The Market Today - 14 March 2019

Buhari orders NNPC to take over operations of OML 11                                       

President Muhammadu Buhari has ordered the Nigerian National Petroleum Corporation (NNPC) to take over the operation of the entire Oil Mining Lease 11 (OML 11) from Shell Petroleum Development Company. In a letter addressed to the NNPC, the President directed the Nigeria Petroleum Development company (NPDC), the exploration subsidiary of the NNPC, to take over the operation by 30 April 2019. OML 11 lies in the southeastern Niger Delta and contains 33 oil and gas fields, eight of which were last operational in 2017. The oilfields in OML 11 have an aggregate capacity of about 100,000 barrels of crude a day. There are four partners in the joint venture, NNPC, Shell, Total and Agip, with the NNPC owning 55% share. However, the asset had been under the operatorship of Shell, who has not produced crude oil from Ogoniland for five years. The transference of operation could see the field resume production in the near future, adding to Nigeria’s output capacity and boosting oil production; however, Nigeria’s output would still remain limited in the short to medium term due to OPEC cuts.                        

Market posts mild recovery, inches up 15bps                                            

The NSE ASI inched 15bps up yesterday, particularly buoyed by the Consumer Goods sector. Market breadth remained negative with 12 advances to 18 declines. Despite a positive close yesterday, we do not foresee a large improvement in market sentiment and expect another negative close tomorrow, with bargain hunting expected to drive a mixed session.                                            

Stock Watch: UACN lost 2.50% yesterday to settle at ₦7.80, its lowest price since December 2003. The stock has posted a year-to-date loss of 20.00%, severely underperforming the Consumer Goods sector (-3%).                                                  

CBN crashes rates, PMA closes at a record low                                          

The CBN conducted a Primary Market Auction yesterday, selling its full offer of ₦89.5 billion across the 91DTM, 182DTM and 364DTM at stop rate of 10.7500%, 12.5000%, 12.8450% (Effective rates: 12.26%, 13.33%, 14.73%). Notably, the stop rate on the 1-year bill sold at its lowest rate since August 2018. Meanwhile, the Interbank Call rate declined 25bps to 9.42%. As a result of this, yields declined in the T-bills secondary market, with buy-side activity concentrated on mid-to-long dated bills. Consequently, average yields declined 13bps on average. Meanwhile, the bond market traded positive with demand noted across the space and average yields on benchmark bonds declining 5bps. Following the vast oversubscription at yesterday’s PMA (₦600.5 billion on an ₦89.5 billion offered), we expect to see strong demand in the treasury bills market today as investors take up the attractively priced bills available. Also, we foresee some of this demand trickling into the bonds space, sustaining yesterday’s buy interest.