Clearer picture of crude market seen boosting producers next year

Oil prices are likely to find more balance in 2018 based on OPEC’s supply cuts and the continued development of US shale output.
This development will excite major stakeholders (including producers and as well as rekindle hope for better days in the global oil industry after the oil price setback in 2016.
“We think our view of a normalised oil price lying in the $60-$80 per barrel range looks increasingly plausible to investors,” says Jon Rigby, analyst at UBS.
In 2017 Oil prices hit a 30-month high of $65.88 per barrel this December as traders responded to the November 30, 2017 OPEC meeting where members agreed to keep production cuts through 2018.
Early this month, the Nigerian Senate approved an exchange rate of N305/$1, oil production of 2.3 million barrels per day and also increased the benchmark budget oil price to $47 from $45 for the 2018 budget plan.
BusinessDay investigation into the record of major indigenous oil firms show Seplat Petroleum Development Company has been one of the biggest beneficiary of Nigeria’s increase in oil production as it recorded a profit in the third quarter of 2017, after six consecutive quarters of losses.
In Q3 2017, Seplats operating profit was $40.9million compared to a loss of $11.7million in Q3 2016 and net profit of $22.3 million in 2017 compared to net loss of $36.6 million in 2016 on quarterly revenue of $146.7million in 2017 compared to a loss of $59.7million in 2016.
Seplat stock price has surged 49 percent this year, outperforming the oil and gas index and the broader all share index.
Nigeria Petroleum Development Company (NPDC) production continued to improve as a result of success recorded in repairs of vandalized pipeline in the Niger Delta and resumption of Crude Oil lifting activities at Forcados Terminal. NPDC is projected to ramp-up production level to 250,000bp/d in the near future.
“With the cancellation of J.V funding and field development agreement between NNPC and International oil Companies (IOC) we should begin to see more development and activities in the upstream sector in early 2018 even more than what we see in 2017,” said Luqman Agboola, Head of Energy and Infrastructure, Sofidam Capital.
Improved security and oil infrastructure has also boosted Nigeria’s production in the last 18 months as Africa’s biggest oil producer looks to meet it proposed oil revenue of N2.442 trillion in the 2018 budget.
“It is good news for Nigeria, because the 2018 budget production assumption is at 2.3 million per barrel (mpb), so there is every likelihood that the government will likely meet its estimated revenue for oil,” said Dolapo Oni, Head of Energy research, Ecobank.
According to recent data from OPEC, the nation’s oil production as at Q2 2017 stood at 1.59 mbp; this was up by 5.42 per cent compared to the previous quarter at 1.51mbp.
An increase of 175,000 barrel or 10.98 per cent was recorded in Q3 2017 as the production level stood at 1.7 mbp compared to the 1.59 mbp recorded in Q2 of same year.
Events such as insurgent activities in the Niger Delta, theft, and the unpredictability of strike actions of oil workers are risks to future production forecasts.
On the impact of increase in international oil price on Nigeria, Agboola of Sofidam Capital said “there are two side to the issue, Nigeria will have more money to fund its budget but Nigerians should also be ready to pay more for oil 2018 because there is no budget allocation for subsidy in the 2018 budget, so unless the government decides to either do crude regulation or perform some level of price modulation that will put subsidy payment to specific amount there is every like hood we see an increase in fuel prices in 2018.”
Speaking to BusinessDay on the investment opportunities in the Oil sector, Luqman Agboola added “If we are looking at equity the downstream is most attractive for investment, but upstream has a lot of idle aspect for investors to cash in on, apart from Seplat all the other companies in the sector are facing challenges or owing banks so they will have to clean all their books before they can even pay dividend.”
The passage of the Petroleum Industry Governance Bill (PIGB) by the Senate has also rekindled hopes in the sector. The bill, which suffered delays in the National Assembly for almost 17 years, due to bureaucratic bottlenecks, is expected to transform the industry in future.
Through the PIGB, a new agency, known as the Nigeria Petroleum Regulatory Commission (NPRC) was established with a view to take over the functions of the Petroleum Inspectorate (PI), the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA). The Commission will also administer and enforce policies, laws and regulations relating to all aspects of petroleum operations as spelt out in the provisions of the Act.