Eterna Oil Nigeria Plc rising production costs has dampened profit as the downstream oil and gas industry margins continue to wane on delayed subsidy payments and currency risk.
For the first three months through March 2015, Eterna Oil’s net income fell by 49 percent to N183.68 million from N357.08 million the same period of the corresponding year (Q1) 2013.
Sales surged by 325 percent to N39.73 billion though it got wiped out by spiraling costs.
The company was unable to transform top line growth into bottom line growth as high input costs overwhelm revenue leaving the oil marker with a low profit margin of 0.46 percent.
Eterna’s low margins leaves makes it susceptible to currency devaluation.
Margins of downstream oil and gas firms are stuck like a deer overwhelmed by the headlamp as the cumulative margins of Mobil Nigeria Plc, Total Nigeria Plc, Conoil Nigeria Plc Forte Oil Nigeria and MRS Nigeria Plc was 2.60 percent, the lowest among four sectors tracked by BusinessDay.
Analysts identified the risk associated with the Eterna oil as the delay in payment of subsidy refunds and stiff competition.
Oil markers in Africa largest economy are in cash crunch as government owns them money for the purported importation of petroleum product.
Immediately after the 2015 elections that saw President Muhammad Buhari of the All Progressive Party (APC) defeat the former president Goodluck Ebele Jonathan of the People’s Democratic Party (PDP), oil markers and government locked horns over a disputed $1 billion unpaid subsidy arrears.
Eterna’s cost of sales increased by 351 percent to N39.22 billion compared with N8.70 billion the previous year. Cost of sales ratio was as high as 98.71 percent, which means the company spent N98 to generate every N1 of sales.
Gross margins were down by 22.70 percent to N510.20 million in 2015 compared with N660.20 million as the company wasn’t effective in managing direct costs attributable to projects. Gross profit margin moved fell to 1.28 percent in 2015 as against 7.05 percent the previous year.
It is expected that the passage of the Petroleum Industry Bill (PIB) will attract foreign direct investment to the country’s oil and gas industry, which analysts say will put a firm like Forte Oil on a growth trajectory.
While Eterna’s future earnings are expected to spike in the medium to long term, stiff completion from big players in the sector especially in the area of retail products also constitutes another challenge for the company.
The company’s share price closed at N2.61 on the floor of the exchange. This compares with N150, N166.50, N40, N155.09, and N50.54 share price of Mobil, Forte, Conoil, Total and MRS respectively.
Eterna recorded an 83.10 percent to N27 billion increases in total assets while market capitalization stood at N3.40 billion.
Earnings per share EPS reduced to 14k in 2015 from 27k the last year.
BALA AUGIE
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