The continued attacks on pipe line facilities by militants in the Niger Delta region and exchange rate controls that made it difficult to convert Naira revenue to US dollars have deal a blow on Seven Energy Finance Limited’s bottom lines.
For the first six months through June 2016, Seven Energy posted a loss after tax of N1.40 billion ($4.51 million), from a loss after tax of N16.40 billion ($52.91 million) the previous year. Sales took a beating as it dropped by 54.85 percent to N20.62 billion ($66.35 million), caused by a 93.13 percent dip in oil sales to N2.24 billion in the period under review.
The leading integrated gas company in south east Nigeria, with upstream oil and gas interests in the region, attributes the slow growth at the top lines to the shut-down of the Trans Forcados pipeline preventing lifting under the SAA.
The macro-environment in Nigeria and the ongoing issues within our industry present our company with an extremely challenging environment. So far during 2016 we have received no revenue from our interests in OML 4, 38 and 41 as a result of the shutdown of the Forcados terminal, according to Phillip Ihenacho, Chief Executive Officer, Seven Energy.
“Whilst our flagship gas business, located in the south east Niger delta, continues………. Additionally, whilst our gas sales are priced in US dollars we receive payment in Naira due to foreign currency exchange controls, which is difficult to convert to service our US dollar loans,” said Ihenacho.
The central bank of Africa’s most populous nation pegged the naira at N197-N199/$ for 15 months in order to protect depleted external reserves and stabilize the economy. This led to scarcity of dollars and companies were unable to import raw materials and repatriate money made. Also, the policy led to capital flight because investors lost appetite for the country’s naira assets.
Seven Energy benefitted from the adoption a flexible exchange rate that saw the naira lose one third of its value to the dollar as the company recorded N12.40 billion ($40 million) in foreign exchange gains.
If not for huge deduction of N16.05 billion ($51.78 million) interest payment from Earnings before interest and tax (EBIT), the oil and gas giant would have recorded a profit.
The company is highly geared and exposed to financial risk given that debt to equity ratio (D/E) stood at 107.10 percent while total debt in the balance sheet was ($822.56 million) N255 billion as at June 2016.
Analysts say relative calm in the Niger Delta region will help major oil and gas firms resume production in some of their abandoned rigs or wells.
Nigeria has lost N1.1 trillion in revenue to Militant attack on pipe line facilities while a total of 700000 barrels has so far been lost to such hit.
Seven Energy has N13.02 billion ($42 million) in oil output to the militant attack on operations.
“These factors are putting intense pressure on the Group’s liquidity. Despite this, Seven Energy continues to operate its gas business to the highest international standards, and remains totally committed to delivering gas for domestic electricity generation and industrial use, a key growth area in Nigeria’s developing economy with its rapidly urbanising population.” said Ihenacho.
BALA AUGIE
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
