Nigeria’s biggest oil and gas firms see profit dip 185% in H1 2020

Nigeria’s biggest oil and gas firms by market value recorded a combined loss of N35.8bn in H1 2020 down from a profit of N41.8bn in June 2019.

The three oil and gas companies listed on the Nigerian Stock Exchange (NSE) are Seplat, Mobil Oil and Total Nigeria Plc.

This profit decline was driven by a 24.18 percent dip in their revenue earnings to N267.35bn in H1 2020 from N352.61bn in H1 2019.

Lower revenues by the oil & gas companies combined was accompanied by a 10.5 percent reduction in cost of sales.

This indicates that despite trying to reduce cost, their total revenues depleted greatly by N27.6bn, thereby being insufficient to cover cost.

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The Covid-induced lockdown led to a crash in oil price as a result of lower oil demand.

“The lower oil production and supply consequently resulted in muted export proceedings, which was made worse by falling oil prices triggered by the pandemic”, said Gbolahun Ologunro, a research analyst at CSL Stockbrokers. Oil price averaged 38 percent in the first half of 2020 down from the average of 66.7 percent in June 2019.

In like manner, the overall average share price for oil and gas companies plunged by 25 percent to N227.9 from N305 YTD.

Downstream Players: Mobil Oil and Total Nigeria Plc

Mobil (11 plc) is the only oil and gas company among the NSE 30 that made a profit during the period. However, 11 plc saw its profit dip by 39.6 percent to N2.5bn in H1 2020, from N4.17bn as at June 2019.

Mobil saw a 13.2 percent drop in revenue to N80.5bn from N92.8bn within the period under review.

Also, cost of sales dipped by 11.3 percent to N75.6bn in H1 2020 from N85.27bn in June 2019.

Meanwhile, Total Nigeria recorded a loss of N537 million in June 2020, a 513 percent crash from the N129.9million recorded in the same period last year.

Similarly, Total saw revenue drop by 29 percent to N106.7bn in 2020 from N150.8bn on half-year basis.

Cost of sales also plunged by 29.7 percent to N94.3bn in H1 2020 from N134.1bn in June 2019.

“For the downstream players, reduced vehicular movement, especially for interstate movement as imposed by the implementation of lockdown measures, negatively affected domestic production, distribution consumption of PMS across retail outlets by huge volume nationwide”, said Ologunro.

“In addition, the pre-existing regulation by the government as against market forces on PMS prices has continued affecting profitability of downstream players. So, pricing is still largely regulated which limits players ability to increase margin given the higher cost measures”.

Upstream Players

Seplat also played a major role in the poor performance of this sector with a N37.8bn loss in H1 2020, a 201 percent decline from the profit of N37bn recorded in H1 2019.

The biggest oil player also had a 26.5 percent dip to N80.1bn from N109.97bn in the period being observed.

To make matters worse, cost of sales rose by 47.9 percent to N67.19bn in H1 2020 down from N45.4bn in H1 2019.

“For the upstream players, Seplat, which is the major oil player, saw a steep downturn in oil prices particularly in Q2 2020 with a 30 percent drop compared to Q2 2019”, said Ologunro.

In considering the way forward, Ologunro proposes a complete deregulation of the downstream sector to adjust prices for flexible import and sales at market-based prices for significant recovery of earnings given the poor performance of these oil firms for the past three years.