Afren Oil’s Q3 profit up by 30% buoyed by tax credit

Afren Oil plc, a company operating in Nigeria’s upstream oil and gas sector, has seen higher profits in the third quarter (Q3) 2014, which was buoyed by lower tax liability.

For the nine months through September 2014, the company’s net income rose by 30 percent to $167.1 million from $128.6 million in the same period of the corresponding year (Q3) 2013.

Net profit margin, a measure of profitability and efficiency, increased to 20.92 percent compared with 13.81 percent in the preceding year.

The increase on the comparative period arises principally from an income tax credit to the income statement of $1.3 million (Q3 2013: $298.4m charge), according to Toby Hayward, interim CEO of Afren plc, while commenting on the company’s financial results.

“This is as a result of a five-year tax exemption period in the Ebok field and a smaller loss on the derivative financial instruments of $0.6 million (Q3 2013: $38.7m),” said Hayward

However, the company’s revenue fell by 34 percent to $798.5 million in Q3 2014, from $1.20 billion in the same period of the corresponding year (Q3) 2013.

“The 34 percent decrease in revenue is principally attributable to reduced share of production and lifting from the Ebok field following cost recovery,” according to the company’s statement.

Based on BusinessDay analysis, Afren’s cost of sales reduced by 17.40 percent to $521 million in 2014, as against $630.7 million the preceding year.

However, higher cost margins were recorded as cost-of-sales margin moved to 65 percent from 52.3 percent in 2014.

The slow growth at the top-line level and the spiralling cost margins hindered the company from managing direct costs attributable to projects as gross profit dipped by 52 percent to $277.5 million in the review period.

Afren’s total assets were up by 3.35 percent to $4.27 billion in Q3 2014, from $4.13 billion, while total equity increased by 9.31 percent to $1.98 billion.

The company has projects in the pipeline that will place it on a growth trajectory and also expand its share of the market.

“With new incremental production wells now on-stream and close to completion across all of our existing producing assets in Nigeria, the company remains on-track to achieve full-year net production at the lower end of guidance of between 32,000 to 36,000 bopd,” said Hayward.

Furthermore, company has also incurred debt due to its aggressive expansion drive across a wide spectrum.

Total borrowing in the balance sheet moved slightly by 2.23 percent to $1.15 billion, from $1.13 billion, while its debt to equity ratio reduced to 58.0 percent from 62 percent last year.

“On September 30, 2014, Afren signed a new $100 million loan facility for Okwok. The facility has a one-year term and bears an interest rate of Libor plus 7.5 percent. The new facility will be used to fund ongoing capital and operating expenditure for the development plans and work programmes of Okwok and OML113,” according to the company’s statement.

BALA AUGIE