Oil & Gas firms’ abysmal share performance reminds Nigeria of pending reforms

…as sector is worst performer on NSE

Oil is liquid gold, but not for investors on the Nigerian Stock Exchange who have dumped shares of listed oil companies the most amid a rout in the market in dire need of reforms.

Confronted with myriads of challenges ranging from weak corporate governance to government over-regulation, the sector has seen investor appetite weakened; Oil and Gas firms have returned 34 percent loss to shareholders since January, the worst among five sectors tracked by BusinessDay.

To put in context, on the average, a million naira invested in Oil and Gas stocks in January would have resulted in a capital loss eroding initial investment to about N747, 000 as on Monday.

The equity market year-long has returned 12.42 percent losses to investors, making it one of the worst performers globally. Industrial goods sector is the lone sector that outperformed the market albeit with a 9.84 percent loss.

Not until the fiscal authorities come up with market-driven reforms such as the implementation of Petroleum Industry Governance Bill (PIGB), removal of subsidies on petroleum resources, revamp of local refineries and adoption of flexible exchange rate system, the equity market might not see any significant upside in medium to long-term, experts say.

The industry continues to suffer over the non-implementation of PIGB which is meant to establish a framework for the creation of commercially-oriented and profit-driven entities, to ensure value addition and internalization of petroleum industry through the creation of effective and efficient governing institutions with clear and separate roles for the industry.

Industry stakeholders have raised eyebrows over government’s huge spending to subsidize premium motor spirit (PMS) otherwise known as petrol, which is gulping billions of naira and also squeezing the fiscal position of Africa’s top crude producer.

Nigeria’s petrol at N145 regulated price is the cheapest in the West African region, making it unprofitable for marketers to import the commodity as the real market price is way above the official price.

Figures from the Nigerian National Petroleum Corporation (NNPC) revealed that the Federal Government spent N650.2 billion to subsidize petrol between April 2018 and February 2019. But the sum would have benefited the economy more if channeled towards developing key infrastructures to stimulate growth.

Players in the industry experienced an awful mid-year period as profitability weakened in the six months through June 2019. Total Nigeria, the country’s fourth-largest oil firm on the exchange, saw profit plunged 98 percent to N130 million, following N5.67 billion recorded half-year 2018.

Oando’s half-year 2019 net income pared 8.5 percent to 7.2 billion from N8.5 billion last year. Mobil saw profit plunged 23 percent to N4.2 billion in the review period, from N5.4 billion a year earlier.

On the flip-side, Forte oil recorded a surge in net income to N5.5 billion mid-year 2019, from N367 million, thanks to a huge increase in its finance income. Also, Seplat, an upstream player, saw profit ballooned to N37.5 billion in the review period, from N14.8 billion last year, due to a significant cut in finance cost.

Compounding woes, the inability of Nigeria to refine adequate petroleum products locally to meet domestic demand continues to expose downstream players to foreign exchange shocks, especially for petroleum independent marketers.

Given the country’s lack of capacity to refine its crude and pending the completion of Dangote Refinery, Nigeria would continue to rely on crude for oil swap deal at least in the next three years.

Mele Kyari, managing director of state-owned NNPC, said Nigeria would make efforts to revamp its dysfunctional refineries and support others to boost the country’s domestic refining capacity.

 “Ultimately, by 2023 we should be a net exporter of petroleum products, assuming we’re able to get Dangote refinery at full capacity and we’re able to fix our refineries,” Kyari said recently.

Total traded flat at N100/share Monday, bringing its year-loss to some 51 percent, while Seplat remained flat at N397.7/share, about N38 percent less than it opened for the year. Mobil and Oando have seen share price erode by some 15 percent and 21 percent respectively since January.