pace of reforms, sustained
economic recovery was possible for Nigeria
despite downside risks.
It noted that in a baseline scenario in which
oil prices in 2020 average $30/b, the Covid-
19 outbreak in Nigeria was contained, and
the authorities carry out a package of
economic-relief policies in 2020, the
country's economy would still contract by at
least three percent.
It further stated that faced with large and
widening fiscal deficits, mounting pressure
on health spending, and less room to
borrow, "Nigeria can be expected to cut
capital spending, especially sub-national,
further diminishing its already low levels of
investment and limiting service delivery at
all levels."
"Falling domestic demand, which is sensitive
to oil-dollar liquidity, will cause the non-oil
economy to contract. With manufacturing
and services hit hard by COVID-19 in
April–May 2020," it added.
It explained that the pandemic has sharply
curtailed both oil and nonoil revenue
streams at a time when fiscal resources are
urgently needed to contain the virus and
support economic activity, adding that by
April Nigeria's crude oil prices had fallen to
$20 a barrel; down nearly 70 percent in
three months.
"After this extraordinary oil-price shock,
which led to a steep drop in oil production,
oil revenues are expected to fall from 3.2
percent of GDP in 2019 to about 1 percent
in 2020.
"Though oil production is expected to
stabilize, it would not immediately
contribute much to growth because
investment in the sector is likely to remain
subdued until the price outlook becomes
more favorable," the Bank noted.
In a bid to boost the country's oil output and
bring in much-needed revenues, the
Department of Petroleum Resources (DPR),
on behalf of the Federal Government of
Nigeria, recently launched the 2020 bidding
round for 57 marginal fields after over 16
years of a successful marginal fields bid
round in 2003.
The Marginal Fields is open to indigenous
companies and investors interested in
participating in Exploration and Production
(E&P) business in Nigeria.
Interestingly, DPR has approved Subsurface
data providers Geoex and Bilview to use
their platform to showcase a portion of
Nigeria's national well data portfolio at
reproduction cost to pre-qualified bidders
of the 2020 marginal fields bid round.
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OIL AND GAS REPUBLIC I SPECIAL EDITION