Some days back, the Presidency announced the resumption of crude exports from the 250-300kbpd Trans-Forcados Pipeline (TFP) terminal in the Niger Delta region following completion of repairs after a militant attack in February. As reported by Reuters, after the meeting between the Presidency and a director in SPDC, Mr. Andrew Brown, SPDC informed the President of the resumption of oil exploration through the Forcados terminal following its restoration. To add, information which filtered into the market suggest Royal Dutch Shell in partnership with other two companies (Axion Energy Argentina SA and Pampa Energia SA) have purchased circa 1 million/bbl. of Forcados crude grade set for delivery in November.
Bit of cheer for oil revenues: The removal of the Forcados force majeure should boost oil production from multi-year trough of 1.6mbpd in H1 16 to circa 1.9mbpd. In the event that current security arrangements hold firm, the development allows Nigeria to benefit from the recent recovery in Brent crude which should boost fiscal coffers by 18% by our estimates. In H1 16, lower oil production and prices drove oil revenues lower by 41% YoY to N1.2 trillion, leading to a 30% YoY decline in Gross fiscal receipts to N2.4 trillion—, 48% lower than budget estimates by. Assisted by higher conversion of export petro-dollars, following the over 50% NGN depreciation, we see a rebound in fiscal receipts over Q4 16.
However, the timing of the recovery and the high base in Q4 15 (2.2mbpd) constrains scope for a return to positive growth in oil GDP in Q4 16. That said, the tamer contraction in oil GDP should drive mild pull-back in the overall growth from the 2.2% GDP contraction. We estimate that beyond the near term, the resumption along Forcados raises prospects for lifting of similar force majeures along other oil production platforms, in particular Qua Iboe (300kbpd).
Any recovery in Seplat’s Production? For coverage companies, the development is a positive for Seplat (SELL: N235.4) which owns 45% of three OMLs (OMLs 4, 38 and 41) that operate along the TFP. That said, the timing of this news is unlikely to be of immediate benefit and we do not expect any significant recovery in production over Q4 16. Currently, we assume working interest production of around 29,490boepd (-32% YoY) in 2016E. We estimate that production from OMLs, 4, 38 & 41 would be around 25,668boepd.
Overall, the imminent restart of the TFP should support the company’s interim solution for crude evacuation. The earlier mentioned combined with further plans by Seplat to consolidate on its alternative evacuation route are net positive to us. Seplat is expected to release its 9M 16 results today (Sept 27), Our model and ratings will be updated afterwards
