Thursday, 26 March 2015

Nigerian elections 28th March

by Will Forbes

Nigeria turns out to vote in the 2015 Presidential election on Saturday 28 March. Incumbent President Goodluck Jonathan is campaigning against Muhammadu Buhari, a former Major General who ruled Nigeria from December 1983 to August 1985. It is a repeat of the 2011 election, in which Goodluck Jonathan won 59% of the vote. Current polling is difficult to come by, but media reports suggest a close race.

The choice left to Nigerians was characterised by the economist as between President Jonathan,  "who has proved an utter failure, and the opposition leader, Muhammadu Buhari, a former military dictator with blood on his hands". The title of its article is perhaps telling...  "The least awful".

The election day had been delayed (from February) due to security concerns, and the government has banned vehicle use on polling day to ensure security. Many fear that violence could follow as it did in 2011, especially as Mr Buhari has refused to condemn any violence - something the New York Times highlights as could be seen as an invitation to cause unrest.

Historically, the 2011 election had little impact on production, and there are few indications so far that any major disruptions are evident  in this cycle so far.
Source: OPEC. Note march 2011 dip mainly due to maintenance at the Bonga deepwater field

Major challenges await the winner

The Nairu has collapsed along with the oil price and has sent the economy into difficulties. Around 70% of GDP was related to oil in 2014 and without a clear path to stronger oil prices, Africa's largest economy will have to re-adjust to a new normal. Large swathes of the population live in poverty and the government will have to address this, as well as the ongoing Boko Haram violence and corruption.
Source: Bloomberg

The winner should seek to pass the PIB (Petroleum Industry Bill) which has been long delayed and has contributed to reticent inward investment. Nigeria is well known as an oil-rich province and clearer, fairer regulations should encourage exploration and development. 
This will, almost by necessity, require investment in underlying infrastructure that should benefit communities more widely. A fairer distribution of the proceeds of oil production is also necessary if the country is to reduce the extensive oil theft that is leaving the country billions of dollars worse off.

Nigerian-focused companies

Unsurprisingly, Nigerian E&Ps have had a difficult time as the oil price has collapsed. Afren's difficulties may have contributed to investor skepticism about Nigeria's corruption issues making decisions to invest in Nigeria even more difficult. 
Source Bloomberg, Seplat is indexed from IPO date
All of these companies have production but have declined by as much as 55% since the start of January 2014. 

As an indicator of leverage to oil prices in Nigeria, Seplat indicated on its FY2014 results call that the oil price it requires to make returns is $42-49/bbl (this is why it reduced its number of 2015 wells from 23 in previous guidance to 10 in the current environment).

And finally...

Is oil now so cheap that its not worth stealing?
Wall Street Journal (paywall)

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