Significant decline in share price of oil majors dampens NESF profit

The significant drop in the share price of oil majors in Africa’s largest economy, stoked by a sharp fall in crude oil prices, has dampened the profit of Nigeria Energy Sector Fund (NESF) in the period under review.

For the year ended March 2015, NESF’s net income fell by 57.12 percent to N35.37 million from N91.98 million the previous year. Total revenues were up by 16.47 percent to N100.71 million thanks to a 16.47 percent increase interest come and 8.31 percent rise in fixed interest income.

The decline in the Fund’s bottom line performance was impacted by a severe diminution of N77.455million incurred on investments in Seplat Petroleum Development Plc and Oando Plc stocks respectively, according to the company’s March 2015 audited financial statement posted on the website of the Nigeria Stock Exchange (NSE).

“This stems from the abysmal performance of the Nigerian Stock Exchange (NSE) in the year 2014. It was adjudged as one of the worst performing exchanges during the period as the market capitalization of the listed equities fell by N1.749   trillion from N13.220trillion at the start of the year to N11.477trillion,” said the company.

Upstream oil and gas companies in Africa’s have recorded significant drop in revenue as a result of more than 70 percent drop in the price of oil to $29 and the devaluation of the currency in 2014.

Analysts say the macroeconomic headwinds have forced upstream players to record significant reductions in the fair value of their oil asset portfolios.

The volatility and uncertainties forced Oando to recognise N76.9 billion impairment charges in its exploration and production business.

NESF said that the delay in passage of the Petroleum Industry Bill remained one of the greatest impediments for the industry.

It added that   it is difficult to say when the bill will be passed, particularly as the new administration takes over power.

“The industry witnessed series of divestments from onshore assets by IOC’s which culminated to the movement to deeper offshore assets due to uncertainties surrounding the Bill passage,” NESF said.

NESF’s operating expenses were up by 358.06 percent to N96.33 million in 2015 as against N21.03 million in 2014. Total assets increased by 0.961 percent to N1.01 billion in the period under review from N1.05 billion in 2014.

The funds return on equity (ROE) fell to 3.67 percent in 2015 compared with 9.64 percent in 2013.

There are positive prognoses for players in the upstream oil and gas industry, as a possible rise in oil price, the speedy implementation of the PIB, cost cuts by firms and the ability of government to curb insecurity could see the industry rebound to growth.

“Despite the current challenges and decline in oil prices, operators, positive about revenue growth of the industry over the next couple of years. In addition, operators are implementing cost reduction strategies and focusing on operational efficiency as a way of increasing profitability despite declining revenue,” said NESF.

BALA AUGIE