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Local companies see better cash flow as oil rallies towards $90 a barrel

As global oil prices continue to soar closer to $90, Nigerian energy companies are recording improved free cash flow and taking advantage of stronger energy prices to attract new investors for better production performance, after a pandemic-induced downturn that hitherto muted their earnings.

From upstream to downstream, the financial and operational performance of domestic companies shows some of the biggest energy companies are recording improved performance to play a more influential role in Nigeria’s energy sector.

For instance, Seplat Energy boosted its profit from cash generated operations to $62 million as at June 2021, according to a statement by the company. But it recorded a negative figure of $125.97 million in the corresponding period last year when COVID-19 eroded oil prices.

The largest upstream oil and gas firms posted revenue of $308.77 million in June 2021, while earnings before interest taxation and amortization (EBITDA) rose by 55.56 percent to $178.90 million in the period under review.

Seplat energy’s gross profit surged by 136.10 percent to $88.90 million in June 2021 from $37.65 million the previous year as oil production output increased at Oil Mining License (OMLs) 4,38, 41, OML 53 and OPL 283. The firm produced an average of 30,028 bpd on a working-interest basis in H1 2021.

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Another indigenous oil firm taking advantage of higher oil prices is Heirs Oil & Gas Limited, an affiliate of Transcorp. Earlier this year, it acquired 45percent participating interest in OML 17 from the Shell Petroleum Development Co. (SPDC) joint-venture. The transaction remains one of the largest oil & gas financings in Africa with a financing component of $1.1bn.

Seven months later, new operator Heirs Oil & Gas (HHOG) has already increased production by 40percent and reached a production of 40,000 boepd, according to a statement from the company’s chairman Tony Elumelu.
In the downstream sector, Conoil Plc grew its highest return in eight years in the first half of 2021 as profit grew by 213.7 percent to N1.06billion compared to the N338.69 billion reported in the same period last year.

The growth in profit drove the company’s Earning Per Share to N1.53 in H1 2021, about 214 per cent increase over N0.49 reported in H1 2020.
Total Nigeria Plc, a multinational petroleum marketing company reported N8.07billion profit in H1 2021 from N537.2million loss reported in H1 2020.

Analysis of the results released by Eterna Plc showed that the company migrated from a loss of N66.58 million in H1 2020 to N310.5million in H1 2020, attributable to 33 per cent increase in revenue to N37.99billion in H1 2021 from N28.52billion reported in H1 2020.

“With oil prices heading to $90 or even $100, Nigerian banks will find the oil and gas business too attractive to resist. These will cause more oil companies to pump more resources into idle assets,” Kelvin Atafiri who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, said.

Last month, analysts at Bank of America Global Research said that the bank could bring forward its $100 per barrel oil price target if temperatures are colder than expected during the winter, according to Reuters. This prospect, the analysts reportedly said, could drive a surge in demand and widen a supply deficit.

Separately, analysts at Goldman Sachs recently upgraded their year-end Brent price forecast to $90 a barrel, up from $80, citing a faster than anticipated recovery in global demand.

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