Nigeria’s crude oil production capacity dropped from 1.329 million barrels per day in November 2020 to about 1.174 million barrels per day in December 2020, output data based on direct communication information published in the January 2021 edition of Organization of Petroleum Exporting Countries (OPEC) monthly oil monitoring report (MOMR) have shown.
Similar data from secondary sources also published in the report showed the output dropped from 1.448 million barrels per day in November to 1.420 million barrels per day as at December 2020.
Direct communication information are obtained directly from the affected countries, while data from secondary sources consist of those sourced by specialized organizations and agencies, like Energy Information Agency (EIA) dealing with energy industry related information.
The output figure is significantly below the approved benchmark production figure of 1.80 million barrels of crude oil captured in the 2020 Appropriation Act.
Declining oil rig counts
Also, the OPEC report also showed that Nigeria’s rig count, which reflects the number of times the rigs were deployed in oil drilling operations by the various oil companies operating in the country’s oil and gas industry, has consistently declined since 2018.
A review of the data revealed that although there was a marginal increase in rig counts from 13 in 2018 to 16 in 2019, the figure dropped again to an average of 11 rig counts in 2020.
Details showed that at the peak of the first wave of the coronavirus outbreak, which resulted in the lockdown of the global economy in the first quarter of 2020, Nigeria’s oil production capacity, plus condensates, reached the highest level in at least the last 10 years, with an average of 2.49 million barrels per day.
During the period, the OPEC monthly monitoring report showed that the highest oil rig count of 19 was achieved in the first quarter, before declining sharply to 11 in the second quarter; eight in the third, and only seven in the last quarter of the year.
Nigeria, along with other OPEC members and their allies in the non-OPEC (OPEC+), early this month agreed to voluntarily effect various cuts in their daily oil output aimed at realizing a total 7.2 million barrels’ target in January, 2021.
The output cut decision is expected to last between January 2020 and April 2022. It is in line with the group’s resolve to hold almost 32 million barrels from members’ total oil production capacity.
Impact on Nigeria’s output
Consequently, the impact of the OPEC decision is that Nigeria’s daily oil production will remain flat throughout the period, with a corresponding impact on the country’s revenue earnings.
The total production volume is shared between the joint venture partners operating in the country in line with their respective joint operating agreements which vary between 55:45 per cent for Shell Petroleum Development Company (SPDC) and 60:40 percent for other operators (ExxonMobil, Chevron, Total, Agip, Pan Ocean Oil).
With OPEC basket of crudes prices annual average for 2020 at $41.47, Nigeria may be having a marginal respite in oil revenue earnings in 2021, with benchmark oil price pegged at $40 in the 2021 Appropriation Act signed by President Muhammadu Buhari on December 31, 2020.
In compliance with the agreement, Nigeria, which has been producing 1.829million barrels per day prior to the coming of the COVID-19 pandemic, would again cut about 313,000 barrels, to bring its daily output figure further down to 1.516million barrels per day till March 2021.
The figure is significantly below the approved output benchmark volume of 1.86 million barrels per day in the 2021 Budget.
With Nigeria’s current output level, the Group Managing Director of the NNPC, Mele Kyari told a virtual meeting of the Gulf Intelligence Global UAE Energy Forum 2021 on Wednesday that the country was already at a level of “a very convenient balance.”
“We (Nigeria) are actually already at an over-compliance level with the OPEC output cut agreement since November 2020,” he said.
Impact on oil revenue
But, the Minister of Finance, Budget and National Planning, Zainab Ahmed, said during her presentation of the details of the approved provisions in the 2021 Appropriation Act that with the country’s oil production level expected to be moderated by OPEC+ quota deal, oil aggregate value is projected to grow by 16.23 percent during the year.
Out of a total N7.99 trillion aggregate revenue projected to be available to finance the 2021 budget, the Minister said only 30 percent, or N142.69 billion, is expected to come from oil related sources.
Economic analysts have already said Nigeria’s economy, which entered its second recession in third quarter of 2020, with real GDP contracting by 3.6 per cent after a sharp 6.1 percent contraction year-on-year in the previous quarter, would continue to experience tough times.
With inflationary pressures mounting on the economy, as the consumer price indices climbed to 14.9 per cent year-on-year last November from 14.2 percent in October, indications are that Nigerians are in for a tough year ahead.